(9 years, 2 months ago)
Westminster HallRead Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr Philip Hollobone (in the Chair)
Kicking off this morning’s proceedings on the important topic of Allied Steel and Wire pensions is Mr Gordon Henderson.
Gordon Henderson (Sittingbourne and Sheppey) (Con)
Thank you, Mr Hollobone—it is a real delight to see such a cheery face in the Chair for a debate so early in the morning.
I want to raise an issue that has been of concern to a group of my constituents for the past 13 years. That group comprises ex-ASW workers who lost their pensions when the company went into receivership in July 2002 and was declared insolvent the following year. Of course, it was not just ASW workers in Cardiff and Sheerness who faced the loss of their pensions in that era, when a large number of final salary pension schemes were wound up. Indeed, 40,000 people were affected at the time, and many more have been affected since. However, I would like to concentrate most of my remarks on members of the ASW pension plan or the ASW Sheerness Steel Group pension fund, which were defined-benefit payment schemes based on final salary and length of service.
Many of those workers lived in my constituency, and they were treated disgracefully. Their story really starts following the raid on the Mirror pension scheme by Robert Maxwell, which led to the introduction of legislation in 1997 with the intention of ensuring that all company pension schemes were correctly funded and protected. The benchmark used was the minimum funding requirement. Pension schemes had to be funded to a level that met the MFR. Therefore, a scheme funded to 100% of the MFR would be properly funded and safe—or so most people believed. However, nothing was further from the truth. In fact, should a scheme funded at 100% of the MFR have been wound up, it would have bought only about 60% of the expected benefits.
The problem was that there was nothing in the legislation to force the higher levels of funding needed to deliver the expected pensions. The MFR was heavily criticised by the parliamentary ombudsman in the report “Trusting in the pensions promise”. The reality was that companies were penalised through increased taxation if their pension schemes were funded at more than 10% above the MFR. Pension funds considered able to finance full pensions were deemed to be overfunded. That led many companies to introduce pensions holidays during the 1990s. That included ASW, whose pension scheme was very healthy, standing at about 130% of the MFR. To avoid taxation, the company introduced a pensions holiday for several years, during which it made no contributions to its pension fund. It eventually reduced the scheme to just over 100% of the MFR.
When the ASW pension plan and the Sheerness Steel Group pension fund were terminated in 2002 and started to be wound up, it was found that there were insufficient assets to meet the schemes’ liabilities. Under the legislation in place at the time, if there were insufficient assets when a scheme was wound up, the employer was required to make up the difference, but an insolvent company such as ASW might not be able to do that. In such cases, those assets that were available had to be distributed in accordance with a statutory priority order—a provision introduced in 1997 under the Pensions Act 1995. Normally, that ensured that existing pensioners got all their due pension, but active and deferred scheme members might get only a small proportion of their entitlement. The proportion of their promised pension to which ASW workers were entitled was about 40%.
As hon. Members can imagine, that was a huge shock to the ASW workers in my constituency, particularly because, before the Sheerness Steel Group pension fund was wound up, the Government had assured them and many other workers that their pensions were safe. One Government booklet on occupational pensions posed the following question:
“How do I know my money is safe?”
It obligingly gave the following answer:
“Occupational pension schemes in the private sector are set up under trust law. The trustees must run the scheme in the interests of the members and in line with…trust law…the trust deed (a legal document) and rules; and…specific laws about pensions.”
It went on to explain:
“Although your employer pays into the scheme and may be a trustee, the assets of the pension scheme belong to the scheme, not to your employer. As a scheme member, you are protected by a number of laws designed to make sure schemes are run properly and to make sure funds are used properly.”
Like workers in many other companies, ASW pensioners believed what they were told. If they had not been given those assurances, they might have transferred to a different scheme, although it is worth noting that independent financial advisers were told by the pension regulator at the time not to transfer people out of “safe” final salary schemes.
