Full Report

Background

6. In December 1991, after the death of Robert Maxwell, a shortfall of £450 million came to light in Maxwell companies’ pension schemes. It was discovered that the schemes were notable to meet in full their future financial commitments, for example, to pay out employees’ pensions. In 1995 an out of court settlement, known as the 'Major Settlement’, was reached, distributing £276 million amongst four separate Maxwell pensions schemes (the Schemes).

The complaint

7. Mr A complained that the Maxwell Pensions Unit (the Unit), set up by the Department of Social Security (DSS),failed properly to oversee and administer the distribution of the Major Settlement,with the result that the Maxwell Communications Pension Plan (the Plan),of which he is a member, received an unfairly small share of the available money. (The Plan received £44 million,£3 million short of its bid.) Mr A complained that the Unit failed to exercise due care and did not ensure that each of the Schemes constructed their bid on a similar basis.

8. complained of delay by DSS, and later by the Department for Work and Pensions (DWP), which took over DSS's responsibilities in June 2001, in reaching a decision on a request, made by the Plan's trustees (The Law Debenture Trust Corporation – LDTC), for the Government to ‘recycle’ to them £30.5 million of state scheme premiums (SSPs) paid to the Government by one of the other Schemes(Scheme X) to have benefited from the Major Settlement. He said that discussions with DSS and DWP had continued for three and a half years,during which time the Department had given the impression that a positive conclusion was likely. DWP had eventually refused the request, by which time the financial position of the Plan had worsened considerably. Mr A described DWP’s decision as petty and unreasonable.

Key events

9. On 8 June 1992 the Secretary of State for Social Security made a statement in the House of Commons about the plight of the Maxwell pensioners. Among other things, he said that he was setting up a ‘special unit in[his] Department' to 'work alongside the trustees and others seeking to secure the return of assets and their equitable distribution between the schemes.’ He said that the Unit would administer a£2.5 million emergency fund, using Government funds, to help keep pensions in payment in the short term. Payments from the emergency fund were refundable.

10. The Maxwell Pensioners Trust (the Trust) was set up on 17 July 1992 to manage a trust fund to which City institutions contributed for the benefit of Maxwell pensioners. The Trust was chaired by Sir John (now Lord) Cuckney.Over the next couple of years the Trust gathered a fund of some £6 million, which was distributed by the Trustees. (The allocation of that money by the Trustees is not part of the complaint.)

11. Although in January 1993 a Social Security Select Committee had recommended that Lord Cuckney should act as mediator, he was not initially involved in the attempts to broker out of court settlements between the Scheme and those institutions against which the Schemes had potential legal claims.Instead, that work was taken forward by a High Court judge, with a particular interest in mediation, who attempted to broker a series of deals, known as the Global Settlement, in return for the dropping of all claims against the financial institutions which were to be party to the settlement.

12. When the Global Settlement talks foundered in December 1994, Lord Cuckney was invited – by some of the parties to those talks – to try to take the matter forward. On 19 January 1995 he was released from his appointment as Chairman and Trustee of the Trust. On 24 January 1995 Lord Cuckney wrote to the representatives of the Schemes, declaring his position as adviser to the Secretary of State for Social Security on the Maxwell pensions affair and saying that, with the Secretary of State's support, he had accepted an invitation from the parties involved to try to build on the work towards a Global Settlement. He said that he was not privy to the details of the negotiations that had already taken place or to the papers about those negotiations.He stressed that he did not see his role as that of a true mediator, rather he could do ‘no more than help the parties to reach agreement among themselves.’Over the next few months a settlement,known as the Major Settlement, worth£276 million, was reached.

Relevant legislation

13. When a pension scheme, which had been contracted out of the State Earnings Related Pension Scheme(SERPS), contracts back into SERPS, the national insurance contributions that would have been payable but for the contracting out fall due to the National Insurance Fund by way of SSPs. The liability to pay such SSPs is a priority debt and, in normal circumstances, is payable before other liabilities, such as those to the scheme’s beneficiaries. However,Regulation 20 of the Occupational Pension Schemes (Contracting Out) Regulations 1984 gives the Secretary of State the power to postpone the collection of SSPs if he considers that collection would be prejudicial to the interests of the scheme’s members. That power is discretionary. (Although those regulations were revoked with effect from April 1997,regulation 20 remains in effect.1)

Jurisdiction  

14. Section 5(1) of the Parliamentary Commissioner Act 1967 (the Act) limits the Ombudsman’s jurisdiction to the investigation of ‘action being taken in the exercise of administrative functions’ of bodies listed in Schedule 2 to the Act.The Ombudsman cannot investigate the actions of a body not listed in Schedule 2,nor can she investigate the actions of a schedule 2 body other than those taken in exercise of that body’s administrative functions. DSS was, and DWP is, listed in Schedule 2 to the Act. The Ombudsman cannot question the contents of legislation or the merits of government policy.

