rose to move, That the draft regulations laid before the House on 15 November be approved. First Report from the Statutory Instruments Committee.
The noble Lord said: My Lords, these regulations will among other things significantly extend the scope of the financial assistance scheme announced in May’s White Paper, Security in Retirement: Towards a New Pensions System. This increases the Government’s commitment to the FAS to £2.3 billion and means that the FAS will now help about 40,000 people who have lost significant amounts of occupational pension.
The regulations extend eligibility for the FAS to members of qualifying pension schemes who were within 15 years of their scheme’s normal retirement age on 14 May 2004. Instead of helping only those who were within three years of normal retirement age, as before, the FAS will now top up to about 80 per cent the pensions of those who were within seven years of normal retirement age on 14 May 2004. Those between seven and 15 years from normal retirement age, who can more reasonably be expected to supplement their retirement income for the rest of their working lives, will be considered for a top-up to about 65 per cent of their expected core pension, and 50 per cent if they are between 12 and 15 years from their normal retirement age.
Much criticism of the FAS has focused on the number of people whom we are currently paying. However, one reason for this is that the FAS payments normally begin at 65, so the vast majority of potentially eligible members have yet to attain this milestone. However, some people can join the FAS before 65, and they are expected to be among the first to benefit from the extended scheme. The terminally ill and survivors of those who would have been eligible under the extended scheme can be paid regardless of their age, and I expect that some widows will become eligible for consideration as soon as these regulations come into force. All being well, I expect we will begin to make payments to widows under these regulations before Christmas.
The amendments we are proposing also bring additional schemes into the FAS. We have been made aware of some pension schemes that are currently excluded from the FAS because their employer has not had a formal UK insolvency event but that are, to all intents and purposes, insolvent. We are determined to ensure that schemes that meet all the rest of the FAS scheme’s qualifying criteria are not excluded on a technicality.
This is why these regulations will allow a scheme to qualify for the FAS where an overseas insolvency event substantially corresponds to one that the FAS already accepts in the UK for the purposes of qualification, or where the employer associated with a scheme has liabilities that exceed its assets and cannot pay its debts as they fall, or have fallen, due. In both cases, the scheme manager will need to be satisfied that the relevant employer is unlikely to continue as a going concern.
These amendments demonstrate our desire to define insolvency as widely as possible in order to bring schemes and their members into the FAS. They do not affect our oft-stated belief that ongoing solvent employers remain responsible for making good their pension promises to members. As already touched on, the regulations also introduce a number amendments linked to the calculation of FAS payments and additional review and appeal rights linked to the determination of terminal illness for FAS purposes. These regulations ensure that the FAS continues to operate effectively and provides assistance to more of those scheme members who face the most significant losses. In my view these regulations are compatible with the European Convention on Human Rights. I beg to move.
Moved, That the draft regulations laid before the House on 15 November be approved. First Report from the Statutory Instruments Committee.—(Lord Hunt of Kings Heath.)
My Lords, I am grateful to the Minister for explaining the regulations, which are beneficial to some—but only some—of the 125,000 people who, through no fault of their own, had no or little defined benefit occupational pension because their employer’s scheme was underfunded when the latter became insolvent or no longer existed over the seven years before the Pension Protection Fund was set up.
Noble Lords will remember that the financial assistance scheme was not originally in the 2004 Pensions Bill. I must confess that neither I nor the Minister led on that legislation although I did play a minor part. The Bill set up the Pension Protection Fund, but, after intense pressure from the Opposition and their own Back-Benchers, the Government gave in and created a very limited scheme which was to cost £400 million over 20 years. The trustees of the schemes were given a very limited time to apply; namely, between 1 September 2005 and 28 February 2006. Beneficiaries were to get financial assistance only if they were within three years of their normal retirement date. We described that as inadequate at the time and it seems that now the Government have finally agreed with us.
To be fair, and I try to be fair on these occasions, the Government said at the time that they would review the scheme after three years. However, the scheme began operations—badly, as I shall explain—only in September last year. My first question is therefore: what brought on the earlier review, resulting in the regulations? Was it the Parliamentary Ombudsman’s report on occupational pensions of March 2006, when she criticised the scheme? If so, the regulations are a very partial response. The Government still refuse to do anything about the real substance of her report, which was on the overzealous encouragement that the Government gave to pension schemes. She determined that it amounted to mis-selling.
In July this year, the scheme faced further criticism for its inadequacy by the PAC, even though a month before, the noble Lord’s colleague, the Minister for Pensions, had commissioned a review of the scheme. Almost at the same time as the PAC’s report, the Minister revealed the findings of his administrative review, which cited a number of problems and recommended that it be governed from within the Pension Service. The Government have always said that it should operate separately from the Pension Protection Fund. So can the Minister say how and by whom it is administered? Or perhaps the question should be, “will be administered”, especially as under the current scenario £7 million has already been wasted in setting it up, £1.25 million of which was on administrative staff. Some, too, has been given to the 550 successful claimants, but how much? The last figure I have obtained, which I find very difficult to believe, is just under £2 million, which seems far too high for so few recipients. Even if that figure is correct, what was the other £3.75 million spent on? Was it on yet another IT failure?
As I said, about 125,000 people have lost some or part of their pension. However, as the Minister has just said, even this newly extended scheme is expected to benefit only 45,000 people, and even for them the prognosis is not good. So far, a mere 550 qualifying members have received any money, although under the current scheme about 7,800 people are or will be eligible to receive payments, as the Minister for Pensions explained in another place only a few months ago. In June, he expected that by now 5,000 people would have at least some money. Have they? I am sure that the Minister will be able to elucidate on that when he winds up.
To sum up, on 22 October, an article in the Sunday Telegraph stated:
“The Financial Assistance Scheme is a shameful example of political spin. It is based on false figures and has offered the tens of thousands of people who have lost their final-salary pensions little more than false promises and false hopes”.
The situation gets worse. In their response to the ombudsman’s report, the Government said of the financial assistance scheme:
“Eligibility has now been extended to people within fifteen years of their scheme pension age”.
At that point, surely it had not. That is what these regulations do. The response continued:
“This involves tapers from 80 per cent of expected”—
I highlight “expected”—
“pension for those within seven years of their pension age, 65 per cent if between seven and eleven years, and fifty per cent for those between twelve and fifteen years”,
as, indeed, the Minister has just told us.
At the same time, the Government appear to have invented a new concept in pensions—that of a “core pension”, referred to in paragraph 7.11 of the Explanatory Notes. What is this? Is it higher or lower than expected pension benefits? To make all this even more complicated, the maximum any recipient can expect is 80 per cent of what they thought they would get—and even that is capped at £12,000. It is so complicated that, at this late hour, I would not be able to take in a verbal explanation. The Minister is probably relieved at my saying that but I would be grateful if he would provide me with a written explanation.
However, as I said, these regulations are beneficial to some of the 125,000 unfortunate people involved in this mess, which has hardly been helped by the Government taking £5 billion a year out of the stock market over the past 10 years. Be that as it may, we welcome several things about these regulations. The first is the fact that an employer’s overseas insolvency event should potentially be a qualifying insolvency. Secondly, we welcome the extension of the survivor’s eligibility rules. It is certainly right that if a person’s dependants were entitled to a pension under his employer’s scheme when he died, that should be allowed under the FAS as well.
I have already mentioned the complications around the extension of liability. Although I agree with the policy, I eagerly await the Minister’s response to my dilemma. Interim pensions, too, must be the correct approach.
Finally, I observed that in introducing these regulations in another place yesterday, the Minister began his remarks by wanting to express “yet again” his sympathy for all those who have lost out on their pensions through no fault of their own. What I have never heard from any Minister anywhere is any hint of apology for their part in the worsening situation of pensions in this country. In 10 years under this Government we have moved from the very top of the international league to the bottom, making defined benefit schemes rarer than hens’ teeth. It is not a record to be proud of.
My Lords, I am grateful to the noble Lord, Lord Skelmersdale. There was in his speech some welcome for the regulations, though one had to work hard to detect it. None the less he did describe them as beneficial and we should all be grateful for that.
