New Clause 6
Pensions Bill
5:45 pm
Nigel Waterson (Shadow Minister, Work & Pensions; Eastbourne, Conservative)
I beg to move, That the clause be read a Second time.
This is a familiar argument, but no less important for that reason. New clause 6 deals with the financial assistance scheme. I shall begin with the specifics of the new clause. It requires the Secretary of State to commission an independent review of the FAS to consider, among other things, the efficiency and cost-effectiveness of its administration. Let me pause there for a moment.
We have always had serious concerns about the wisdom of setting up the FAS as a completely separate body, doing its own thing in a completely different part of the country, and we have always taken the view that the only possible reason for doing that was a political one: to underline the big disparity between the benefits paid by the FAS and the compensation paid under the Pension Protection Fund.
Just to sketch in a bit of history, the FAS was the illegitimate child of the 2004 legislation. It was cobbled together at short notice, and announced on 14 May 2004 at a point when the Government were in real danger of being defeated in this House by a combination of Opposition parties and Labour rebels, simply because a large number of people who had lost their pensions, through no fault of their own, would not fall within the PPF. In our view, the FAS was always misconceived.
The announcement in May 2004 produced a figure of £400 million, but no one was ever able to justify it. It was always as plain as a pikestaff that it was wildly inaccurate and inadequate. It now turns out that some 125,000 people were affected—the estimates were quite a bit lower at the time—so the Government have had a rather difficult time trying to squeeze potential claimants into the £400 million financial envelope that the Chancellor produced at short notice.
The FAS did not get off to a happy start. As it happens, when we were debating the Bill that became the Pensions Act 2004, I tabled an amendment suggesting that there should be a mini-PPF, administered by the same people who administered the PPF, to deal with claimants who came up prior to the due date for the PPF. We always accepted the principle put forward by the Government, although they rowed back from it in the latter stages of the legislation, that it was a bit like fire insurance—one cannot insure one’s house against fire after it has burned down—so there could not be an element of retrospectivity to the PPF, but it would have made much more sense to use the same expertise and skill set to administer the separate fund. At the time, we argued for it to be endowed with unclaimed assets—I shall return to that in a moment—under the umbrella of the PPF, which was starting its own life and which in many respects has drawn in a great deal of expertise and effectively administered itself since it was set up.
Subsection (1)(a) deals with the efficiency and cost-effectiveness of the administration. Subsection (1)(b) deals with the point that I already made about whether the FAS could be more effective if administered by the staff of the PPF. I have little doubt that we should scrap the FAS as a separate entity and bring the whole administration within the PPF in the way that I described. Indeed, a review was carried out of the FAS—at the moment the name of the gentlemen who did it escapes me—which in many ways took the view that the administration should be shifted into the Pension Service itself.
Subsection (1)(c) deals with whether the FAS is “adequately financed”. I shall deal with that more broadly in a minute. Subsection (1)(d) reads,
“what other sources of finance could be made available, including but not limited to unclaimed assets”.
Subsection (1)(e) deals with whether the FAS
“should be engaged in the purchase of bulk annuities.”
So how is the FAS doing? Only today, we discovered in a parliamentary answer that it has finally provided assistance to some 871 people. That is a massive advance on the situation a few months ago, but it is still not terribly good when we consider the 125,000 people caught in this nightmare. And that is despite the fact that it has been in operation for almost 18 months. It is now, of course, closed to new applicants and seems to be taking on average at least six months to process a single claim.
The FAS was set up in York—almost as far from the PPF as it is possible to get—and it has already cost £7 million to deliver payments to just 871 people. Those figures came out the day before there was to be a demonstration outside Parliament on behalf of the Pensioners Action Group starting its High Court case against the Government tomorrow over compensation and the ombudsman’s report. We will come back to that report and the Government’s reaction to it in more detail when we discuss new clause 7 shortly. However, it seems clear to us that the FAS got off on the wrong foot and after a year and a half in operation only a tiny fraction of those who need help are receiving it. To use a phrase current in the Home Office, it is simply not fit for purpose—I have described already what I believe should happen instead.
So how should we deal with the FAS? The parliamentary ombudsman said in her report:
“I am quite clear that the FAS will not constitute an adequate and appropriate remedy for the injustice claimed by those who have complained to me”.
We have heard that the Government have provided extra funding for the FAS. In Department for Work and Pensions questions yesterday, the Secretary of State was worryingly vague about the extent of that commitment. Having carried out an analysis, with expert help, it seems to us that the Government have given an open-ended commitment to what is essentially a defined-benefit scheme compensating people under the FAS. It is difficult to see a limit on the Government’s liability. I hope that the Minister has had a chance to reflect on that since yesterday because it seems that the Government, who are claiming a figure of £1.9 billion, could be liable for quite a lot more, given the level of benefits established. Presumably, it will be easier to establish the total liability now that new claims under the FAS are out of time, as I understand it. If the Minister has more information, I would be delighted to hear it.
Our view is very clear. We think that the FAS has not been a success. If it was designed as a way in which to get the Government through a rough political patch, and through a general election campaign, it has been mildly successful, but it has not solved the long-term problems of so many people with legitimate needs for financial help following events completely beyond their control. Would it not make far more sense to fold the FAS administratively into the PPF, which will hopefully speed up the process by which people are compensated?
I will deal with all these points on finance in much more detail when we discuss new clause 7, if that helps the Minister and you, Mr. Taylor. Subsection (1)(c) of our new clause 6 relates to whether the FAS is adequately financed. That is also a key question if the Government are determined to keep it as a separate entity, subject to the point that I made about what limits, if any, there are on the Government’s stated liability.
We have said that unclaimed assets are an obvious place to look, given that there is £3 billion of unclaimed pensions, which might be appropriate for the purpose I am discussing. For a long time, the Government’s mantra was that just because assets were unclaimed, it did not mean that they did not belong to people. That is true in theory, but a year or two ago the Chancellor did a 180° turn and is now looking at ways to grab unclaimed assets. I suspect that that is partly to make up the shortfall in funding for the Olympics. Clearly they are available and this is an obvious way to use them.
There is also a major issue about the bulk purchase of annuities. I know all the arguments about annuities and why they should be purchased in an ideal world, if one is a purist. However, the money available could go a lot further. I am not just talking about the money that the Government have already committed from the taxpayer or the unclaimed assets. We should remember that there are residual assets in these pensions, although they are admittedly inadequate for the purpose of covering all the claims.
Let us consider those things taken together. The money could go a lot further if, instead of buying bulk annuities with all the premium attached to the cost of that in the marketplace, it was spent simply on paying out to people on a regular basis the compensation to which they are found to be entitled. These are important issues, and I want to go into the financing of the claims in more detail when we consider the ombudsman’s report and so on.
It is a crying shame and, as I have said before, a stain on this Government’s record that some of these unfortunates are having to appear in the High Court tomorrow to make a case for proper compensation. There is an extra dimension to this, because I understand that the Government have been playing hardball, as the Americans would put it, on the legal costs that would be incurred if claims were to fail. I am sure that there are precedents in respect of public interest cases, particularly given that this is essentially a class action, where Governments should not pursue costs because legitimate issues need to be considered. I do not want to stray into the realms of sub judice, but the Government should take a more emollient line. Why should these people be going to court at all? Why should they not be looking to the FAS to look after their legitimate interests? This situation is an enormous shame.
My final point comes up in spades in new clause 7, and we have made it many times, including on Second Reading. It seems to us that the Government have a major task to perform in clearing the ground for the new system of personal accounts. That means removing any factors within their control that are undermining confidence in the pensions system as a whole. I suspect that nothing has done more to undermine confidence, particularly among younger workers, about saving for pensions than the regular appearance of a lot of middle-aged or older men stripping off for the cameras at Labour party conferences or elsewhere to make their case about their lost pensions. Such events are extremely bad news for the whole pensions system and for the Government in terms of trying to build up confidence in pensions. That is why it is important that we air these issues as part of the debate on this Bill.