That the Grand Committee do report to the House that it has considered the Financial Assistance Scheme and Incapacity Benefit (Miscellaneous Amendments) Regulations 2009.

Relevant Document: 7th Report from the Joint Committee on Statutory Instruments

The draft regulations were laid on 11 February. The Financial Assistance Scheme—or the FAS, as I shall refer to it hereafter— offers help to certain people whose defined benefit occupational pension schemes have not provided them with the pension that they were expecting.

In December 2007, we announced a significant extension to the scheme, and noble Lords will recall considering two sets of regulations last year that implemented key elements of those changes. They will also recall that we decided to implement the December 2007 announcement in stages to give priority to the elements that offered the most help to FAS members. I am sure noble Lords will be pleased to know that, as a result of those changes, the FAS now makes payment at 90 per cent of a qualifying member’s expected pension, subject to a cap, from the normal retirement age, subject to a lower age limit of 60.

The FAS also allows early reduced payments on grounds of ill-health and includes certain schemes where the employer is still trading and solvent. As a result, a total of more than £50 million has been paid to 10,556 people so far. It is estimated that around 140,000 people will receive assistance from the FAS in the long term. However, we recognise the difficulties experienced by those who lost their pensions through no fault of their own, and the particular difficulties of pensioners who are unable work due to their ill-health.

The FAS currently allows early access to actuarially reduced payments for members who are unable work and will continue to remain unable to work until their normal retirement age. The FAS also provides early unreduced access for members who are terminally ill and likely to die within six months. It should be noted that although the rules of many occupational pension schemes allow members to take their benefits before the normal retirement age where they are in ill-health, this facility is generally not available when a scheme has started to be wound up.

The draft regulations include some significant measures in response to representations that we received when we introduced the existing ill-health provisions that a small number of people with ill health leading to significantly reduced life expectancy could be excluded from early access to the FAS under the current provisions because they are more than five years away from their normal retirement age.

We have also responded to concerns raised by campaigners that the actuarial reduction in payments under the current ill health provisions are inappropriate where a person is likely to have a significantly shorter life expectancy due to their severe ill health. I am therefore pleased to present these draft regulations, which will provide for early unreduced access to FAS payments where a person is aged 55 or over and has a progressive disease from which death might reasonably be expected in five years. These payments will be known as severe ill health payments.

In developing a test to identify the people with severe ill health resulting in reduced life expectancy, we considered how best to focus on the people most in need of early payments of assistance. We concluded that the best way to achieve this is via a test in the form that,

“the member can reasonably be expected to die within five years”.

This is a novel test that is without precedent in legislation, and we needed to check that it would be fair and operable.

During the development of the test, departmental medical advisers advised that it would be impractical to try and apply a test looking more than five years ahead, due to the lack of reliable survivability data and the need to take into account a large range of factors, such as lifestyle, which could influence a person’s longevity. A range of views were expressed in consultation responses. A number of responses urged the Government to set a test looking 10 years ahead, but they did not provide evidence that this test would be operable or fair. Other responses supported the Government’s approach. I thank all the respondents to the consultation, including private individuals, trade union representatives and members of the Pensions Action Group for their input.

I reassure noble Lords that we do not expect the life expectancy condition to set a cut and dried test. This is not a test of whether someone will die in five years, but one of whether their death within that time is a reasonable expectation. This wording does not mean that a doctor would have to confirm that the prognosis for a person was shorter than five years in order for that person to satisfy the test; rather, that the medical condition of the person is such that five years or less would be among the reasonable prognoses that a doctor could give for someone in their situation.

The Government have responded positively to concerns raised by stakeholders and campaigners that a small number of members, who have been severely ill for some time, have been disadvantaged because these provisions have not been a feature of the financial assistance scheme from its commencement. Draft Regulation 7, therefore, makes provisions to put such people back into the position that they would have been in if severe ill health payments had been available since May 2004, when the financial assistance scheme was first announced.

First, severe ill health payments can be paid for periods before the date of application in cases where a person can demonstrate that they would have met the qualifying conditions at an earlier date. This can apply even where a member has now reached their normal retirement age; they will be able to apply for earlier payment of severe ill health payments where they can demonstrate that they would have met the qualifying conditions at that earlier date.

Secondly, provision is made for survivors, or personal representatives, to apply for severe ill health payments for a past period on behalf of any member who would have met the qualifying conditions but who has, unfortunately, died before the regulations came into force.

Thirdly, a scheme member currently receiving reduced ill health payments will be allowed to apply for the new unreduced severe ill health payments where they believe that they would have met the qualifying conditions if the provisions had existed earlier.

I add that the provision to pay for a past period will not be a regular feature of the financial assistance scheme. We have included it solely to allow people to be reinstated into the position they would have been in if the provisions had been a feature of the financial assistance scheme from the outset. Therefore, applications for severe ill health payments for a past period will have to be made within one year of the regulations coming into force.

These regulations also make an amendment to the incapacity benefit regulations. Regulation 2 amends the incapacity benefit regulations to provide that financial assistance scheme payments are treated as pension payments for the purposes of that benefit. This means that half of any FAS payments in excess of £85 per week will be taken into account when calculating entitlement to incapacity benefit. However, this will not affect qualifying members who first became entitled to financial assistance before these regulations came into force.

Finally, noble Lords will be pleased to know that we hope to start making payments to those who qualify by the end of April, subject to the provision of relevant information from members and their medical practitioners. I commend the regulations to the Committee.

I referred earlier to having been gently chided, during a previous debate on the financial assistance scheme, for going into a history of that scheme as I saw it. I am going to resist that temptation today, probably to the Minister’s pleasure. Suffice to say that the substance of the order is not like that of the scheme itself or the orders emanating from it, where the Government had to be led, kicking and screaming, to do anything at all. This order is a different ball game.

Last year’s order improved the financial assistance scheme yet again, that time to make payments available to people with terminal illnesses and those unable to work through illness up to five years before their normal retirement age. Naturally, their payments would be actuarily reduced at the time of first payment, and, presumably, after their retirement date as well—in other words, throughout their life. Perhaps the Minister will be able to confirm that.

It came to light, though, that there was a problem with a few people who would be excluded from that provision, being too young to qualify. I believe that they did not totally fulfil the illness criterion as set out in last year’s order. I would be grateful if the Minister will confirm that when winding up. The order corrects that in cases where people have significantly reduced life expectancy if they have attained the age of 55 and are suffering from an ailment—the Minister used a technical term that I am afraid I did not catch—of which the prognosis is that they will die within five years. Amazingly, such payments are not to be actuarily reduced. Is this not apples and pears? The long-term ill are to have actuarily reduced payments, under last year’s order, while payments to the longer-term terminally ill are to be paid without such a reduction. That raises a question that I hope the Minister will be able to answer: why?

The second question that arises is what happens when the unfortunate sufferer exceeds his life expectancy of five years. Doctors, after all, are not infallible, and medical science is improving all the time. Do the payments remain the same, suddenly become actuarily reduced or what? Will the recipient perhaps have to reapply? Incidentally, in the Minister’s closing words, when he said he hoped that the first payments would be made by the end of April this year, he did not comment on the fact that the individuals have to apply. That raises the question of how they apply and to whom. Given that when the five years is up they are, or will be by then, almost at, or near, death’s door, I hope that the payments will continue unaltered and unreapplied-for—what a horrible word—until death.

I also note the second part of this order, which says that the payments we are discussing are to be treated as pensions. That has two effects. The first is that if the individual has enough income, the FAS payments will be taxable. The other is that they will go to reduce any incapacity benefit that may have been in payment. Will the Minister reassure me that not only will no one be worse off financially as a result of this but in all cases they will have more money to live on in their declining years? If the answers to my questions are positive, as I hope they are, then this order makes beneficial improvements to the financial assistance scheme and deserves our full support.