Helped by my predecessor in Sittingbourne and Sheppey, Derek Wyatt, and by my right hon. Friend the Member for Thornbury and Yate (Steve Webb), who is now the Pensions Minister, ASW made a complaint to the parliamentary ombudsman, whose subsequent report stated that the general public had every reason to believe that their occupational pensions were safe, because of statements repeatedly made by the Department for Work and Pensions and because of other Government actions.
The then Government rejected that report and took no action. The Pensions Action Group initiated a judicial review of that rejection, and the High Court found in its favour. The Government appealed the ruling, but the Appeal Court upheld the High Court judgment. In 2003, the Government sought to improve protection for members of pension schemes by proposing to introduce the Pension Protection Fund, a levy-based scheme that eventually came into being in April 2005. However, the PPF did not provide protection for workers who had lost pension rights before the legislation came into force.
Following considerable pressure from right hon. and hon. Members on both sides of the House and determined campaigning from the Pensions Action Group, the Government eventually introduced the financial assistance scheme in 2004. The FAS promised 90% of earned pension to workers who had lost their pensions before the introduction of the PPF. However, 90% of an earned pension was not the same as 90% of an expected pension based on any particular scheme, such as that in which ASW workers had invested. Compensation payments were much lower, so for the Government continually to quote a 90% figure was, at best, disingenuous. The FAS also provided little inflation protection. In addition, a £26,000 payments cap was introduced, badly affecting people with good salaries, such as steel workers, and particularly those with long service.
When the PPF was eventually introduced in 2005, it acted like an insurance scheme funded by pension funds and without the input of any Government money.
David Simpson (Upper Bann) (DUP)
I congratulate the hon. Gentleman on bringing this important issue to the House. What he has described thus far is almost a mirror image of a number of cases in my constituency, where adequate funding was not in place to deal with pensions and insolvency. After 15 years, families in my area are still suffering the aftermath. The attitude is that the funding of pensions was not regulated properly. Does he agree?
Gordon Henderson
Yes, I certainly do, and I will come to the problems relating to that.
Like the FAS, the PPF gives 90% of earned pension, and it gives protection against inflation for employment post-1997. That indexation ensures that protection under the PPF is much better than protection under the FAS, because it improves over time. Under the FAS there is very little post-1997 inflation protection, and the pre-1997 pensionable service has no inflation protection at all, even though most of the ASW workers in my constituency had paid for indexation with enhanced contributions to the Sheerness Steel Group pension fund. For most ASW FAS members, the pre-1997 element of their pension represents the majority, if not all, of their pensionable service.
I want to give an example of what that means in practice to a typical employee at the steelworks—and, I am sure, to constituents of the hon. Member for Upper Bann (David Simpson)who have been affected. Someone who joined the pension scheme in 1980, with an anticipated retirement date in 2010 at the age of 62—the Sheerness steelworkers’ retirement age—and a salary of £30,000 a year in 2002, would have expected when he retired in 2010, after 30 years of service, to receive a pension equal to 30 sixtieths of at least a £30,000 salary, which would equate to £15,000 a year. However, by the time the steelworks went into liquidation in 2002, that worker had only 22 years of service, so his pension entitlement would have been 22 sixtieths of £30,000, or about £11,000 per annum. However, the FAS paid only 90% of that amount, which is £9,900 per annum.
The FAS then applied limited inflation protection, at 2.5%, but only for service post-1997 until the steelworks went into liquidation—about 4.5 years in total. The employee would therefore have inflation protection on just 4.5 twenty-seconds of £9,900, which equates to £2,025—that sounds a bit complicated, and I have the figures before me which makes it easier for me, but trust me, they are right. However, there would be no inflation protection on the remaining 17.5 twenty-seconds, which would have been £7,875. The maximum indexation that the employee would get was therefore 2.5% of £2,025, which is £50 per year. That is equivalent to a total indexation of about 0.5% maximum over the full amount of the pension.
Jonathan Evans (Cardiff North) (Con)
My hon. Friend may recall that a couple of years ago I obtained an Adjournment debate on this very issue, which affected constituents of mine who were ASW workers. What they tell me endlessly is that when the very arrangements he describes were outlined before the last election, all politicians made it clear to them that it was an injustice, which would be corrected. The fact that it has still not been corrected undermines the Government’s record on pensions generally, in my constituents’ view.
Gordon Henderson
I fully accept that, and I want to talk about the reasons why the Government have been unable to pursue the matter.
In the example I have been outlining, that typical worker, having expected a pension of £15,000 but with an actual FAS pension of £9,900 and a maximum of 0.5% indexation compared with an average inflation rate over the relevant years of more than 2%, lost an awful lot of money.
An ASW pensioner told me recently that he received his first FAS payment in 2006 and reckons that today it is worth only about 80% of its initial value—which was, of course, only 90% of his actual entitlement. That person calculates that he is actually getting about 75% of his entitlement, a figure that reduces year by year. That is why the DWP-quoted figure of 90% is misleading. The brutal truth for ASW pensioners is that the longer their service, the more negative the effect on their income the lack of proper indexation is. The PPF uses very similar rules, but as the number of years since 1997 is increasing, the multiplier becomes more favourable. There have been 18 years since 1997, so someone with 20 years’ service going into the PPF now will have inflation protection on 18 twentieths, or 90%, of his pension; and only two twentieths, or 10%, will be without protection. Those proportions will become more favourable as time progresses. Under the FAS, indexation is very limited, whereas under the PPF, as each year goes by, the amount of post-1997 service increases and, through Pensions Act disclosure requirements, PPF members are kept fully informed about funding levels and about what would happen if their employer became insolvent.
There is another problem under the FAS, in connection with the period between members reaching retirement and the May 2004 date, when the FAS was introduced. Anyone affected by that gets nothing from the FAS for that period; yet that is not the case under the PPF scheme. Ministers in the previous Government insisted consistently that the country could not afford to provide pre-1997 indexation to ASW pensioners under the financial assistance scheme. However, the very same Government bailed out Northern Rock and fully protected the pensions of the employees and well as investors’ funds. The Government also offered a 100% bail-out to UK investors in Icelandic banks, despite the fact that those investors were fully aware of the risk in such investments. Subsequently, the Government bailed out other British banks to prevent their bankruptcy and fully protected the final salary schemes of the employees. That smacks of double standards.
Furthermore, on the question of the affordability of pre-1997 indexation, £2 billion is being transferred to the Treasury from residual pension scheme assets from failed companies. The total FAS costs are estimated at the same figure of £2 billion, albeit spread over a number of years, and there should be more than enough to fund indexation for ASW pensioners pre-1997. It is likely also that the final costs of the scheme will be well below the original estimate, because more than 10,000 people who were eligible for FAS payments have died since its introduction.
I want to raise one other matter: overpayment of FAS payments. Some ASW FAS members have been overpaid because of errors by either the scheme’s trustees or FAS staff. Almost none of those members knows how the calculations that led to the overpayments were done, and they are unable to check whether the FAS payments were right or not. When the FAS discovers an overpayment, it imposes an inequitable repayment plan; it is harsh and unfair. In some cases the repayment plan results in the total loss of pension payments, as happened to one of my constituents, who raised the matter with me at a recent advice surgery. He alleges that the FAS never even contacted him to negotiate a suitable repayment plan. Instead it simply stopped his pension entirely and without warning. That simply cannot be right.
Another problem with those repayment plans, which, let us remember, are to recover overpayments resulting from mistakes by the FAS, not the pensioners involved, is that because the way they are calculated—a bit like an annuity—members can actually repay significantly more than the overpayment itself. That, too, cannot be right.
I must admit that, unlike my right hon. Friend the Member for Thornbury and Yate, I am no expert on pensions. When writing this speech, I relied heavily on the help of my friend and constituent, Andrew Parr, who is himself an ASW pensioner who has been badly let down by the financial assistance scheme. However, although I am no pensions expert, I recognise injustice when I see it. I genuinely believe that ASW pensioners in my constituency have been hard done by, and I urge the Government to take the following action to improve the situation for ASW pensioners: first, reconsider the decision not to provide pre-1997 indexation to ensure that ASW pensioners receive the inflation-proof pensions for which they paid; secondly, increase the FAS payments cap to help long-service pensioners; and thirdly, look again at the way that overpayments are calculated and recovered.
ASW pensioners have never given up their fight for justice. Working with the Pensioners Action Group, they have campaigned tirelessly, lobbying MPs, demonstrating at party conferences and staging protest marches. In March 2006, I was honoured to join ASW workers from my constituency on a march in Cardiff, and in November of the same year, I marched down Whitehall with the very same workers. My speech today is a reminder to the Government that the protests will continue until ASW pensioners get the justice they deserve.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Sittingbourne and Sheppey (Gordon Henderson) on bringing the issue of FAS pensions to the attention of the House once again.
As the hon. Gentleman set out eloquently, this has been a burning issue for some time. He made it clear that the Pensions Action Group will continue to campaign to see the full value of their pensions restored. No one who walks the pensions road or takes the pensions brief can be unaware of the strength of feeling about the issue. Over the past few years, as shadow Pensions Minister, I have met representatives of the Pensions Action Group and of trade unions—including Community, which I met last week, and Unite, a significant number of whose members were affected by the collapse of the steel workers’ pension scheme.
Let me say a little about where I think the issue has come from and where it stands. The previous Government took action and put in place a system to ensure that those who lost their pensions received 90% back, with a cap at just under £30,000. I have the sense that, particularly in the past 18 months or so, there has been growing anger among campaigners about promises that they think were made before the previous election by parties who came to power but did not meet those promises.
Members of the Government parties have been outspoken about the failure to meet the promises that were made. The hon. Member for Cardiff North (Jonathan Evans) was clear that the indications given to pensioners—that the missing element would be restored to them on a change of Government—have not materialised. He said that in a polite and decorous way, but that was his point.
One of the campaigners in the Pensions Action Group, John Benson, went as far as to say that the group had been betrayed by the coalition. I do not know whether that is true, as I entered this House in 2010, but it speaks to the difficulties that the issue raises.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
I pay tribute to the hon. Member for Sittingbourne and Sheppey (Gordon Henderson) for securing this debate. I must declare an interest, as I am a member of the Community trade union and I was a former regional industrial officer for it, although I did not work in the areas where Allied Steel and Wire were based. We were part of a large campaign, and the previous Government were challenged in the European Court of Justice. Perhaps my hon. Friend wishes to comment on the fact that the Government have not applied article 8 of the European insolvency directive, which the European Court of Justice said would entitle the steel workers to full compensation.
Gregg McClymont
No one can doubt the attention that Community has paid to making that case for its members, who suffered great detriment as a result of the collapse of these pension schemes.
I know from the discussions that I have had that there was a strong sense that there would be further action, given the promises made by the parties that are now in government. Actually, given the current situation, the previous Government’s substantial intervention stands as the signal contribution from the state to alleviating the detriment suffered by members of those schemes. Since 2010, there has been no advance on the agreement reached under the previous Government. Of course, that agreement has virtues—up to 90% is a lot more than nothing. It is a big difference.
Community and Unite have acknowledged to me that the previous Government’s intervention made a substantial difference. Of course it did. Those who lost their pensions now receive up to 90% and a cap at approximately £29,300—I cannot remember the precise number; I think it is £29,348. That is a significant advance, but those people had a strong feeling that they would get more if there was a change of Government; perhaps that speaks to the differences between opposition and government. None the less, promises were made, and those who made them should account for why they have not been fulfilled.
The Minister for Disabled People (Mr Mark Harper)
I am listening carefully to the hon. Gentleman. He may be getting to this, so he will have to forgive me if I am jumping the gun. Given the tone of what he is saying, is he making a commitment on behalf of the Opposition to make a significant financial improvement to what is on the table?
Gregg McClymont
That is the difference between what a responsible Opposition do and what appears to have happened before 2010.
Gregg McClymont
The Minister says it is just words, but the words that those campaigning for the parties that are now in government used have not materialised into any action. The difference between the Government parties and Labour is not only that the previous Government actually acted, but that we are a responsible Opposition and we will not promise things that we do not intend to deliver.
Tom Blenkinsop
The perfect example of that, to which the Minister must pay attention, is the difference between the Conservative party’s pre-election promises about Equitable Life and what was delivered. We need to bear that in mind because it is an ongoing case, much like this one. We are talking about the lives of individual workers who laid down their deferred income on the understanding that they would receive it.
Gregg McClymont
Yes. We are dealing with individual workers’ lives, and it is incumbent on political parties not to promise things in their search for votes that they do not intend to deliver. That is the big difference between the Government and the Opposition.
I have met a number of times with the pensioners affected by this issue, and the impact on people’s lives is enormous. The previous Government acted—it was not just words. Understandably, that action has not met all the expectations of those whose pensions disappeared. A significant part of their pensions has been restored, but not all. Understandably, those affected feel an enormous sense of injustice, but it is incumbent on us all to use words carefully, to make sure that actions speak louder than words and to take on board the points made today.
The hon. Member for Sittingbourne and Sheppey, who rightly brought this issue before the House, mentioned the Pension Protection Fund, comparing it with the FAS. The PPF is another welcome development: it ensures that if someone is saving into a company pension, they can have confidence that that pension promise will be met, whatever circumstances the company finds itself in. He was right to draw a distinction between the financial assistance scheme approach and the PPF.
The issue of overpayments has repeatedly been brought to my attention and adds to the agony, if I may use that word—I think it appropriate—of the situation. Not only is one’s full pension not restored, but that individual then finds through no fault of their own that they are asked to repay money because of mistakes made in calculations. Any sensible Government would look at that.
I find it curious that the Minister for Pensions is not responding to today’s debate—I do not know why he is not. We were in a Committee together earlier; perhaps he is not here because of the potential for that Committee to overrun, but it would have been nice to have him stand up and explain the Government’s approach. I looked at what he has said on this issue. He has referred to the fact that the Government are paying out £2 billion, I think, but of course that system was put in place by the previous Government. There has been no advance under the coalition.
Let me finish by making a broader point. When individuals save into a company pension scheme, it is understood that that pension will be paid out in full when individual savers retire. That is understood to be part of the compact between employers and employees. What emerged in the 1980s and 1990s really brought home the necessity of putting in place a system that protects against the non-fulfilment of that pension promise.
Although it is easier for us, as politicians, to step back a little and make this point, the system now is clearly much better than the situation in the ’90s. That, however, is cold comfort to those who have not received their full pension. Having regularly met the representatives of the Allied Steel workers, let me say that Labour understands both the necessity of continuing the campaign and the injustice felt at not receiving the full pension that is due. We will continue to listen closely to the campaigners, but we will not promise something that we are not sure we can deliver. We have learned that lesson from watching the parties who are now in government.
Tom Blenkinsop
I just want to add a point to my hon. Friend’s good summing up. Without industrial vigilance, this campaign would not even have started in the first place. The lion’s share of the funding for taking the legal case to the ECJ back in 2006 came from the trade union movement. Without collective bargaining in workplaces, there is no ability to be vigilant about any employer who tries to perform any sort of industrial acrobatics to get out of the payments that they owe their employees.
Gregg McClymont
Yes, and I want to finish by paying tribute to the campaigns run by the Pensions Action Group and the trade unions. Through those campaigns, this issue has remained near the top of the pensions agenda. I repeatedly receive submissions on it and that repeatedly results in conversations and dialogue with the various parts of the campaign.
In my understanding, and from meetings with the campaigners and those affected, that search will continue until the full payment of the pension due is realised. Although I am not going to stand here in opposition and promise something that I am not sure I can deliver, I will say that it was the last Government who put in place the system that does exist. That surely stands for something next to the honeyed words of the Government.
The Minister for Disabled People (Mr Mark Harper)
It is a great pleasure to serve under your chairmanship, Mr Hollobone. I pay tribute to my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) for securing the debate.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont)referred to my right hon. Friend the Minister for Pensions. I should be clear that my right hon. Friend, like the shadow Minister, was scheduled to be in a Committee considering regulations for an hour and a half, so he prudently ensured that a Minister was available from the Department to answer this debate. Due to the fact that the regulations were clearly excellent and that the Opposition had very few questions and did not challenge them, the Committee unexpectedly finished early. However, the Pensions Minister had secured my cover for this debate, which is why I am here and he is not. I am sorry that that is so disappointing to the shadow Minister.
I thank those Members who have contributed to the debate, as well as other Members and those outside the House who worked to establish the financial assistance scheme in the first place. The scheme ensures that people who were members of schemes that went into wind-up prior to the introduction of the Pension Protection Fund will get some financial help, which they otherwise would not.
It is also worth saying—the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East acknowledged this point—that I understand the views of all the pensioners who have been affected, but the fact is that the pension schemes that were wound up without sufficient funds in them to pay those pensions mean that those pensions effectively do not exist and have been lost. Without the financial assistance scheme, there would not be the funds to pay those pensioners either in part or at all, so they would be in a far worse situation. What we are discussing is the amount of help people can expect from the Government, and of course, there is no Government money; what we are talking about is the amount of money that taxpayers more generally are prepared to make available.
My hon. Friend the Member for Sittingbourne and Sheppey made the point about what people could expect. My understanding is that the financial assistance scheme has always promised that people would get 90% of their expected pension accrued at the point of winding-up, subject to a cap. That is obviously not the same as the amount that someone who had continued their working life would have expected had the scheme been fully funded. My understanding is that that is not what the Government ever promised. When the previous Government set up the financial assistance scheme, they promised 90% of what would have been accrued at the point of wind-up, and I think that is what has been delivered.
My hon. Friend referred to the cap, whereby when someone was entitled to a higher pension, the FAS caps the amount of assistance paid. That cap was put in place to target the payments on the lowest-paid pensioners. The cap was £26,000 for anyone who began to be paid before April 2007. It is increased annually and is now £33,454, and the amount paid depends on the level of cap in place when the payments begin. For example, a person whose payments began in 2012-13 would have a cap of £31,873, which is more than twice the average occupational pension in the UK in the same period.
When the changes to the PPF cap legislation were made, the Minister for Pensions said that he was considering whether a similar change could be made to the financial assistance scheme. He continues to keep the matter under review and is having discussions with his Treasury colleagues about whether that is doable and affordable. No doubt he will keep the House fully informed on the progress of those discussions.
One point made by my hon. Friend the Member for Sittingbourne and Sheppey and others was about indexing what was accrued before 1997. The FAS reflects the statutory requirement on all schemes, which is to index post-April 1997 accruals in line with the consumer prices index, capped at 2.5%. My hon. Friend did not think that was in line with the PPF, but in fact it is. The PPF has the same indexation post-April 1997, which is CPI, capped at 2.5%. The PPF also pays 90% of the expected pension, so the FAS is in line with the PPF. It would be difficult to argue that the FAS, largely funded by the taxpayer, should be more generous by paying to index pre-1997 accruals than the PPF, which is partly funded from a levy on pension schemes.
If we did index the pre-1997 accruals, that would not be inexpensive. It was estimated in 2010 that providing indexation on all assistance to all FAS recipients in line with the retail prices index, as it was then done, capped at 2.5%, would cost an extra £845 million of taxpayers’ money. That would be the net present value. If we accept that the money available is limited, a choice has to be made. We could provide more generous indexation, which would benefit those pensioners who live longer, but the cost of doing that is that we would pay a smaller percentage of pensions at the beginning. I think the scheme has made the right judgment.
I want to cover one point on the cost. I listened carefully to my hon. Friend and I have heard the point before about the value of the assets of schemes transferred into the FAS being broadly similar to the cost of the scheme. That is not right. In December 2007, the Government announced a significant extension to the FAS. That was funded by a combination of the money transferred in from schemes that were not wound up, which was an estimated £1.7 billion, and an increase in the taxpayer contribution, taking the total taxpayer contribution to the FAS to £12.5 billion. The net sum from the taxpayer to stand behind this pension promise was nearly £11 billion. I think that is very significant.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East is right to say that the promise was made by the previous Government, but of course this is an ongoing commitment, which is being met and stood behind by the present Government. It is an ongoing commitment for taxpayers today and it is a very significant cost. It clearly is not covered by all the assets being transferred in, because if all the assets being transferred in matched the cost of delivering the promise, there would of course be no need for a financial assistance scheme in the first place. The whole point is that the assets in the pension schemes do not, for all sorts of reasons, fund the promises that were made.
On the issue of funding, I listened very carefully to the hon. Gentleman, who seemed to be giving the impression that the Opposition were going to do something significant. I simply wanted to probe him on that and be clear that he was not making any financial commitments. I am not aware that my party made any financial commitments that we have gone back on. Indeed, the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), who is no longer in his place, referred to Equitable Life. I will be brief on this, Mr Hollobone, because I am getting slightly off the subject of the debate, but as the point was made, let me say that my party did make some commitments on Equitable Life—I followed that very closely, because I have constituents who were affected—and we have delivered on what we promised to do for Equitable Life annuity holders. I have had lots of correspondence with Ministers and with my constituents, and we absolutely have delivered on that, so I do not quite know what point the hon. Gentleman was making.
I was not sure, either, where the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East was going with the promises that my party makes. I was listening carefully and I did not hear any specific promise that we were alleged to have gone back on. We have stood behind the very significant commitment that the previous Government made, which is an ongoing commitment, and we have done that in the context of inheriting a very difficult financial situation—in the words of the former Chief Secretary to the Treasury, there was no money left.
This is a significant commitment. It was the right commitment for the previous Government to make, and this Government have honoured the commitment even in the very difficult financial circumstances that we inherited. We are right to have done so, but it does mean—this is where I agree with the hon. Gentleman —it is difficult to justify putting even more taxpayers’ money into a scheme to do the things that my hon. Friend the Member for Sittingbourne and Sheppey and his constituents want. I completely understand that, but we have to recognise that other taxpayers would have to foot the bill.
Gordon Henderson
I accept everything that my hon. Friend the Minister has said, but does he not accept that there is a principle involved? The principle is very clear: the Government of the day misled people into believing that their occupational pension would be safe and was safe to invest in. That is what the parliamentary ombudsman, the High Court and the Court of Appeal decided—that those pensioners had been misled—and therefore it is morally wrong for any Government, of whatever complexion, to use finance as a reason for not giving those people justice.
Mr Harper
Following on from that point, I think, having read through the detail of the case, that what my hon. Friend says is exactly why a financial assistance scheme was set up in the first place, and very significant amounts of taxpayers’ money were put into it. As I said, the total commitment from the taxpayer is now about £12.5 billion and about £1.7 billion has come in from the schemes that were not wound up. That is a very significant commitment from the taxpayer in order to provide protection for pensioners who are not getting support from pension schemes because those schemes were not adequately funded to meet the promises that had been made.
