Press Notice 43, Session 2006-07

Published at 9 am Friday 13 July 2007


In an urgent report published today as the Pensions Bill returns to the Commons, the Public Administration Select Committee urges MPs to consider carefully before rejecting Lords Amendments to the Pensions Bill which would extend the Financial Assistance Scheme to members of pension schemes which were wound up by solvent employers.

The Government has said that solvent employers who wound up pension schemes without honouring the promises made to scheme members are morally responsible for making good their losses.  The Committee points out that before 11 June 2003, it was perfectly legal for employers to wind up schemes.  It notes

…The employers’ actions might have been deplorable, but they were certainly legal. We agree that solvent employers who left members of their pension scheme without the benefits to which they were entitled have a moral obligation to fulfil their pension promises. Nonetheless, the Government should not use the indigence and distress of those who have suffered considerable losses to try to blackmail them to do so.

The Government hints that changes may be brought forward in secondary legislation after a Government Review has established the extent of the problem. The Committee notes that there is no power to amend such legislation, and only the executive can bring it forward.  It urges "the House should consider any government assurances extremely carefully before it gives up his weapon."

The Committee also draws attention to delays in making payments to those eligible for the FAS, and calls for action to speed them up.

The Chairman of the Committee, Dr Tony Wright, said:

“We have been following this story since the Ombudsman published her report last year.  The Government has already made significant concessions, but we believe it should accept that members of all schemes which were wound up without the assets to support their pensions promise need assistance, regardless of whether or not the employer remained solvent.  There is no difference in the difficulties and losses suffered by those whose schemes were underfunded because their employer became insolvent, or those whose schemes were underfunded because their employer took advantage of the inadequate legal framework in place before June 2003. It is totally unacceptable to use their suffering to blackmail employers.”

Notes for Editors

1. The pensioners in question suffered losses before the regime brought in by the Pensions Act 2004, when a Pensions Protection Fund was established.

2. This is the third report the Committee has made on this issue. The first examined the Ombudsman's report on Trusting in the Pensions Promise:
The second reported on the Pensions Bill:

3. The Committee is now particularly concerned with the position of those in final salary occupational pension scheme whose schemes were would up by solvent employers. The rules for such windups changed over the years.. Broadly speaking, the rules relating to debt owed to the scheme were as follows.
• If a scheme wound up before 19 March 2002, the debt owed by employers to the scheme was calculated on the basis of the Minimum Funding Requirement alone, whether or not the wind up was caused by an employer’s solvency. There was no distinction between monies owed in respect of pensions in payment, and in respect of prospective pensioners. However, solvent employers could only wind up their schemes if they made the required payments; when a company became insolvent the debts it owed its pensioners ranked below many other debts and might not be paid.
• Between 19 March 2002 and 10 June 2003 different rules were applied when schemes were wound up by solvent employers, and when they wound up on insolvency. When an employer was solvent the debt relating to pensioner members had to be calculated on the basis of full buyout of pension rights, but the debt relating to non-pensioners continued to be calculated on the basis of the MFR and prospective pensioners had to be provided with a “cash equivalent” transfer value. No change was made to the rules in the case of insolvent windups.
• After 11 June 2003 the debt on solvent employers was calculated on the basis of full buyout of both pensioners and non-pensioners. 


Committee Membership is as follows: Tony Wright (Chairman) (Lab) (Cannock Chase), Mr David Burrowes (Con) (Enfield, Southgate), Paul Flynn (Lab) (Newport West), David Heyes (Lab) (Ashton under Lyne), Kelvin Hopkins (Lab) (Luton North), Mr Ian Liddell-Grainger (Con) (Bridgewater), Julie Morgan (Lab) (Cardiff North), Mr Gordon Prentice (Lab) (Pendle), Paul Rowen (Lib Dem) (Rochdale), Mr Charles Walker (Con) (Broxbourne), Jenny Willott (Lib Dem) (Cardiff Central)

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