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Occupational Pensions

The Chancellor in his Budget statement on 21 March announced our decision to significantly extend the help provided by the Financial Assistance Scheme (FAS). This announcement was the result of my reflection on the implications of the High Court ruling in the judicial review of the Government’s decision to reject the Parliamentary Ombudsman’s findings of maladministration by the DWP My reflections have also been informed by the judgment of the ECJ in the Robins case. In that judgment, given on 25 January, the European Court indicated that the level of protection provided to some members of the ASW pension scheme fell short of the level required by article 8 of the Insolvency Directive. But the ECJ also said the directive did not require a guarantee of pension rights in full, and it gave a strong steer that damages would not be payable for breach of the directive earlier than the judgment date. Having carefully considered the terms of the ECJ ruling, the Government believe that the enhanced FAS package announced last week offers a level of protection that is compliant with that judgment. In its judgment in the judicial review relating to the ombudsman’s report, the High Court directed me to reconsider my response to the ombudsman’s first recommendation on the basis that maladministration had occurred. I have undertaken my reconsideration on that basis. As a result of that reconsideration we have made this extended FAS package available for all those who suffered losses as a result of their employer’s insolvency, and have considered it appropriate to set the assistance at the same level as the protection offered in compliance with the ECJ judgment. This announcement is not affected by our appeal against one of the High Court’s decisions in the ombudsman case. That appeal has been mounted because the judgment raises important legal and constitutional issues, in particular on the relationship between the ombudsman and the Government, and those issues need to be resolved. This extension to FAS will stand, regardless of the result of our appeal against the finding of maladministration. The extended scheme will now provide assistance to ensure that the pensions of all members of affected pension schemes are topped up to 80 per cent. of the core pension rights accrued in their scheme. We will more than double the cap on assistance payments to £26,000, and in recognition of the significant difference that £10 a week can make to some pensioners, we will end the de minimis rule that excludes those whose FAS payment would be £10 or less a week. Although FAS payments commence at age 65, they will remain ‘inflation proof’ up to age 65. In total an estimated 100,000 will benefit from this extension. 85,000 scheme members will be eligible for assistance for the first time. Around 15,000 people who stood to benefit from FAS under the current scheme will receive more assistance due to the extension. As a result we expect that all the estimated 125,000 people with losses will be helped. This increases the taxpayer’s commitment from £2.3 billion in cumulative cash terms, to £8 billion. This equates to more than doubling the scheme in present value terms, from £830 million to £1.9 billion. Having now settled the public expenditure support for these schemes, I have today set up a review to:"examine how we make best use of the assets in pension schemes that are winding up under funded with an insolvent employer;""determine if these sources of funding could be used to increase assistance for affected scheme members;""consider any suggestions from interested and concerned parties." The review will be conducted by the Department for Work and Pensions and advised by a panel of technical experts. Due to the complexity of the issues involved the review will be informed by advice from the Government Actuary Department. This will commence immediately and the review will report by the end of the year. Let me be clear that the 80 per cent. level of support we have committed is from the taxpayer, and it is not contingent on the release of any other funding source. Regardless of the review, it continues to be important to the interests of all members of affected pension scheme that schemes are wound up as quickly as possible. Should the review identify an alternative way of using scheme assets we will ensure that no scheme members lose out because their pension scheme has completed the wind up process. It is also important that trustees continue to apply on behalf of members to the Financial Assistance Scheme for payments and provide member data. Failure to do so will mean that people who could be receiving payments will lose out on the substantial help that is now available.