In a 47 page report, the DWP denies claims put forward by Ann Abraham, the Parliamentary Ombudsman, that it was guilty of three instances of maladministration, two regarding information provided to consumers and trustees, and the third over its decision to alter the Minimum Funding Requirement (MFR) in 2002.
Responding to the charges, the report claims the government cannot accept any responsibility for information provided by the DWP as it was the “fundamental responsibility of trustees and employers to provide detailed information on their schemes to their scheme members.”
It adds: ”These were not the Government’s pension schemes. Their trustees were not the Government’s trustees. The Government did ensure - through Occupational Pension Regulatory Authority (Opra) guides and actuarial certificates - trustees were guided towards the information they needed. The other more general information which the Government provided in its leaflets was intended only to provide basic information and its limitations were made clear.”
The DWP therefore says the government “does not accept the finding this information was potentially misleading and, thus, maladministrative”.
On the charge the department should have reviewed the information on pensions publicly available in 2000 following a report published by the actuarial profession: Review of the Minimum Funding Requirement, the DWP points out there was no need fro a review as:
• none of the Departmental leaflets in circulation at that time was targeted at existing members of pension schemes. The PM leaflet series was designed to help people who had yet to begin saving for their retirement and the Opra Guide was designed to inform scheme trustees;
• no one suggested the Department was the appropriate body to inform scheme members about the position of the MFR in relation to individuals. The discussions around this subject were concerned with how trustees, and not the Government, could give their members proper information about the funding position of the scheme, without unduly alarming them
• the report did not suggest Departmental leaflets had created or were adding to the confusion.
As a result the report categorically states the government does not believe the information it issued was inaccurate or misleading in its context on the level of security scheme members could expect, if their scheme was funded to the MFR. It also argues given the context and the intended audience, the information was complete, as the leaflets were clearly limited in nature and contained clear warnings. Suggesting any reader would have been left in no doubt that they needed more information to get a full picture.
Differences between leaflets is also defended on the grounds each leaflet served a different purpose so they did not all contain the same information, but the differences were appropriate in the circumstances and context of each leaflet.
The DWP also argues the causal link between the alleged maladministration and individual losses has not been made, as “many schemes were not funded to the MFR, therefore the protection it may or may not have offered scheme members could not have been taken into account by them when reaching their decisions, and any action members could have taken would not have protected a greater part of their pensions”.
As for the recommendations to recompense the workers affected their lost pensions, the report states “the recommendations went well beyond the accepted principle of putting people back into the position they would have been in, had the alleged maladministration not taken place, and acceptance would create a significant precedent across Government”.
It also argues it is not right to use taxpayers’ money to compensate people for losses which reflect the risks inherent in most, if not all, financial and investment decisions, unless the loss is the government’s fault.
The report says in this case it did not “appear to be in the wider public interest to make an exception in this case”, as the cost to the state would be significant, estimated by the DWP at around £15bn in cash over 60 years, peaking at around £400m a year by 2030.
But while repeatedly denying its responsibility for the pension losses, the DWP says the government does not reject reports or recommendations made by the Ombudsman without serious and very careful consideration.
However as a small concession the government points out the findings by the Ombudsman has speeded up its review into the Financial Assistance Scheme (FAS), originally scheduled for 2007, which culminated in an extension to the scheme as announced in the white paper two weeks ago.
It says eligibility has now been extended to people within fifteen years of their scheme pension age, and involves tapers from 80% of expected pension for those within seven years of their scheme pension age, 65% if between seven and 11 years, and 50% for those between 12 and 15 years, which should ensure an extra 40,000 people are helped.
But while the report states the total cost of this extension is expected to be around £2.3bn over the lifetime of the scheme, it says the government estimates implementing the Ombudsman’s proposals would cost between £13bn and £17bn over 60 years.
Critics have repeatedly asked how the government arrived at these figures, and in response the report reveals the cost modelling was based on the following assumptions:
• 125,000 eligible pensioner and non-pensioner members;
• an average funding level of schemes in respect of non-pensioner members of 30-35%;
• an average accrued pension for non-pensioner members of £3,300 per year;
• and longevity estimates from standard tables from the UK actuarial profession’s Continuous Mortality Investigation, based on the longevity experienced by pensioners whose pensions are secured with insurance companies.
• It also uses a 2.5% indexation rate to reflect the fact statutory Limited Price Indexation (LPI) requires pensions in payment to be increased in line with inflation capped at 2.5% for rights accrued from 2005 onwards.
But the report also points out while the estimates are based on the expected cost over 60 years, the likely duration of benefits under the current FAS, given an arrangement to meet the Ombudsman’s requirements would cover all members of the affected schemes, the costs of the arrangements would run further into the future.
It suggests these estimates may be conservative as under the Ombudsman’s recommendations the arrangement would need to continue paying out until the last survivor of a member of any scheme currently winding up had died. So for example if the member is 25 today, and lives until age 95, payment would be continuing in 70 years time, or even later if the member left a survivor.
The Liberal Democrats and Dr Ros Altmann have both already responded to the report the Lib Dems calling the government's comprehensive rejection of the Parliamentary Ombudsman's report unacceptable. Meanwhile Altmann plans to launch a judicial review next week believing the government may have shot itself in the foot by failing to address the findings of her report at all.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation