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Financial Assistance Scheme and Incapacity Benefit (Miscellaneous Amendments) Regulations 2009

The draft regulations were laid on 11 February. The Financial Assistance Scheme—or the FAS, as I shall refer to it hereafter— offers help to certain people whose defined benefit occupational pension schemes have not provided them with the pension that they were expecting. In December 2007, we announced a significant extension to the scheme, and noble Lords will recall considering two sets of regulations last year that implemented key elements of those changes. They will also recall that we decided to implement the December 2007 announcement in stages to give priority to the elements that offered the most help to FAS members. I am sure noble Lords will be pleased to know that, as a result of those changes, the FAS now makes payment at 90 per cent of a qualifying member’s expected pension, subject to a cap, from the normal retirement age, subject to a lower age limit of 60. The FAS also allows early reduced payments on grounds of ill-health and includes certain schemes where the employer is still trading and solvent. As a result, a total of more than £50 million has been paid to 10,556 people so far. It is estimated that around 140,000 people will receive assistance from the FAS in the long term. However, we recognise the difficulties experienced by those who lost their pensions through no fault of their own, and the particular difficulties of pensioners who are unable work due to their ill-health. The FAS currently allows early access to actuarially reduced payments for members who are unable work and will continue to remain unable to work until their normal retirement age. The FAS also provide early unreduced access for members who are terminally ill and likely to die within six months. It should be noted that although the rules of many occupational pension schemes allow members to take their benefits before the normal retirement age where they are in ill-health, this facility is generally not available when a scheme has started to be wound up. The draft regulations include some significant measures in response to representations that we received when we introduced the existing ill-health provisions that a small number of people with ill health leading to significantly reduced life expectancy could be excluded from early access to the FAS under the current provisions because they are more than five years away from their normal retirement age. We have also responded to concerns raised by campaigners that the actuarial reduction in payments under the current ill health provisions are inappropriate where a person is likely to have a significantly shorter life expectancy due to their severe ill health. I am therefore pleased to present these draft regulations, which will provide for early unreduced access to FAS payments where a person is aged 55 or over and has a progressive disease from which death might reasonably be expected in five years. These payments will be known as severe ill health payments. In developing a test to identify the people with severe ill health resulting in reduced life expectancy, we considered how best to focus on the people most in need of early payments of assistance. We concluded that the best way to achieve this is via a test in the form that, ""the member can reasonably be expected to die within five years"." This is a novel test that is without precedent in legislation, and we needed to check that it would be fair and operable. During the development of the test, departmental medical advisers advised that it would be impractical to try and apply a test looking more than five years ahead, due to the lack of reliable survivability data and the need to take into account a large range of factors, such as lifestyle, which could influence a person’s longevity. A range of views were expressed in consultation responses. A number of responses urged the Government to set a test looking 10 years ahead, but they did not provide evidence that this test would be operable or fair. Other responses supported the Government’s approach. I thank all the respondents to the consultation, including private individuals, trade union representatives and members of the Pensions Action Group for their input. I reassure noble Lords that we do not expect the life expectancy condition to set a cut and dried test. This is not a test of whether someone will die in five years, but one of whether their death within that time is a reasonable expectation. This wording does not mean that a doctor would have to confirm that the prognosis for a person was shorter than five years in order for that person to satisfy the test; rather, that the medical condition of the person is such that five years or less would be among the reasonable prognoses that a doctor could give for someone in their situation. The Government have responded positively to concerns raised by stakeholders and campaigners that a small number of members, who have been severely ill for some time, have been disadvantaged because these provisions have not been a feature of the financial assistance scheme from its commencement. Draft Regulation 7, therefore, makes provisions to put such people back into the position that they would have been in if severe ill health payments had been available since May 2004, when the financial assistance scheme was first announced. First, severe ill health payments can be paid for periods before the date of application in cases where a person can demonstrate that they would have met the qualifying conditions at an earlier date. This can apply even where a member has now reached their normal retirement age; they will be able to apply for earlier payment of severe ill health payments where they can demonstrate that they would have met the qualifying conditions at that earlier date. Secondly, provision is made for survivors, or personal representatives, to apply for severe ill health payments for a past period on behalf of any member who would have met the qualifying conditions but who has, unfortunately, died before the regulations came into force. Thirdly, a scheme member currently receiving reduced ill health payments will be allowed to apply for the new unreduced severe ill health payments where they believe that they would have met the qualifying conditions if the provisions had existed earlier. I add that the provision to pay for a past period will not be a regular feature of the financial assistance scheme. We have included it solely to allow people to be reinstated into the position they would have been in if the provisions had been a feature of the financial assistance scheme from the outset. Therefore, applications for severe ill health payments for a past period will have to be made within one year of the regulations coming into force. These regulations also make an amendment to the incapacity benefit regulations. Regulation 2 amends the incapacity benefit regulations to provide that financial assistance scheme payments are treated as pension payments for the purposes of that benefit. This means that half of any FAS payments in excess of £85 per week will be taken into account when calculating entitlement to incapacity benefit. However, this will not affect qualifying members who first became entitled to financial assistance before these regulations came into force. Finally, noble Lords will be pleased to know that we hope to start making payments to those who qualify by the end of April, subject to the provision of relevant information from members and their medical practitioners. I commend the regulations to the Committee.