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Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2009

My Lords, many noble Lords will be familiar with the Financial Assistance Scheme, which makes payments to people who have lost all or part of their occupational pension because their pension scheme began to wind up underfunded. In December 2007, we announced a significant extension to the FAS, key elements of which have already been implemented. During February and March this year, the Government consulted on a set of draft regulations that implement further elements of the 2007 announcement and make changes to the administration of the FAS. I now bring these draft regulations before the House. The draft regulations make a number of changes to both the structure of the assistance and the administration of the FAS. They will allow for the FAS to acknowledge where schemes had made provision to pay what used to be called an unmarried partner; that is, someone who while not married to the member—or now not in a civil partnership with them—was living with the member on the same basis. In order to qualify, the surviving partner must have been living with the deceased member before they died and be either nominated by the member or prove financial dependency or interdependency. Where the deceased member left both a spouse and a partner, the partner will be paid and not the spouse where, and only where, the member had nominated that partner. The draft regulations will also allow for payments to be made to certain children and young adults who were financially dependent on the deceased member. Such payments continue up to the age of 16 and may continue to age 23 where the child remains in education or cannot work full time due to a disability. On 1 January each year, assistance in payment, which relates to scheme rights accrued after April 1997, will be increased. That increase will be in line with the retail prices index up to a maximum of 2.5 per cent. If the retail prices index goes down or is at 0 per cent, there will be no increase applied for that year but the amount in payment will not be reduced. Assistance is payable from the qualifying member’s normal retirement age. However, we are aware that some people may have accrued rights in their scheme to a different age—for instance, when a scheme changes its normal retirement age and someone is a member both before and after that date. These draft regulations will take this into account. Where their normal retirement age is after the date to which a part of their pension has accrued, that part of the expected pension will be actuarially uplifted. Where the normal retirement age falls before the date to which a part of their pension has accrued, that part of the expected pension will be actuarially reduced. Currently, assistance tops up the pension provided by the scheme to 90 per cent of the person’s expected pension. The cap ensures that, where 90 per cent is higher than £26,000, assistance is limited so that the individual gets from the scheme and the FAS in total no more than that amount. These draft regulations will allow the £26,000 announced in March 2007 to increase annually in line with the retail prices index from April 2007, ensuring that the cap keeps pace with inflation. For anyone who was entitled to assistance from April 2007, the cap will be increased to £26,936. These are significant improvements in the structure of assistance payments and I hope that noble Lords will welcome them. I will now cover certain issues which we need to address in the context of delivering these changes but which were not part of the 2007 announcement. First, there are schemes that paid what is known as a bridging pension. The commonest example is where a man retires at age 60 with a scheme pension that goes down at age 65 when his state pension begins. Some schemes, when buying the annuity, have flattened this bridge, if I may put it in that way, so that the annuity pays out the same amount over the person’s lifetime. However, we have been made aware that other schemes have bought annuities with the bridge intact. These regulations allow for assistance to mirror the annuity: where it has smoothed the reduction over the individual’s lifetime, the assistance will do the same; where the annuity retains the bridge, the assistance will reduce when the annuity goes down. At present, the FAS takes no account of any increases in the scheme pension once assistance begins. When we decided to provide indexation on assistance, this oddity had to be corrected. Paying indexation in respect of the assistance only would mean those with a flat-rate pension getting less of an increase in total than someone whose scheme paid nothing. Therefore, the amount of pension brought to account in the assistance calculation will be the amount actually in payment, and any subsequent increase in the pension will also be brought to account. The issue of taking account of payments made before the final entitlement is calculated also needs to be addressed. It can take a scheme some time to decide what it can pay a member from its remaining assets; until then, the scheme and the FAS can make payments on account of entitlement. Because the scheme normally pays an amount that it is reasonably sure is lower than the final amount, assistance may have been overpaid before the correct amount has been established. These regulations allow scheme payments to be brought to account when the final rate of assistance is being calculated. This means that, over the individual’s lifetime, the correct level of payments will be made. The changes that I have described will apply in relation to a person’s entire period of entitlement to FAS payments. Many individuals already being paid now will find that their entitlement increases and, where this happens, they will be given payments for past periods. However, the way in which the various changes interact means that it is possible that in some cases entitlement goes down. Where this occurs and someone’s finalised entitlement had previously been determined, the current amount will remain in payment. This protection will also apply where a person’s initial payments have previously been protected. However, these arrangements will not apply to any other initial payment calculations. Secondly, protection will, in some cases, exist only for a limited period. In some cases, standard entitlement could go up—for instance, because of indexation—and this could result in that entitlement becoming higher than the protected amount. Where that happens, the higher amount will be paid. These changes will require the FAS to collect different information, and these regulations make the necessary changes to the information regulations. They also make changes to the review and appeal regulations to allow for decisions to be challenged in these areas. Trustees will also be required to supply more details about the scheme and its expenditure—for example, information on current or contemplated legal proceedings—and to notify the FAS of any contemplated significant changes in the investment of the scheme’s assets. I come now to operational changes. At present the FAS is administered—very well, I suggest—by DWP staff. However, the FAS will be undertaking broadly similar functions to those currently undertaken by the board of the Pension Protection Fund. It therefore seemed appropriate to have both systems managed by the PPF. These draft regulations confer the responsibility of managing the FAS on to the board of the PPF. Current FAS staff will be seconded for a temporary period to the board to provide continuity. The Government will continue to fully fund the FAS, none of whose costs will fall on the PPF levy payer. This change requires certain other changes. These will allow the DWP to pay the board for its FAS-related work, allow the board to delegate its FAS work to its own staff and some of its work to a commercial provider, and give these people access to relevant DWP information. In addition, the board will have discretion to make payments to schemes in certain circumstances—for instance, where the scheme has run out of money and is unable to complete wind-up. The draft regulations also make certain minor changes that the experience of the FAS staff has shown would be helpful, such as allowing payments for periods other than monthly. I shall revert to one matter that I have mentioned: I said that the payment for surviving children and young adults would be paid until age 16 unless the child had a disability or was in education. In fact, payments are made up to age 18 unless the child has a disability or is in education, in which case payment can continue until the age of 23. Noble Lords have been very patient with me during what has been quite a technical explanation. The changes in the draft regulations offer significant improvements for many FAS members. In my view, these draft regulations are compatible with the European Convention on Human Rights and I commend them to the House.