15. The Trust was a private non-charitable trust, with its own legal identity. It was not listed in Schedule 2 to the Act and is not, therefore, within the Ombudsman's jurisdiction.

16. The administrative actions of the Secretary of State for Social Security are within the Ombudsman’s jurisdiction. The Trust Deed recognised the Secretary of State for Social Security as a ‘specified person’, giving him certain powers, for example to change the name of the Trust,to amend or add to the schedule defining the considerations to be taken into account when disbursing funds (Schedule 2 of the Trust Deed), and to require written reports. However, the Trustees had absolute discretion in the disbursement of the Trust's funds subject to the constraints of Schedule 2 of the Trust Deed.

Gathering the evidence

17. DWP were unable to provide papers in connection with the distribution of the £276 million. They told us that Lord Cuckney’s negotiations to achieve the Major Settlement had been confidential, and DSS had not been privy to his discussions or to the mechanics of the allocation of the money; they did not,therefore, have any papers to give us.However, they were able to provide some general background information and to answer some of our questions by speaking to staff who had been employed in the Unit at the relevant time. The complainant and his representative kindly provided some papers but, given that they had not been directly involved in the administration of the Plan, their ability to provide more detailed information was,understandably, limited. With the complainant's permission, we approached LDTC, who provided a large number of documents at the end of July 2004. We also spoke to Lord Cuckney. DWP were able to answer questions and to provide papers in connection with Mr A’s complaint about the refusal to provide further Government funding and the time which it took them to reach that decision.

18. We have considered, very carefully, all the evidence that has been provided, as well as the representations made by Mr A, his representative and LTDC, and the information given by DWP and Lord Cuckney in response to our enquiries.

The Ombudsman's decisions

19. The reasons for not pursuing further Mr A’s complaint about the Unit’s role in the allocation of the £276 million are set out below. We have seen no evidence that DWP acted maladministratively in refusing financial assistance to the Plan, and do not consider that they took an unreasonable amount of time to reach that decision.  

Reasons for the decisions  

Complaint of maladministration by the Unit

20. Before we could begin an investigation of this aspect of Mr A’s complaint, we had to establish whether, in providing support to Lord Cuckney’s facilitation of the Major Settlement, the Unit were carrying out an administrative function of a body within the Ombudsman’s jurisdiction. We have concluded that they were not.  

21. From the evidence available to us,we were satisfied that Lord Cuckney was not carrying out an administrative function on behalf of DSS when he undertook, in January 1995, to try to facilitate an agreement in the wake of the collapse of the Global Settlement. Put simply, although he had the Secretary of State’s support for accepting the invitation to act, he was not taking on duties that would otherwise have fallen to the Secretary of State or to DSS officials.The brokering of an out of court settlement between the Schemes and the various financial institutions was not an administrative function of DSS. That puts any complaint about the way in which the£276 million was shared outside the Ombudsman’s jurisdiction.

22. Some of the Plan’’s beneficiaries have said that they feel now that, even if the Unit's staff were not – in law –carrying out an administrative function of DSS, it would be unjust if that enabled DWP to escape liability for what they see as the unfair allocation of the £276 million. However, the question for us was confined to whether or not the actions complained of were carried out in pursuit of the administrative functions of the Department. After very careful consideration, we have concluded that they were not, and it follows that we cannot intervene in this aspect of Mr A’s complaint.

23. We can see why the Plan’s members and LDTC may have believed that the Unit were acting on behalf of DSS in this matter. Staff within the Unit had been involved in the failed attempt to facilitate a Global Settlement; they had worked closely with Lord Cuckney in his role as Chairman of the Trust and, in early 1995, in his attempts to broker the Major Settlement. On occasions they spoke directly with LDTC about the progress of those talks and, on others,they wrote to LDTC on DSS headed notepaper about the progress of Lord Cuckney’s work. Lord Cuckney sometimes used the Unit's headed notepaper in his communications with LDTC. All that will,understandably, have reinforced the impression that DSS were involved in allocation of the £276 million. That impression may also have been reinforced by the fact that some of the Unit's work,for example, the assistance they provided when the Schemes ceased to contract out and their members were brought back into SERPS, was undertaken in pursuit of DSS’s administrative functions. The Unit had a wider remit than was normal for a Government agency and the lines of accountability would not have been immediately obvious. With hindsight, we think that DSS ought to have been more careful to ensure that everyone understood that the work undertaken by the Unit’s staff in support of Lord Cuckney’s efforts to facilitate the Major settlement was not part of the Department’s administrative functions.Their failure to do so merits criticism but it does not bring the issue of the allocation of the £276 million within our jurisdiction.

24. LDTC have already raised with DWP the role played by the Government in the Major Settlement, and the Parliamentary Under Secretary for Work and Pensions, wrote to them on 14 April 2003 about that. She said that the Unit had worked under the guidance of Lord Cuckney and had been independent of Government. She said that, by providing staff and accommodation to facilitate Lord Cuckney’s work and allowing the use of the DSS letterhead, the Government had indicated its support for the resolution of the issues, but matters discussed between Lord Cuckney, the Unit’s staff,the Trustees of the Schemes and the financial institutions had been'confidential and could not be communicated to the Department or other government bodies’. The Secretary of State wrote to LDTC about this matter on 26 November 2003. He said that ‘…the Major Settlement represented a deal,brokered by Lord Cuckney who was working independently of Government,assisted in his task by civil servants working directly to him.’

25. We have not seen any evidence to persuade us that those explanations misrepresent what happened or, more importantly, that the facilitation of the out of court settlements was an administrative function of DSS.

Recycling of State Scheme Premiums(SSPs)  

26. Regulation 20 of the Occupational Pension Schemes (Contracting-Out)Regulations 1984 gives the Secretary of State the power to postpone the collection of a scheme’s SSPs where he considers that collection would be prejudicial to the interests of its members. The Secretary of State exercised his discretion to require another Scheme (Scheme X) to meet its SSP liability once it was in a position to do so without prejudice to its own members,and we found nothing amiss in that. The regulations do not give the Secretary of State the power to divert the SSPs collected from one scheme to another scheme, rather than to the National Insurance Fund to which the SSPs are owed. We therefore see nothing maladministrative in the refusal to‘recycle’ the £30.5 million paid back into the National Insurance Fund by Scheme X.

27. When the Secretary of State announced that he would postpone collection of the four Schemes’ SSPs, he said ‘…no government could accept an obligation to use taxpayers’ money to make good losses resulting from fraud.’He went on to say that he believed the Government should ‘…exercise those responsibilities [it has] in ways which actively assist the pensioners’ position…’and, in that context he had ‘…decided to exercise this discretion, on a scheme by scheme basis….’ We are satisfied that it was clear from the outset that each Scheme’s position would be considered independently of the others’ should any of their positions change in the future. It was also clear that the Government did not consider that they should fund a rescue package for those pensioners who had suffered a loss as a result of Mr Maxwell’s misappropriation of their pension funds. The agreement to postpone collection of SSPs did not create a fund of money available to the Schemes that could be shared or circulated between them, rather it was a series of separate agreements to suspend temporarily debts that would otherwise be payable as a matter of priority.

28. Having said that, we understand that LDTC used the term ‘recycling’ to encompass not simply the transfer to the Plan of Scheme X’s repaid SSPs but also some other funding package which might enable them to meet in full their members’ expectations. While we can understand their disappointment at the Government's eventual refusal to give such assistance, that is a matter of Government policy, in which we cannot intervene. The matter was considered, on its merits, by Ministers, who decided not to assist; that decision was not an administrative decision.

Delay

29. Mr A complains that DWP took too long to make a decision on LDTC’s request for financial assistance. It is clear that the matter was far from straightforward, and one on which Ministers had to decide personally. It was not a matter which officials could decide on an administrative basis. While, with hindsight, it would have been better for the Plan if officials had put the matter to Ministers sooner, we have not seen any evidence that they were responsible for unreasonable delays.

30. From the papers we have seen, it appears that early in 1999 disquiet about the relative positions of the various Schemes surfaced, and discussions about whether it might be possible to merge the Schemes began. The discussions appear to have been concerned with equalising the position of the different Schemes'members, and there was some suggestion that this would enable Scheme X to divert money, which would otherwise be used to pay SSPs, to the benefit of the Plan’s members. In May 2000 the notion of ‘pooling’ was discussed at a meeting at which DSS were represented. In June 2000 a discussion paper, prepared in advance of a meeting at which DSS were represented, explored a variety of options including the technical issues which a merger would raise. The possibility of a merger was discussed again in July and August 2000.

31. The first mention of ‘recycling’,among the papers we have seen, appears to have been made at a meeting in July 2000 when the notion of a scheme to‘claw back’ SSPs was noted and DSS agreed to ‘…consider further whether money clawed back in respect of one scheme could be used to pay beneficiaries’ claims in respect of another scheme.’ However, that suggestion was in the context of the merger proposal, an idea which continued to be pursued for some months.