We welcome these regulations. In previous years, regulations of this kind meant that we felt we had to challenge the Government on the failings of the financial assistance scheme, which was a sorry saga for many years. That would not be appropriate today, now that we are in the mode of rejoicing over a sinner that repenteth. It is now in a good state. This is a welcome change, and I congratulate the Minister on it.

There is one question of detail. I understand that establishing an individual’s life expectancy in these difficult circumstances will be for the department’s medical advisers, so the regulation says, but the final decision rests with the FAS scheme manager. How do those two things square? Are there situations in which the financial assistance scheme manager will overrule the medical advisers? That would be quite difficult to assess. Is there an appeals process? It could be quite a stressful time. Perhaps the Minister would clarify those points. We believe that the provision applies to only a small number of people. Perhaps the Minister could give an estimate of how many people are affected. There has been serious injustice for a small number of people and we are glad that it has been rectified.

I am grateful to both noble Lords for their comments and their support for these proposals. The noble Lord, Lord Skelmersdale, pressed me on actuarially reduced amounts. For someone with ill health, early access to actuarially reduced amounts simply reflects the fact that having access to the arrangements earlier will enable them to have them for a longer period of their life. It is a technique which quite often applies. That is in contrast to someone who has the severe ill health payment, which is predicated on a person having a progressive illness with a life expectancy not exceeding five years. Therefore, not reducing the amount actuarially reflects the fact that they will have it for a shorter period. That is the difference.

The noble Lord, Lord Oakeshott, asked me about the number of people involved, which we think will be small. Something like 61 people in receipt of ill health payments at the moment will be contacted about these new arrangements. We think that a couple of dozen people may be entitled. That is the scale of the issue. The noble Lord also asked me about the process. The individual will need to make a claim to the FAS operational unit. The individual’s GP or consultant would be contacted to provide information. The DWP’s medical advisers will have the opportunity to review that and will clearly advise the scheme manager who will make that decision. Obviously, the scheme manager would be constrained by rules of consistency and fairness, and would be expected to act on the basis of the medical advice given.

The noble Lord, Lord Skelmersdale, asked whether, for someone who lived for longer than five years with an original prognosis of less than that, there would be any adjustment. No, there would not. They would continue to be entitled to the payments at the unreduced levels for the rest of their life. The noble Lord also asked about incapacity benefits.

Before the noble Lord gets on to that, I also asked whether, at the end of the five-year period, the individual who is about to exceed it would have to reapply.

No, he or she would not have to reapply. To supplement the answer I gave to the noble Lord, Lord Oakeshott, there will be a right of appeal and internal review in respect of someone who might be disappointed by a judgment.

Members will be able to make applications as soon as the regulations come into force, which we hope will be by the end of the month. We are already in touch with potential applicants so that we can process their applications speedily. Members will need to make a written application to formally start the process.

As regards incapacity benefits, these regulations simply put people in receipt of FAS benefits in the same position as PPF members or members of pension schemes where they are taken into account to an extent as income when looking at receipt of incapacity benefits. In conclusion, I was remiss not to state earlier that in my view these regulations are compatible with the European Convention on Human Rights.

Before the Minister sits down, I asked him, with regard to the incapacity benefit part of the order, if he could confirm that no one will be worse off than if they had to live on incapacity benefits only. I am sure that the answer is no, but I hope he will be able to confirm that.

I think I can confirm that. FAS payments have to be recognised to an extent, which could lead to a reduction in incapacity benefits, but the FAS payment is not going to eliminate the whole of the incapacity benefit.

I see the Minister got a nod from behind him. I was going to say that perhaps, given the unusual slight shakiness of that answer, he might like to write to me, but it looks as if though that will not be necessary.

I will save the noble Lord another of my letters. I now have the confidence, after that nod from behind me, that what I said was correct.