Question to the HM Treasury:

To ask His Majesty's Government what risk analysis have they conducted, or asked regulators to conduct, to stress-test the payments currently expected from the Financial Services Compensation Scheme, should one or more underwriter, reinsurer or supplier of life annuities or bulk purchase annuities become insolvent and be unable to meet all the long-term liabilities from its own resources; if so, what the results of the stress test were; and if not, whether they intend to commission such an analysis.

Answered by Lord Livermore

The Financial Services Compensation Scheme (FSCS) funds its compensation costs through levies on the financial services sector and recoveries against firms that have failed. As FSCS levies industry following payment of compensation or securing continuity for policyholders, it has the ability to borrow privately from a £3 billion revolving credit facility to meet short-term funding needs, with any lending repaid through levies. As a last resort, it can also request to borrow from HM Treasury, with any government borrowing also repaid through levies. This means that, even in the event of last-resort public financial support, the financial services sector will fund FSCS’s costs through a levy alongside recoveries.

Under rules set by the Prudential Regulation Authority (PRA), eligible life insurance policyholders – including customers of life annuity and bulk purchase annuity contracts – are 100% protected by the FSCS for any claims against an authorised insurer in the event that it fails. For a life insurance failure, levies would be payable by other life insurance and pensions providers.

The PRA sets the rules for policyholder protection including the FSCS funding of insurance compensation, including long-term insurance such as annuities. In doing so, it has rules in place to ensure FSCS can safely levy the insurance sector and meet its costs. The FSCS also closely monitors and regularly forecasts potential claims and compensation costs to ensure it can meet these within its available financial means. The PRA also conducts stress tests of life insurers, most recently in 2025.

Finally, FSCS also maintains contingency plans for a potential life insurance failure. These plans are subject to independent assurance through FSCS's assurance framework and are designed to support an effective and coordinated response, including engagement with regulators, firms and other stakeholders.

Question to the HM Treasury:

To ask His Majesty's Government whether the Financial Services Compensation Scheme would pay out 100 per cent of all life annuity or bulk purchase annuity contracts, in the event that the annuity company or its underwriters or reinsurers were to fail and become unable to do so.

Answered by Lord Livermore

The Financial Services Compensation Scheme (FSCS) funds its compensation costs through levies on the financial services sector and recoveries against firms that have failed. As FSCS levies industry following payment of compensation or securing continuity for policyholders, it has the ability to borrow privately from a £3 billion revolving credit facility to meet short-term funding needs, with any lending repaid through levies. As a last resort, it can also request to borrow from HM Treasury, with any government borrowing also repaid through levies. This means that, even in the event of last-resort public financial support, the financial services sector will fund FSCS’s costs through a levy alongside recoveries.

Under rules set by the Prudential Regulation Authority (PRA), eligible life insurance policyholders – including customers of life annuity and bulk purchase annuity contracts – are 100% protected by the FSCS for any claims against an authorised insurer in the event that it fails. For a life insurance failure, levies would be payable by other life insurance and pensions providers.

The PRA sets the rules for policyholder protection including the FSCS funding of insurance compensation, including long-term insurance such as annuities. In doing so, it has rules in place to ensure FSCS can safely levy the insurance sector and meet its costs. The FSCS also closely monitors and regularly forecasts potential claims and compensation costs to ensure it can meet these within its available financial means. The PRA also conducts stress tests of life insurers, most recently in 2025.

Finally, FSCS also maintains contingency plans for a potential life insurance failure. These plans are subject to independent assurance through FSCS's assurance framework and are designed to support an effective and coordinated response, including engagement with regulators, firms and other stakeholders.

Question to the HM Treasury:

To ask His Majesty's Government whether the Financial Services Compensation Scheme is underwritten by any public body or Government department.

Answered by Lord Livermore

The Financial Services Compensation Scheme (FSCS) funds its compensation costs through levies on the financial services sector and recoveries against firms that have failed. As FSCS levies industry following payment of compensation or securing continuity for policyholders, it has the ability to borrow privately from a £3 billion revolving credit facility to meet short-term funding needs, with any lending repaid through levies. As a last resort, it can also request to borrow from HM Treasury, with any government borrowing also repaid through levies. This means that, even in the event of last-resort public financial support, the financial services sector will fund FSCS’s costs through a levy alongside recoveries.

Under rules set by the Prudential Regulation Authority (PRA), eligible life insurance policyholders – including customers of life annuity and bulk purchase annuity contracts – are 100% protected by the FSCS for any claims against an authorised insurer in the event that it fails. For a life insurance failure, levies would be payable by other life insurance and pensions providers.

The PRA sets the rules for policyholder protection including the FSCS funding of insurance compensation, including long-term insurance such as annuities. In doing so, it has rules in place to ensure FSCS can safely levy the insurance sector and meet its costs. The FSCS also closely monitors and regularly forecasts potential claims and compensation costs to ensure it can meet these within its available financial means. The PRA also conducts stress tests of life insurers, most recently in 2025.

Finally, FSCS also maintains contingency plans for a potential life insurance failure. These plans are subject to independent assurance through FSCS's assurance framework and are designed to support an effective and coordinated response, including engagement with regulators, firms and other stakeholders.

Question to the HM Treasury:

To ask His Majesty's Government what protections are in place in the UK to ensure bulk purchase annuities are guaranteed to pay the promised pensions for the rest of each member's life.

Answered by Lord Livermore

Bulk purchase annuities are provided by authorised insurers and regulated by the Prudential Regulation Authority. This requires insurers to hold capital and manage risks so that they can meet their long-term obligations to policyholders.

Where a pension scheme secures members’ benefits through an insurance buy-out, responsibility for paying those benefits transfers from the scheme to the insurer. Eligible annuity policyholders are also protected by the Financial Services Compensation Scheme if an authorised insurer fails.

Question to the Department for Work and Pensions:

To ask His Majesty's Government what protections and rights of appeal are available to public sector pension scheme members who suffer avoidable losses due to incomplete Government Actuary department information when transferring accrued rights to the private sector.

Answered by Baroness Sherlock - Minister of State (Department for Work and Pensions)

Actuaries providing information in relation to pension transfers are bound to uphold standards and codes of conduct set out by the Institute and Faculty of Actuaries, the professional body for actuaries, and the Financial Reporting Council, the oversight body for the actuarial profession. Both organisations can investigate complaints against individual actuaries (but not organisations) and have established complaints and disciplinary processes.

Where a pension scheme trustee, sponsoring employer or member believes they have suffered a loss as a result of incomplete actuarial information, redress would normally be sought through the courts under professional negligence or breach of contract.

Question to the Department for Work and Pensions:

To ask His Majesty's Government which regulatory body oversees the actuarial profession in connection with advice to members, trustees and sponsors of Defined Benefit pension schemes and what mechanism there is for compensation for schemes or members who lose out as a result of negligent advice or failure to warn of all material risks to the pension scheme or its members.

Answered by Baroness Sherlock - Minister of State (Department for Work and Pensions)

The actuarial profession is regulated by the Institute and Faculty of Actuaries (IFoA) which is the relevant professional body. It is possible to raise a concern or complaint relating to an individual member of the IFoA directly to the IFoA.

The Actuaries’ Code is the ethical Code of Conduct to which all IFoA members must adhere. Failure by a member to comply with the ethical requirements set out in the Code may lead to disciplinary proceedings under the IFoA’s Disciplinary Scheme.

The Financial Reporting Council (FRC) is the oversight body for the actuarial profession, and this provides a further route for complaints about professional standards and conduct.

Where a pension scheme trustee, sponsoring employer or member believes they have suffered a loss as a result of negligent actuarial advice, redress would normally be sought through the courts under professional negligence or breach of contract.

Question to the Department for Work and Pensions:

To ask His Majesty's Government, further to the Written Answer by the Minister of State for Social Security and Disability on 17 March (HC119129), which issues were investigated by (1) the Pensions Ombudsman, and (2) the Parliamentary and Health Service Ombudsman, in connection with the AEA Technology pension scheme when it was transferred from the public to private sector.

Answered by Baroness Sherlock - Minister of State (Department for Work and Pensions)

The Pensions Ombudsman investigated a complaint determined in January 2015 concerning the conduct of the trustee of the AEA Technology Pension Scheme (reference PO-4816 can be found on The Pension Ombudsman website).

In its role as the Pension Protection Fund (PPF) Ombudsman, The Pensions Ombudsman considered two references of reviewable matters concerning the PPF and AEA Technology. Both cases are in the public domain and can be found on The Pensions Ombudsman website. The first (reference PPFO-2915), in June 2014, and the second (reference CAS-53012-H6M5), in December 2021.

The Parliamentary and Health Service Ombudsman investigated complaints about a factsheet produced by the Department for Work and Pensions in response to enquiries from members of the AEA Technology Pension Scheme.