The Government was hoping that the extra funding for the Financial Assistance Scheme would rid it of this spectre but last week’s work and pensions questions session again saw pension minister James Purnell and Work and Pensions Secretary John Hutton barraged with angry questions on the subject from backbenchers.
Pressure is piling on Labour to go further than it has so far stubbornly refused to go. The European Courts of Justice could force the Government to compensate all the victims fully and a judicial review is taking place to decide if the Department for Work and Pensions was guilty of maladministration.
But what are the chances of the Government being shamed into providing more support?
Cicero Consulting director Iain Anderson says the Government is still highly sensitive about the issue and is continuing to monitor the bad publicity closely and does not rule out further help.
He says: “There is no doubt that the Government is watching the way this is developing and, bearing in mind the potential vulnerability of the victims, there is a possibility for further Government movement on this issue.”
Labour initially pledged just £400m over 20 years to fund the FAS, which is intended as a lifeboat to members of final-salary schemes which collapsed before the Pension Protection Fund was launched. But it was stung into action after last year’s mauling from Parliamentary Ombudsman Ann Abraham, who blamed Government maladministration for pension losses affecting around 125,000 people. Hutton said an extra £2bn would be injected into the FAS although he rejected Abraham’s claims of culpability.
Political pressure continued, with the cross-party public administration committee backing Abraham and branding the Government “at best naive and at worst misleading”.
Committee chairman and Labour MP Dr Tony Wright has accused the Government of triggering a “constitutional crisis” in its rejection of Abraham’s report.
The embarrassment became more excruciating before Christmas when it was revealed that a young Gordon Brown had savaged the previous Conservative administration for rejecting an Ombudsman report on a similar subject.
Brown attacked the Tories in 1989 for initially refusing to accept an ombudsman’s findings of maladministration against the DTI that lead to pension losses through the Barlow Clowes affair and the current Tory opposition accuses the prime minister in waiting of hypocrisy.
The Government is sticking to its line that it would be unfair for the taxpayer to pick up the burden of any extra funding, with the help already committed focused on those most needy and closest to retirement.
Before Christmas, Purnell warned that fully compensating victims would cost enough to pay for “8,000 nurses, 6,000 teachers or 3,000 doctors”.
When the ombudsman’s report was first published, Tony Blair claimed it would cost between £15bn and £17bn to compensate all the victims but these figures estimate the cash cost.
The Government says this calculation is commonplace but when pushed by pension campaigner Ros Altmann to state how many times it has used such calculations for Government finances over the 10 years, it could only come up with one example.
If the same calculations were used to estimate the public sector pension black hole, the figures would be astronomical. Altmann calculates that the burden on the Government is more like an inflation-linked £100m to £150m a year, hardly likely to create a black hole in public spending.
She says even the extra help that the Government announced last summer – which it says will benefit around 40,000 of the victims – is unlikely to bring much relief.
The admin burden of applying for help from the scheme and delays in getting compensation due to the time it takes firms to wind up means only a few hundred have so got FAS aid.
The FAS support is not inflation-linked and the buyback scheme – allowing around 10,000 people to have S2P contributions partially or fully restored – means that victims have to sacrifice any money accrued from AVCs.
The Government is trying to quell opposition criticism of its handling of the affair by highlighting the fact that the Tories will not commit to spending any further public money on the issue.
The Conservatives say such a commitment is not the job of an opposition party and has called on the Government to look at using unclaimed assets to help the victims, money which Gordon Brown has already earmarked for local charity projects.
But the Buildings Societies’ Association warns that this would not raise enough money to help the victims and in any case the funds are not the Government’s to redistribute.
Lansons Public Affairs spokesman Martin Koder suggests that Harman’s comments say more about her positioning of the job of deputy prime minister rather than any Government willingness to reverse its line.
Koder says: “The DWP appears entrenched in the view that no amount of extra funding for compensation will ever satisfy the myriad of campaigns for lost pensions. There is no appetite in Government for accepting more responsibility for pension outcomes, especially considering the ambitious nature of the Turner reforms. After all, personal accounts could be an even bigger misselling scandal if the means-testing issue is not properly addressed.”
But until the Government – for whatever motive – moves to provide more help to these victims, the spectre of the lost pensions will continue to taint the pension debate.