New Clause 17

Pensions Bill – in a Public Bill Committee at 1:00 pm on 21st February 2008.

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Terminally ill claimants and the Pension Protection Fund

‘(1) Where the Board is satisfied that a qualifying member is “terminally ill”, that member, regardless of whether they have reached normal pension age, shall be entitled to a lump sum payment of an amount equal to twice what would be their annual entitlement under the scheme if they retired at normal pension age.

(2) A person is “terminally ill” at any time if at that time they suffer from a progressive disease and their death in consequence of that disease can reasonably be expected within 6 months.’.—[Mr. Borrow.]

Brought up, and read the First time.

Photo of David Borrow David Borrow Labour, South Ribble

I beg to move, That the clause be read a Second time.

The clause is a modest one, which aims to deal with an anomaly in the Pension Protection Fund legislation. The issue was first raised by my hon. Friend the Member for Preston (Mr. Hendrick), who is my own Member of Parliament, in a ten-minute Bill debate in the House on 17 October last year. He raised the issue of members whose pension schemes have become insolvent and who are therefore reliant on the Pension Protection Fund for their future pensions but who, because they are under the age of 50, are barred by the rules from access to the funds in that fund. A small group of individuals, under their schemes that went insolvent, therefore necessitating the use of the Pension Protection Fund, had a provision that would have sometimes allowed them to have access to funds prior to the age of 50, particularly in those instances where they were terminally ill.

Generally the provision is for individuals who are medically certificated as having less than six months to live to have access to a lump sum. A similar provision exists within the financial assistance scheme, which was set up for those pension schemes that went insolvent prior to the Pension Protection Fund being set up. However, the provision is not at the moment in place for the Pension Protection Fund. A small number of individuals unfortunately reliant on the fund will find themselves to be terminally ill but unable to access any funds at all. Most final salary schemes recognise that, in such circumstances, it is reasonable to make a lump sum payment to help with the additional costs—heating, lighting, special food or diet and even that special family holiday that the individual would want in the final months of life.

The provision would enable the board of the Pension Protection Fund to make a payment of two years’ worth of the pension that the individual would have been entitled to had he or she retired at the normal retirement age. It is a modest and not very expensive provision. It has been difficult to work out the number of individuals who have claimed such a provision within the financial assistance scheme because the numbers are so small. The issue has been overlooked, and I hope that my hon. and learned Friend will look favourably on the new clause.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions 1:15 pm, 21st February 2008

I thank my hon. Friend for raising what is the important issue of a small number of people who are terminally ill and for whom the sort of financial security that might have been available from their pension scheme is not available from the PPF. It was raised—as he said—in a ten-minute Bill last October by our hon. Friend the Member for Preston. There are strong arguments for change and I welcome discussion of the issue.

Since the matter was first raised, my officials and I have been considering whether it would be possible to ensure early access to some of an individual’s compensation entitlement should they fall terminally ill before they reach normal retirement age or normal pension age. We still need to address some issues before we can make such a change to the PPF. We would need to ensure that changes that increased liabilities for the PPF were sensible and affordable. It is vital that the PPF maintain the confidence of other schemes that fund it through the levies. Any increased costs would need to be justifiable and not lead to disproportionate increases in the levies.

We also need to ensure that any changes do not place inappropriate burdens on the PPF, for example by requiring it to make difficult decisions about entitlements, which could lead to disputes or to a protracted decision-making process. Currently, eligibility for PPF compensation does not require the PPF to make those sorts of decisions and the Government believe that it is important for the good running of the fund that that should not change.

I therefore see merit in the proposals set out in new clause 17, because the test for entitlement could be applied using existing mechanisms to quickly and  effectively make decisions on terminal illness; also because the small number of people who might become terminally ill would receive a significant sum—an average of around £10,000—while limiting the cost to the PPF, and therefore the impact on levy payers. The scheme envisaged by the new clause therefore appears to have found a suitable balance.

There are, however, some additional details that need to be considered, for example the impact on possible future compensation paid to survivors. I therefore welcome the opportunity to consider in more detail the proposals in the new clause with a view, I hope, to returning to the issue at a later stage of the Bill. At that point, I hope we will be in a position to bring forward a clear clause that ensures that we are able to deal with this lacuna, this gap in provision. I want to see that gap filled in due course. I hope that we will have a more positive response at a later stage.

Photo of David Borrow David Borrow Labour, South Ribble

I am grateful for the comments of my hon. and learned Friend. I am sure that my hon. Friend the Member for Preston will raise the issue later in the proceedings, possibly on the floor of the House where he can participate fully in the discussions. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdraw.