Pension Schemes Bill

Lord Wigley Excerpts

Committee stage
Thursday 5th February 2026 Grand Committee

I am running out of time, but there is a crucial issue to which I shall return when we discuss Amendment 203, which is that different members with pre-1997 service are going to be treated differently. Effectively, there are members where it was found that there was some entitlement to increases in the rules; there are members where the entitlement was not in the rules; and there are members where we just do not know. Two of those groups—those where it was in the rules and those where we do not know whether it was in the rules—are going to get the increases, unlike those where it was not in the rules. That distinction is false if you actually look at what was happening pre-1997. I will continue these remarks on Amendment 203, but we should be guided by members’ reasonable expectations, not the fine detail of what was in the rules. It is what they could reasonably expect, and almost universally at that time, members expected reasonable LPI increases.

[Lord Wigley (PC)]

My Lords, I support Amendment 203ZB, in the name of the noble Lord, Lord Davies of Brixton. I shall also address the government amendments in this group. I have signed the noble Lord’s Amendment 203, which we will come to later, recognising that he has professional expertise far greater than mine in dealing with these matters and believing that he comes to these issues, as I am certain he does, from a position of recognising that one group of workers in particular—those of Allied Steel and Wire in Cardiff—were extremely badly treated over 20 years ago, about which I spoke earlier in our deliberations.

I listened with interest and concern to the explanation given by the Minister for introducing these amendments, and I am far from certain as to whether, when enacted, the discretion to which she referred will give former employees of Allied Steel and Wire any of the redress which they seek for the pension loss they suffered with regard to their pre-1997 employment. Are we today recognising the fairness of their claim but not providing any vehicle by which it can, in fact, be met? That is my fear.

In Committee in the other place, my Plaid Cymru colleague, Ann Davies MP, introduced two amendments to provide indexation for compensation under FAS and the PPF to cover both pre-1997 and post-1997 service, and to reimburse members for the annual increase they should have received. The Government rejected those amendments, saying they would not work. Ann Davies MP came back on Report proposing a new clause to provide indexation. The Government rejected that clause so, in considering these and possibly later amendments, I ask the Minister whether their combined effect will do anything at all to give the pre-1997 pensions full indexation and not limit them to the 2.5% cap which Ministers supported in the other place? Will they do anything to reimburse those members for the annual increases which they never received?

[Baroness Altmann (Non-Afl)]

My Lords, I support and have added my name to the amendment from the noble Lord, Lord Davies. I support all his remarks, especially on the only excuse for not recognising that people need pre-1997 indexation going forward. There is a wrong that is being corrected; therefore, that wrong probably applies even more to benefits from the past. One of the reasons why I say “even more so” is because the members who have the most pre-1997 accrual are the oldest—by definition, they must be. They have much less time left to live and many of them have, sadly, already passed away. Therefore, to right this wrong by promising people money in future that they may never see, or will see almost none of, does not seem a solid way of righting a wrong.

I understand—I will go through this in more detail in the next group—that the Financial Assistance Scheme, for example, is supposedly funded by public money, while the PPF itself and employer contributions, in the form of the levy, provides the money for PPF compensation, but £2 billion from the scheme was transferred to the public purse. Thankfully, when we were trying to improve the Financial Assistance Scheme in 2005, Andrew Young recommended stopping annuity purchase, which had been happening and, unfortunately, transferred much of the money to insurers rather than putting it towards the Government to pay out over time. Nevertheless, the Financial Assistance Scheme itself represents some of the biggest losers and the ones with the most pre-1997 accrual.

Therefore, I urge the Government to recognise that the cost of the requirements in the amendment from the noble Lord, Lord Davies, are easily affordable from the PPF reserve—£14.5 billion is available. The cost estimate for this retrospective addition to the pre-1997 accruals that were not paid in terms of inflation uplifts could be around £500 million out of the £14.5 billion, depending on how the arrears are paid. I would be grateful to the Minister if she could confirm some of the Government’s estimates for what this would be; I have looked at the PPF’s estimates.

I add that the Financial Assistance Scheme does not only help those who affected by insolvency. The European court case was about insolvency, but the MFR protected employers who just wanted to walk away from their schemes before the law changed. Paying in only the MFR was hopelessly inadequate to afford the pensions. There was a brilliant campaign by the unions that went to the European court, and the Government had a great fear that they would lose that. Prior to that, we had an appeal by the workers of Allied Steel and Wire and many of the other schemes to the Pensions Ombudsman, who found in their favour and against the Government, and to the Public Accounts Select Committee. Then we had to go to the High Court, taking a case against the Government, and we won. We also went to the Court of Appeal, taking a case against the Government, and we won on behalf of those whose schemes had failed, whether the employers were insolvent or not, which means that they are all now included.

Even so, the Financial Assistance Scheme and the PPF have not recognised the pre-1997 inflation losses that have left many of these members with half their pension, or even less in some cases. I hope that the Government will look favourably on the amendment. I welcome it, and I am very grateful to the Minister for the recognition that we need to do something—there may be further consideration of that; we will come back to it in subsequent groups—to recompense for the losses of the past.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to my noble friend for introducing his amendment and I look forward to the subsequent instalments of his reflections on these important areas. The Government’s reforms are a significant step forward in making the compensation system and its safety net better for members, but I recognise that it does not go as far as some affected members, or indeed some noble Lords, would want.

We recognise the impact that the issue of pre-1997 indexation has had on affected PPF and FAS members. My colleague, the Pensions Minister, has met with many representatives and has heard at first hand the impact on them. I have also had representations coming into my inbox and I understand the position of those who have contacted me. I recognise the intention behind Amendment 203ZB from my noble friend Lord Davies.

This amendment would increase the pension on which indexation is calculated in respect of PPF and FAS members’ compensation. The PPF has fully assessed the impact of retrospection and arrears. I say in response to the noble Baroness, Lady Altmann, that the cost of providing prospective and fully retrospective indexation and arrears—in line with CPI capped at 2.5% for members whose original schemes provided for these increases—is significant, totalling around £5.6 billion: £3.9 billion for the PPF and between £1 billion and £1.7 billion for FAS. If I have understood my noble friend’s amendment correctly, it would have the effect of increasing the baseline compensation paid to all PPF and FAS members, irrespective of whether their original scheme provided for 1997 increases. This would further increase the costs to the PPF and FAS.

The reforms put forward by the Government offer targeted support and introduce changes to indexation to compensation payments prospectively. The Government’s proposal to introduce pre-1997 indexation in the PPF will reduce the PPF reserve by £1.2 billion and cost around £0.3 billion to £0.6 billion for FAS, totalling £1.8 billion over the lifetime of both schemes. This is a significant shift, reflecting the value of the increases to members’ compensation payments.

The PPF reserve protects current and future members, as well as underwriting future claims across the almost £1 trillion DB system. Prudent management of the reserve is needed to ensure that the security it provides for its members, and the DB pension universe, is not compromised. In introducing this change, the Government had to strike a balance of interests for all parties—including eligible members, levy payers, taxpayers and the PPF’s ability to manage future risk—against the backdrop of a tight fiscal envelope. We believe that our reform achieves the right balance. Any further reduction of the reserve increases the risk to members and the PPF’s ability to manage future risk.

While the PPF has confirmed that the Government’s proposal does not affect its plan to switch off the levy, going beyond our proposal increases the possibility of the PPF needing to return to levy payers in the future. As it stands, this is a win for members and for those businesses. Any changes to compensation levels in the PPF and the taxpayer-funded FAS have significant implications for the public finances. Increases to PPF liabilities affect the Chancellor’s fiscal rules, because the present value of these liabilities change annually, which is counted as a cost in the public finances. Any increases to payments from FAS come at a direct cost to the taxpayer. This is why we are concerned about the risks of going further, as well as the risks to the PPF that I have described.

The bottom line is that the PPF and FAS are compensation schemes: they were never designed to fully replace members’ pensions. Members are in a better financial situation than they would have been before these compensation schemes were established. Our changes to the pension compensation system will offer a stronger safety net for members who, until now, had lost out on pre-1997 compensation increases following their employer’s insolvency or scheme failure.

The noble Viscount, Lord Younger, asked me about the solidity of the amendments and whether they would be enough to avoid legal challenge. If a legal challenge were to be brought forward, the Government consider they can successfully defend any such challenge. I hope that reassures him.

We understand that members will want to have a conversation quickly, and the PPF has rightly said that it would like to do it as soon as is practicable, but we have concluded that the earliest opportunity to provide pre-1997 increases to PPF and FAS members is January 2027, because implementation will require the PPF to identify eligible members in order to implement the changes. That is the first possible opportunity to uplift members’ payments pending the appropriate parliamentary processes. We will do it when and as soon as it can be done, but we have to be sensible about that.

I was asked how many members would benefit. I said that more than 250,000 PPF and FAS members are set to benefit from this change. Up to 90,000 may not benefit, although we know that includes a number of people who will benefit where they had post-1988 GMPs, and we are working with the PPF to identify the number of members who had post-1988 GMPs. Some 85,000 PPF and FAS members do not have any pre-1997 service, so they do not fall within the scope of this change.

I think the noble Lord, Lord Wigley, is going to ask about Allied Steel and Wire. The Minister for Pensions has met Financial Assistance Scheme members, including former Allied Steel and Wire workers whose scheme qualified for FAS, and he has heard first hand of the experience of those members. I am happy to confirm that former members of Allied Steel and Wire will benefit from the Government’s proposals of prospective legislation. If that is the question the noble Lord was going to ask, I hope that is enough to satisfy him.

[Lord Wigley (PC)]

I am very grateful and I hope that the benefit will be substantial.

[Baroness Sherlock (Lab)]

Just for clarity, the benefit will be exactly as I described in the Government’s amendments—which obviously is incredibly generous but, just to be clear, that is the benefit under question. In the light of this, I am grateful to my noble friend and all noble Lords, and I hope the noble Lord will not press his amendment.