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Financial Assistance Scheme Regulations 2005

rose to move, That the Grand Committee do report to the House that it has considered the Financial Assistance Scheme Regulations 2005. The noble Lord said: The draft Financial Assistance Scheme Regulations 2005 and the Financial Assistance Scheme (Internal Review) Regulations 2005 were laid   before the House on 22 June. These statutory instruments will allow the Financial Assistance Scheme—or FAS as I will refer to it—to operate. The regulations are required in order for us to achieve our intention of making the first assistance payments as soon as possible—if possible, by December of this year. The Government first announced the intention to establish the FAS on 14 May 2004 during the passage of the then Pensions Bill. We have been working extremely hard and to a tight timescale since May last year. We set up the body to administer the FAS by April 2005. That is now in place in York. As set out in the draft regulations, it will start handling the formal notification of affected pension schemes from 1 September 2005. We have endeavoured to work closely with and listen to our stakeholders during the development of the FAS. These have included affected scheme members, trade unions, MPs representing their constituents and pension professionals. Their advice and information have been critical in developing a workable FAS in such a short period of time. We have consulted informally on a range of policy issues and, most recently, formally on the draft regulations. We also listened to those who contributed to debates in both Houses of Parliament. Following such discussions in this House, we made amendments to the Pensions Bill to ensure that payments from the FAS would not be means-tested and that pension schemes, or the pensions industry in general, would not face an imposed levy to finance the FAS. In addition, Members of the Committee will note that within these regulations the scheme manager will produce an annual report, as requested last year during the Report stage of the Pensions Bill. The details on how the FAS will function are set out in these two statutory instruments. I start with the main Financial Assistance Scheme Regulations 2005. The Secretary of State for Work and Pensions will be the scheme manager for the FAS. He will produce an annual report for Parliament detailing the operation of the FAS. It will include information on the numbers of people receiving assistance and the amounts that they are being paid. The aim of the FAS is to provide financial assistance to qualifying members of qualifying pension schemes. Such members have seen a reduction in their expected pensions as their pension scheme started to wind up before April 2005 without enough funds to meet their   benefits in full, in circumstances of employer insolvency. Similar cases which arise from April 2005 will of course be considered under the new Pension Protection Fund. In order to start providing assistance to members as soon as possible, we have set out in the draft regulations a six-month notification period beginning on 1 September this year, during which members, trustees and professional advisers can provide the FAS with details of schemes they would like to be considered. The Department for Work and Pensions has already been provided with details of many schemes, and a list of 380 which are potentially eligible was published on 22 February. The notification period will make use of information already provided and allow new scheme information to be supplied. I turn now to explain the terms ““qualifying member”” and ““qualifying scheme””. The qualifying pension scheme, for the purposes of assessing eligibility for the FAS, is an occupational pension scheme, which must have started winding up between 1 January 1997 and 5   April 2005, and whose details must have been given to the FAS during the fixed notification period. A number of other detailed criteria are set out in the regulations. Schemes that cannot qualify for the FAS, such as public service pensions’ schemes, are also defined within these regulations. We have also prescribed who is deemed to be the employer, both in relation to single and multi-employer schemes, and the insolvency events that need to have occurred in relation to those employers in order for schemes to qualify. In addition, the regulations include the criteria for calculating the liabilities of a scheme in order to determine whether it is under funded. I turn now to what a ““qualifying member”” is for the purposes of these regulations. There are various situations in which an individual could be described as a qualifying member, including those who were members of a qualifying scheme or in receipt of a survivor’s pension from such a scheme immediately before the pension scheme started winding up. In addition, a person who had also become a member of such a scheme after the start of wind-up as a result of pension sharing on divorce would be a qualifying member. To qualify, each member must have reached or be due to reach his normal retirement age for the scheme in question on or before 14 May 2007. Those in receipt of a survivor’s pension must also be due to reach the normal retirement age of the former member whom they survived on or before that date in order to be a qualifying member. On the nature of the financial assistance, annual FAS payments will be payable to a qualifying member in monthly instalments from the later of 14 May 2004 or the member’s 65th birthday. Assistance will be backdated to the later of these dates. For qualifying members, the annual payment will be a ““top-up””, which is the difference between 80 per cent of the member’s expected pension and the actual pension available to the member from the qualifying pension scheme at the end of wind-up. Expected pension and actual pension are defined in the regulations for different categories of beneficiary. Eighty per cent of the ““expected pension”” is capped at £12,000 a year. Should the actual pension exceed £12,000 a year, no annual payment will be payable. All money purchase benefits and benefits derived from additional voluntary contributions are excluded from the calculation. If the annual amount of potential FAS assistance is calculated to be below £520 a year, or £260 a year for survivors, no payment will be made. That is to minimise the administration and to maximise payments to those facing the most serious losses. There is also provision in the regulations to make early payments to terminally ill people who are eligible for the FAS—that is, within three years of their scheme pension age as at 14 May 2004—but who would otherwise have to wait to age 65 to receive payments. Scheme trustees will be able to apply for initial payments for those qualifying members who have reached 65 and whose pension scheme has not completed winding-up. Those payments will top up to a level broadly equivalent to 60 per cent of core pension benefits. Once the pension scheme is wound up, the assistance will be increased to 80 per cent. For survivors, their entitlement will start on the later of 14   May 2004 or the day after the survivor’s spouse or civil partner died. The annual payment for survivors will be 50 per cent of the former member’s rate, or the difference between 40 per cent of the former member’s expected pension and the actual pension available to the survivor at the end of wind-up, depending on the date of the member’s death. In addition, the regulations also modify certain provisions of Parts 1 and 2 of the Pensions Act 2004 so that they apply to the FAS. Those modifications allow for restricted information to be disclosed by the Pensions Regulator or the board of the Pension Protection Fund to the scheme manager of the FAS, and vice versa. It also allows for the scheme manager to require certain information to be provided to him by   way of regulations to be prescribed by the Secretary of State, for scheme and member eligibility and assessment purposes. These regulations also make special provision for Northern Ireland. The second statutory instrument, the Financial Assistance Scheme (Internal Review) Regulations 2005, sets out how those people affected by decisions on qualification, eligibility and the amount of assistance to be paid can ask for those decisions to be looked at again and possibly revised. We want to ensure that anyone who could be materially affected by a FAS decision—that is, the member or their survivor—could request a review of that determination. In addition, where a scheme has not fully wound up and trustees are therefore still in existence, we have given such trustees the right to request a review of determinations of scheme notification and eligibility. That is both because trustees are most likely to have the knowledge required to challenge the decision, but also to enable them to fulfil their obligations under trust law to act in the best interest of scheme members. In addition, the department may review a determination other than when an application is made, enabling the revision of earlier determinations should further information subsequently come to light even if no one has requested a review. I assure noble Lords that we will also be making provision for someone who is dissatisfied with the review to refer the determination to an independent appeal. We plan to make the necessary regulations for this in November 2005, which will enable those who wish to seek an appeal to do so where applicable. I hope that I have fully explained the instruments, and I commend them to the House. I beg to move. Moved, That the Grand Committee do report to the House that it has considered Financial Assistance Scheme Regulations 2005.—(Lord Hunt of Kings Heath.)