View more on these topics

The muddled maths

The Chancellor failed to offer justice in his Budget to pension victims.

According to a private briefing from John Hutton to the Parliamentary Labour party, the 8bn newly extended Financial Assistance Scheme is actually worth just 1.9bn in real terms (net present value). As tax is payable on the FAS and people getting FAS will not get means-tested benefits, the net cost is even lower – probably closer to 1.2bn, to pay pensions for the next 60 years to those who have lost out.

In line with every previous announcement on the FAS, the reality is so different from the rhetoric. How long will the Chancellor insist on playing games with this issue and leaving people who saved all their lives still begging and fighting for justice? He needs to demonstrate his qualities of leadership, compassion and integrity to sort this scandal out properly. The extra cost of a fair settlement is tiny.

Mr Hutton says the FAS extension reflects the Government’s defeat in the recent High Court judicial review. He seems to have misunderstood the ruling. The Budget changes do not reflect the fact the Government is responsible for what has happened, this is still just an assistance scheme rather than pension restoration.The measures do not benefit any of the claimants in the judicial review, nor any of the representative complainants from the Parliamentary Ombudsman’s report.

Raising the cap to 26,000 a year, removing the 10 de minimis and including in future all those who have lost out, regardless of their age are welcome but almost all the people struggling without their pensions for the past few years are no better off today than they were when the High Court judge delivered his verdict.

What’s wrong with the FAS, even after the Budget announcement? First, we already know the scheme is not working. It has not delivered any money to 90 per cent of those who are already supposed to be receiving it. Second, members of solvent employer schemes are still excluded, even though they have suffered the same injustice as others. Third, the FAS only pays from 65 but people who should have retired at 60 are losing five years of retirement they paid for and many are too ill to work. The FAS pays no inflation-linking, no tax-free lump sum and far less generous widow’s benefits than members would have had from their schemes.

There is political consensus around paying all those who have lost their pensions at least the Pension Protection Fund level of benefits – that is, close to 90 per cent of their pension at retirement, with at least some inflation-linking – and there are amendments to the Pensions Bill calling for this to be paid.

The extra cost of increasing the inadequate FAS to PPF levels is not large. John Hutton’s leaked briefing shows that to pay Pension Protection Fund level benefits to all the victims would cost just 2.5bn today -compared with the 1.9bn already earmarked for the FAS. In other words, to sort this out in a fair manner would cost just an extra 600m. This would be all that is required to provide pensions for over 60 years. The net amount would be even less because the gross figure should be adjusted for tax and benefits.

Why hold back this last bit of funding when we are so close to a solution? This amount would be hardly noticeable in the Government’s budget. In fact, DWP officials overpaid 725m in benefits to people not entitled to them last year. In just one year, official mistakes in our hugely complex benefit system cost taxpayers more than the extra that is needed to restore pensions for the next 60 years extra and finally end the biggest scandal in UK pension history.

There are other sources of funding for the FAS which the Government could organise, without even using taxpayers’ money in future. There are assets available in the failed pension funds themselves, which could be used to pay pensions immediately rather than making people wait for years until scheme wind-up is complete and wasting the money on buying annuities. These assets should be pooled to establish a Pension Restoration Fund to be administered by the PPF but funded by top-ups from the Government. Only the Government can organise this.

Ministers must admit maladministration, commit to finding the extra money to bring the FAS payouts to at least PPF levels and allow the victims to get on with their lives. If not, MPs will defeat the Government via amendments to the Pensions Bill to force a settlement.

Ros Altmann is head of the Pensions Action Group.


FSA warns on retailisation risk of hedge techniques

The FSA has warned of the risks of “retailisation” of hedge fund techniques ahead of consultation on creating an onshore fund of hedge funds regime.At the International Bar Association and American Bar association in London last week, FSA director of retail policy and asset management sector leader Dan Waters said the regulator would be examining […]

Gull quits Morley for new pension insurer

Norwich Union monthly income plus fund manager Mark Gull is leaving Morley after eight years to join Pension Insurance Corporation, a newly launched company that buys and then insures companies’ pension liabilities. Roger Webb will take over the management of the fund.

Euro opps hedge fund for Serero

New Star is launching a European opportunities hedge fund for Thierry Serero, the former C60 Capital and Fidelity fund manager, who is joining New Star.

Sipp reaching a wider market as business booms

FundsNetwork says Sipps are increasingly becoming a product for the mass affluent rather than a niche vehicle for high-net-worth clients.The company’s research shows that a quarter of advisers have grown their Sipp business by 60 per cent or more since A-Day.Nine out of 10 advisers say the ability to consolidate existing legacy pensions within a […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm