I beg to move,
That leave be given to bring in a Bill to make provision for the accessing of Pension Protection Fund benefits by people under the age of 50 who are suffering from a terminal illness; and for connected purposes.
For nearly all of us, contributing to a pension will be the most significant financial decision we ever make. Throughout our working life until the day we die, we will either be building or receiving a pension. Contributing to a scheme provides us with security for the future. It enables us to provide essential items such as food, warmth and housing, as well as allowing us fully to participate in society, economically and socially.
It is therefore distressing that, earlier this decade, thousands of people saw their savings vanish after their pension schemes went bust and were unable to meet their commitments. To avoid a repetition of that, the Government in April 2005 established the Pension Protection Fund under the Pensions Act 2004. Funded by an annual levy on defined-benefit and hybrid pension schemes, the PPF provides compensation to those whose pension schemes have become insolvent.
The fund has proved to be an invaluable safety net to thousands of workers who would otherwise have lost substantial pension savings. However, as a compensation scheme, the PPF has its own set of rules, which are set out in part 2 and schedule 7 to the Pensions Act and in the numerous statutory instruments made under it. Legislation specifies the level of compensation to be provided, and that is not necessarily the same as the person would have received had the pension scheme not wound up. In short, the PPF does not mirror the rules of individual pension schemes, and it is for that reason that I am proposing the Bill.
Significantly, the fund contrasts with final salary pension schemes and does not allow early payment of pension savings, for whatever reason, to anyone under the age of 50. For a specific set of people under 50 years of age—those diagnosed with a terminal illness—those rules are simply unreasonable. It is my belief that legislation should be amended so as to lift the current bar on payments to those aged under 50, if they are terminally ill.
As the Incomes Data Services pensions service explains, many pension schemes will allow unreduced early payment of a pension on ill health grounds. It states:
“In a final salary scheme, members who retire early often find that their pension is reduced to take account of the fact that it will be paid for longer. But if early retirement is due to ill health or incapacity an immediate pension is usually payable and this is unlikely to be reduced for early payment.”
A parliamentary written answer confirmed PPF rules regarding ill health pensions. It stated:
“compensation to scheme members who have been awarded an ill health pension is calculated in the same way as compensation to any other scheme member of the same age.
There are no provisions to enable scheme members to claim ill health pensions from the Pension Protection Fund once the PPF has assumed responsibility for a scheme.
However, any scheme member may take early payment of their compensation at a capped level of 90 per cent. from age 50, subject to actuarial reduction.”—[Official Report, 21 November 2005; Vol. 439, c. 1679W.]
As well as provoking inevitable feelings of grief, anger and loss, having a terminal illness can be expensive, often in ways that may not have been expected. That includes the cost of prescriptions, a special diet, child care or travel to hospital. In addition, money may be needed to make adjustments to an individual’s home or to pay for making out or amending a will.
It might easily be the case that people in their 30s and 40s could have made anything between 15 and 30 years of payments into a scheme but do not qualify to receive benefits under the PPF rules, even though their original scheme would have paid out. For anyone aged under 50 and terminally ill, savings taken on by the PPF simply disappear. Only when an individual dies will payment be made to their spouse or civil partner. That situation is set to get worse in the next few years. In a fact sheet on early payment of compensation, the PPF confirms that before April 2010 the earliest age at which payment can be made will rise from 50 to 55, to comply with the Finance Act 2004.
The PPF covers 10 former pension schemes, but many more schemes are undergoing assessment. It is estimated that by the end of 2007-08, the PPF is likely to be responsible for an additional 65 schemes. Some 100,000 employees are members of schemes currently being assessed to see if they qualify to be rescued. Among them are 38,000 former Turner and Newall employees, whose scheme failed after the engineering company went into administration in 2007.