I understand the concern that the noble Lord expressed about the progress the FAS has made and the speed at which it is making payments. The noble Lord, Lord Oakeshott, has also made the point to me on a number of occasions. For the record, the FAS made its first payments before Christmas 2005. Since then it has paid out over £2 million to more than 600 individuals. I understand that of those 519 are initial payments. It is also dealing with 900 applications from pension schemes.
I know there has been disappointment at the scale of progress. We are working closely with schemes to obtain the necessary data to enable us to pay affected members as soon as we can. Based on operational data, we think that perhaps 1,900 people have reached age 65 and belong to a scheme where the trustees have applied for payments. Noble Lords will know that we are able to make payments only when trustees have provided acceptable data. That is taking longer than we had hoped. As of today, 637 have already been paid; 56 will be paid as soon as they have confirmed their personal details; and a further 149 have been assessed and will be paid when they reach the age of 65.
Noble Lords will know that we also undertook an administration review, which reported earlier this year. We engaged the services of Mercers Human Resource Consulting, a leading provider of services to the pension industry, to advise on our processes and some of the issues around data that we have encountered during our first year of operation. In answer to the noble Lord, Lord Skelmersdale, at the moment the FAS unit is operated by staff from the DWP. In the long term, we think the operations are best placed in the context of the Pension Service, an executive agency of my department.
My Lords, the noble Lord should not take that to be, or not to be. These matters will undoubtedly have to be decided in due course.
We reckon that for the first three years of the FAS there will be about a £10.5 million start-up and running cost, which it is unfair to compare with the actual amounts to be paid out. It is also worth making the point that this exercise is costly because of the work in relation to the schemes, the information that has to be gained and the databases that have to be set up. Once that has been done, the cost of the FAS should then come down as it should be much more a paying-out operation, which is why it is then more suitable to be transferred into the Pension Service.
The noble Lord made other comments about the scheme. I think he implied, even though there is an extension to 15 years with tapering provisions, that it would not apply to all members affected by the failure of the schemes we are discussing. There is no question but that anyone who is concerned about pensions will feel the deepest sympathy for those affected by the failure of their pension schemes, but he will know—this was behind the original decisions about the FAS, and the basic philosophy remains the same—that there is a difficult balance to be drawn here between concern for the individual scheme members and the issue of how much the taxpayer can reasonably be expected to fund, bearing in mind that many taxpayers will not benefit from pension schemes even as generous as the contributions that the FAS will provide to scheme members.
Of course, my Lords, but that would be the same for anyone receiving occupational pension schemes. Frankly, I do not believe that is a material point.
I come now to the ombudsman’s report, which the noble Lord mentioned. Again, we have debated this on a number of occasions. I do not think it would be fair or appropriate for taxpayers to bear the full cost of implementing the report, which we estimate at about £15 billion in cash terms. It seems to me that both the ombudsman and the Select Committee recognised in the report that it was not the Government who caused the schemes to fail. I remind the noble Lord that, of the leaflets that were part of the issue at the heart of the ombudsman’s decisions, one of them was issued by his own Government in, I believe, 1995.
The noble Lord, Lord Skelmersdale, cannot resist a discussion about advanced corporation tax. Once again he raises the figure of £5 billion. I remind him that the Government do not recognise that figure; I also remind him that the Pensions Policy Institute thought the figure was around £3.5 billion. Equally, one would have to say that, in relation to the impact on pension schemes, there were many other factors as well, including the changes in the actuarial calculations on the years that people live. He will also recall the fall in the stock market during that period that was greater than these figures—even if we accept the £5 billion, which I do not. I also remind the noble Lord that it is this Government who, through the PPF and the FAS, have provided and are providing much greater security for members of pension schemes.
In conclusion, of course I recognise that the extension to the scheme that these regulations bring will be very important to many people. We are very concerned to ensure that the scheme is administered as effectively and efficiently as possible. We depend on the co-operation of trustees. I believe that we are now working effectively together with the trustees but we will continue to say that where information is not being provided, it is very important that trustees and administrators provide it to make the scheme work as effectively and quickly as possible.
My Lords, I apologise to the Minister for missing his speech. I was over the road giving blood; Members of the House might think that that was a better use of my time than being here. I thank the Minister for having correctly anticipated the question on the rate of payment that I would have asked. I should like to put on the record the great concern and anger still felt in the country by people who have been robbed of their pensions.