32. LDTC wrote to DSS on 30 January 2001 formally putting forward the proposal to recycle repaid SSPs. They said that they had explored, with the other trustees, ‘… all avenues for legitimately transferring the surplus in[Scheme X] to the Plan but no way had been found. [Scheme X] must therefore pay this money in settlement of its debt for [SSPs].’ They went on to say that ‘If the Government were to retain this money, it would be inconsistent with the Government's public announcement in 1992 that it would not take money for[SSPs] ahead of the interests of pensioners.’ Over the next few months,LDTC continued to discuss the details of their proposal with DSS. From the correspondence we have seen, officials were considering whether, and how, any funds might be made available to the Plan. We have seen no evidence that those officials offered any guarantees;indeed we have seen that they expressed some caution about the likely outcome.For example, in a letter dated 8 March 2001, DSS said that it might be asked why, if the Plan was secure on an ongoing basis, any further support was needed. In June 2001, LDTC made a note that they had spoken to DWP and asked about the prospect of obtaining Government money to buy annuities.They noted that the answer they had been given was that it was ‘poor’.

33. On 20 July 2001 DWP wrote to LDTC and said that they did not think that the Secretary of State’s 1992 announcement would bear the interpretation that LDTC had suggested.They went on to say, however, that they hoped that once other negotiations 2 had been completed, they might be in a better position to assess ‘…what additional help, if any [our emphasis],might be available to the Plan…’ and that they did not ‘think it appropriate to consult Ministers on this before the transfer problem was bottomed out.’

34. On that basis, we do not think that DSS/DWP can be said to have unreasonably given LDTC false hope about the likelihood that the Government would agree to the recycling proposal.When the matter was first raised with them, it was in the context of a merger of the Schemes and, while that option was being pursued, we accept DSS could not have reached a firm decision. Once it was clear that a merger was not possible, it took DSS six months (between January and July 2001) to consider the Plan's proposal. We do not think that was an unreasonable length of time.

35. We have seen among the papers a reference by LDTC to an official having estimated that there was a 90% chance of further financial assistance but we have not seen any other evidence that such an estimate was given. The evidence we have seen suggests that DSS were open to exploring ideas with LDTC and sought additional information in order to afford LDTC the opportunity to make the strongest case that they could. However,throughout the process they also made clear that they could not make any promises and that the matter was,ultimately, one for Ministers, not officials.

36. Having rejected the idea of recycling Scheme X’s SSPs, the correspondence turned, in 2002, to whether there were other ways in which the Government could provide financial support to the Plan. It was not until 1 November 2002 that DWP told LDTC that Ministers had decided that government funding would not be made available. The papers show that officials had hoped to put the submission to Ministers sooner,but it was delayed for a number of reasons, none of which we consider to be maladministrative. In part, the submission was delayed because of the need to resolve the position of Project Universe. That does not seem unreasonable, given that liability for those(prospective) pensioners had a bearing on the size of the Plan’s projected deficit.(By DWP’s account, it was not until December 2001 that it was established that the Plan were not liable for Project Universe members. While we have not seen firm evidence of when that conclusion was reached, it is clear from the papers we have seen that it was no earlier than December 2001.)

37. The submission also appears to have been delayed because officials judged that it was appropriate to make a composite submission dealing with an umber of Maxwell related issues, some of which did not involve the Plan, at the same time. That seems sensible. It was not unreasonable, in the circumstances,for officials to want to draw together the issues to enable Ministers to make properly informed decisions, which would take full account of any knock-on effects and any issues of equity of treatment. We have seen the submission and are satisfied that that was a reasonable approach. Unfortunately, the process did not proceed as quickly as DWP expected.On several occasions they said that they hoped soon to be able to make a submission to Ministers and then found that they needed more information. While they might have been more proactive in keeping LDTC informed about progress,they responded to LDTC’s enquiries and explained the delays. The submission,dealing with the Plan’s request and the other Maxwell related issues, was put to Ministers on 4 July 2002; that does not seem to us to have been unduly slow.

38. Ministers asked for some additional information and for clarification of certain points. On 1 November 2002, after careful consideration of the submission by Ministers, DWP told LDTC that Government funds would not be given.While we can see that the Plan might have preferred to have received a definitive answer sooner, we have found no evidence of maladministration causing the decision to be delayed, nor have we seen evidence to show that officials misled LDTC about the prospects of success. Officials needed to take care to ensure that they briefed Ministers properly and, given the complexity and significance of the decisions involved, we are not persuaded that the matter could have been dealt with very quickly.

Conclusion

39. While we sympathise with the predicament in which the Plan’s members now find themselves, we have seen no evidence that it was caused by maladministration on the part of DSS/DWP.