The Turner and Newall case provides a good example of why change to existing legislation is so necessary. That company, once the world’s largest manufacturer of asbestos, ran factories in Rochdale, Washington, Widnes and Trafford Park, where many employees worked with asbestos every day. Working with asbestos can lead to asbestosis, lung cancer or mesothelioma. Employees were never told of the dangers to their health, and hundreds have been badly affected by working with asbestos products. Sadly, it is not difficult to imagine that some might well develop a terminal illness before they reach the age of 50. If that is the case and if the PPF covers Turner and Newall’s pension scheme, terminally ill employees under 50 would not be entitled to a penny of compensation. When Lord Whitty recently raised this issue in the other place—I refer Members to column 121 of the record of the House of Lords debates of 6 June 2007—the Government argued that existing legislation ensures the PPF is uncomplicated and provides greater certainty about both payment levels and the affordability of the fund.
The financial assistance scheme makes payments to individuals diagnosed as terminally ill on provision of evidence that they are unlikely to live longer than six months. The six-months criterion is very harsh and it is extremely difficult for doctors to give any indication of precisely how long a patient might live. That period should therefore be extended to 12 months.
It might be useful to look at the cost incurred by the FAS in paying compensation to terminally ill individuals. When I contacted the FAS recently, I was told that that information was not recorded. Similarly, the Office for National Statistics advised me that pension schemes rarely document payments to terminally ill members, as that occurs so rarely. It is therefore reasonable to conclude that the cost of paying out to terminally ill claimants is somewhat modest, if it is not currently recorded for the FAS. Basic logic supports that assumption when one considers that pensions for the terminally ill are paid for a shorter period due to their reduced life expectancy. The FAS might also provide a useful model with regard to administration and process.
In respect of eligibility, a definition of terminal illness could be based on that used by other appropriate organisations. The Association of British Insurers uses the following definition in their best practice guide to critical illness:
“Advanced or rapidly progressing incurable illness where, in the opinion of an attending Consultant and our Chief Medical Officer, the life expectancy is no greater than 12 months.”
Appeals against decisions could be referred to the PPF ombudsman, as is currently the practice for eligibility appeals. Of course, the precise definition of eligibility can be discussed and drawn up with the PPF board. The important point is that ill health benefits are allowed to be paid, which can only be enabled once existing legislation is amended.
The experience of the FAS and the lack of data held regarding terminal illness and pension schemes suggest that the PPF will not be inundated with requests for early payment based on ill health. That, together with the relative ease of determining an individual’s state of health via medical certification, suggests that the task of assessing and processing the extra applications would not be excessively burdensome.
The proposed change is relatively modest. The Pensions Act 2004 should be amended, and individuals who are certified as terminally ill and aged under 50 should be allowed to access their savings as they would have done had their scheme not gone bust. In order not to provide too broad a provision, it could be restricted by reference to the discretion of the PPF board. This modest amendment would be of enormous significance to individuals in their last precious days. I ask the Government to consider extending the safety net to those who would draw immense comfort from it.
I commend the Bill to the House.
Question put and agreed to.
Bill ordered to be brought in by Mr. Mark Hendrick, Mrs. Janet Dean, Barbara Keeley, Mr. Doug Henderson, Mr. Elliot Morley, Jim Dowd, Lynda Waltho, Mr. John Heppell, Tom Levitt, Mr. Ian Cawsey, Mr. Neil Gerrard and John Mann.
Access to Pension Protection Fund Benefits
Mr. Mark Hendrick accordingly presented a Bill to make provision for the accessing of Pension Protection Fund benefits by people under the age of 50 who are suffering from a terminal illness; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 19 October, and to be printed [Bill 162].
On a point of order, Madam Deputy Speaker. This morning I secured a debate in Westminster Hall on defence exports, and many of my hon. Friends joined me in attending it in order to try to hold the Government to account on an important decision that has been taken and which concerns the Ministry of Defence. The Government sent along, however, a Minister from the Department for Business, Enterprise and Regulatory Reform, who did not appear to know anything about the subject. Can you advise me, Madam Deputy Speaker, how Members are to hold this Government to account on such an important issue when they send along a Minister from a different Department?