The Department for Work and Pensions (DWP) has told the Parliamentary Ombudsman the Government is "not minded" to accept the findings of maladministration against it, and will not implement her recommendations.
In the report: ‘Trusting in the pensions promise: Government bodies and the security of final salary occupational pensions’, the Parliamentary Ombudsman, Ann Abraham investigates complaints against the DWP, the Treasury, the former Occupational Pensions Regulatory Authority (OPRA) and the National Insurance Contributions Office (NICO) of Her Majesty’s Revenue and Customs (HMRC).
But Stephen Timms, minister for pensions reform, says the government does not accept the report's finding suggesting it provided misleading information as to the level of protection offered by the MFR, or the report's recommendation arguing it should meet the costs of lost occupational pension schemes.
He says: “We have studied the report carefully but we reject its findings of maladministration. It simply does not make the case. For the report to assert that the taxpayer should make good all such losses - however they arose - is a huge and unsustainable leap of logic.
Timms also suggests the report fails to take proper account of the fact the DWP leaflets which the Ombudsman claims are inaccurate, incomplete and unclear were intended to be simple and introductory.
He adds: "They did not claim to offer comprehensive financial advice. For that, people needed to look elsewhere, as the leaflets themselves make clear. It is completely wrong to suggest occupational pensions were in effect guaranteed by the taxpayer. All the leaflets covered by the report stated clearly they were not a full explanation of the law and were for general guidance only."
Complaints were made by referrals from more than 200 MPs, as well as over 500 direct representations on the same matters from other people, which resulted in four main issues of complaint against the Government and regulatory bodies.
- Information provided by the DWP, OPRA and other Government bodies was misleading by not explaining the security of the pension rights of final salary schemes, accurately, completely, clearly and consistently.
- The DWP did not take any action to warn scheme members of the risks to their pensions, when recommended by the actuarial profession in May 2000.
- The Government weakened the security provided by the statutory Minimum Funding Requirement (MFR) twice, without taking into account the impact it would have on the security of pensions
- Delays and errors by NICO had led to the process of winding-up schemes taking much longer than necessary.
Because of these four issues, complainants - acted for by Dr Ros Altmann - said they suffered financial loss, outrage, distress, uncertainty and a loss of opportunities to make informed choices.
As a result, they appealed to the Ombudsman for a full explanation, the replacement of the core pension lost by schemes winding-up including additional voluntary contributions, the replacement of associated benefits such as life cover and ill-health benefits and tangible recognition of the effects of the events on complainants and their families.
Abraham announced the intention to launch an inquiry into the complaints on 16 November 2004, and in the past 18 months has considered documentary evidence mainly covering the period between 24 January 1994 and 6 April 2005, along with surveys, representations, evidence, advice and interviews with those involved.
One of the conclusions the Ombudsman came to in her report was the official information published by the DWP, OPRA and other government bodies, was inaccurate, incomplete, unclear and inconsistent.
As a result, the 254-page report found there had been three instances of maladministration, first with regards to the official information provided, secondly the response by the DWP to the recommendation by the actuarial profession to warn members of the risks of scheme wind-up had no regard to the role its own deficient information had played in creating the position where members were ignorant.
Finally, Abraham concluded there was insufficient documentary evidence to explain the rationale for the decision in 2002 to change the MFR basis, but she found no evidence the decision to the change the MFR basis in 1998 had been taken with maladministration, and although the wind-up time of final salary pension schemes was lengthy, the delays could not only be laid at the door of the NICO.
One hte back of this research, the Ombudsman makes five recommendations to the government:
- The government should consider restoring the core and non-core benefits to relevant scheme members, by whatever means is most appropriate, including public funds, to replace the full amount lost.
- The government should consider making consolatory payments to relevant scheme members as a tangible recognition of the outrage, distress and uncertainty caused.
- The government should consider apologising to scheme trustees for the distress suffered because of its maladministration.
- The government should consider treating those who have lost a significant proportion of expected pensions, but whose scheme began to wind-up between 1 April 2004 and 31 March 2005, in the same manner as those fully covered by the recommendations.
- The government should conduct a review, with the pensions industry and other key stakeholders to establish what can be done to improve the time taken to wind-up final salary schemes.
Following the completion of the report the Ombudsman asked the government to respond to the findings prior to publication, and then again within two months of the final release of the report.
HMRC said it welcomed the fact the report had not upheld complaints about maladministration by NICO in the process of winding-up final salary pension schemes, but added it had noted the concern about the routinely lengthy time it takes and offered its full co-operation with the recommendation to conduct a review to establish what could be done to speed this process up.
But the DWP disagreed with the findings of the report, saying it did not acknowledge sufficiently the “myriad uncertainties” which attach to any consideration of “how outcomes might have differed if the specific actions criticised had been undertaken differently.”
However the arguments failed to convince the ombudsman, who stood by her findings and recommendations, and asked for and was given a final response by the DWP on the 28 February 2006.
In its reply, the permanent secretary says it offers its sympathy to those who have lost their pensions, but adds the DWP is not responsible for the losses, as it is "clear the responsibility for such losses must fall fundamentally to the companies whose schemes were wound up and the trustees who, with the benefit of professional advice, were responsible for ensuring their scheme was funded to a level compatible with their liabilities and the strength of the employer’s commitment to his scheme”.
The permanent secretary then says as, in their view, the report does not establish any sound basis on which the government can, or should, accept liability on behalf of taxpayers as a whole for these events, the government was minded to reject the first four recommendations, but to accept the fifth.
Abraham also says the permanent secretary refused the offer to respond to the report again within two months of publication saying “we consider such an extension is unnecessary and, given the potential for raising false hopes, undesirable’.
She adds: “Government has a unique responsibility in these matters. Government set the pensions policy framework and took upon itself the responsibility of providing information for the public. The maladministration which my investigation has uncovered caused injustice to a large number of people who, as a result, lost the opportunity to make informed choices about their future.”
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
Three investment execs to report to CEO
Equity market can be ‘scary place’
Must-attend adviser event
Employees get DC scheme certainty
Services sector behind 'strong July'