My hon. Friend said that a number of pensioners in the schemes covered by the FAS have died over time and that in some way reduces the cost. It does not, because the calculation of the total cost will have taken into account the age profile of the pensioners and the expected number of deaths—that is the rather brutal science in which actuaries are involved. That factor will have been taken into account in the costings, so no extra money arises from the fact that some pensioners in schemes covered by the FAS are, sadly, no longer with us.
My hon. Friend made a point about workers who became pensioners before the FAS was first announced, in May 2004. As is normal with all Government schemes, assistance payments are not backdated to before the announcement date, so anyone who became a pensioner before May 2004 gets assistance from that date only. The same applies to the PPF: it does not pay compensation for any period before it was introduced.
I listened carefully to my hon. Friend’s point about overpayments. Because a scheme does not know at the beginning of the winding-up process the exact value of the assets it has and what each member is entitled to, it pays interim pensions—its best guess of what the member will get when the scheme does wind up. At the end of the winding-up, the scheme balances its payments, paying less in the future if a person has been overpaid during the winding-up period. Where possible, the FAS balances overpayments and underpayments once it has the full data, which is the same as the approach taken by schemes. During the winding-up period, the FAS tops up any interim pension to 90% of the expected pension, based on data provided by the scheme. I understand that it used to be 80%, but in response to representations from the various groups, the then Government raised the limit to 90%. That narrows the margin for error, so if there is an error in the data provided by the scheme, that increases the chances of having to recover an overpayment.
The reason why the overpayments are not simply written off is because the FAS is largely funded by the taxpayer. The Department uses the guidance “Managing public money”, which is issued by the Treasury. That is the same guidance used when, for example, the Government overpay benefits and have to recover them. The FAS does what the schemes would do to recover overpayments: it turns the amount that has been overpaid into a notional annuity and deducts it from the assistance due, so that over the individual’s lifetime, they will receive the correct amount.
I listened carefully to my hon. Friend, and I think he said that one of his constituents did not receive good communication from the FAS about the fact that they had been overpaid and that the overpayment would be recovered. I am sure that my hon. Friend will correct me if I am wrong. If that is the case, there is no excuse for poor communication. If I have correctly understood that that came as a surprise, it would be helpful if he wrote to the Minister for Pensions, if he has not done so already, so that we can look into that breakdown of communication.
Gordon Henderson
May I clarify that point? My constituent’s complaint was that he is aware of other people in similar situations whom the PPF contacted to negotiate a repayment plan to ensure that it recovered the money over time, but he was not given that opportunity. I have already written to the PPF to ask why it did not negotiate, and why it immediately stopped his pension entirely. That was his point; he was not given an opportunity to negotiate and say, “Right, I will pay off x amount per month.”
Mr Harper
I am grateful to my hon. Friend for that clarification. He has already written to the scheme, so I will draw his comments to the attention of the Minister for Pensions. It may be helpful for the Minister to look at the case and perhaps write to my hon. Friend about it, because it is difficult to go into the specifics of an individual case in an Adjournment debate.
My hon. Friend rightly raised the subject in his role as Member of Parliament for his constituents. He acknowledged in his speech the assistance he has received from those in his constituency who have campaigned on the matter. I recognise that he and those whom he represents are probably disappointed by what I have had to say. However, I hope he understands that, given the very significant contribution that taxpayers rightly continue to make to the financial assistance scheme, there is a limit to the amount of support that taxpayers can give. I fear that it will not, therefore, be possible to deliver the things that he has requested, given the circumstances that we still face in the public finances because we are dealing with the legacy that we inherited from the previous Government.
Mr Philip Hollobone (in the Chair)
I thank all hon. Members who took part in that important debate for covering all the issues pithily and succinctly. The next debate is not due to start until 11 o’clock, so I will suspend the sitting until that time. However, if the participants arrive a few minutes early, we will start when they arrive. The sitting is, therefore, suspended until about 11 o’clock.