Annex E - The response to my report from the advocate for complainants
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Introduction
1. This annex sets out the response to my report provided by Dr Ros Altmann, on behalf of complainants.
2. She told me that:
On behalf of complainants, I welcome this report, but with great sadness that many of those affected did not live to read it. It has been several years since the victims of this huge social injustice first discovered that they had lost most or all of the company pension they had contributed to and which they had been led to believe was safe and protected by law. The experience of losing one’s entire retirement income and the uncertainty hanging over these individuals and their families is impossible to over-estimate. Their sense of betrayal is acute.
3. Dr Altmann continued:
At last, an independent investigation has highlighted clearly, for all to see, the gravity of the injustice that they have suffered. Having been brushed aside and fobbed off by Government for so long, the complainants had almost lost faith in justice and the rule of law. It is comforting, therefore, to see that our Parliamentary democracy does have a mechanism for forcing Governments to face the consequences of their actions, where Ministers and officials are unable themselves to appreciate the injustices they are responsible for.
4. She told me that:
… it is an important principle that, if Government makes mistakes that lead to grave injustice, it should rectify those mistakes rapidly, rather than trying to force the victims into accepting their losses. Surely, when officials claim that they want to make sure people can save in a safe environment, the public is entitled to look to the Government to protect their interests, rather than giving higher priority to the interests of powerful lobby groups such as employers?
5. Dr Altmann continued:
This has been an exhausting, frustrating and deeply depressing fight - and many lives have been destroyed. I have watched people die, desperate because they had tried to provide for their families; they had believed and trusted in the system and then found that their trust was misplaced. Having saved all their lives to look after themselves, they could not bear the thought that they had unwittingly “let their loved ones down”. These stories are a dreadful indictment of our pension system and I hope the fight for justice in this instance may ensure that others, in future, will not suffer in the same way. If something is not safe, the Government should not tell us that it is. If Government assurances of safety turn out to be false – due to unforeseen circumstances – then it must quickly compensate those who have been damaged.
6. She concluded by saying:
It is heartening that the Parliamentary Ombudsman has uncovered the full extent of this injustice, and I hope that all Members of Parliament will recognise immediately that they have a duty to ensure that full restoration of pensions is forthcoming straight away. These people have suffered more than enough – it is time they received a full apology and full restoration of what has been lawfully taken away from them and what they were always told was actually “protected” by the law.
7. In addition to these general comments, Dr Altmann made specific comments about four aspects of my report: on my findings on maladministration; on my findings on injustice; on my recommendations and the Financial Assistance Scheme; and on the Government’s response to my report.
Findings - maladministration
8. Dr Altmann told me that the evidence set out in my report demonstrated clearly that the complaints made by scheme members and trustees had been justified. Government had been responsible for the establishment and design of the MFR and for the legal framework within which occupational pensions were provided but Government bodies had not properly informed citizens of the level of security that was provided by that framework.
9. She said that my report made clear that the then Government had decided in November 1995 that non-pensioner scheme members would only have an even chance of receiving their pensions. And yet the Government had for many years told everyone that their pensions were safe, guaranteed and protected by laws.
10. She said that it was astonishing that official publications had only dealt with scheme wind-up for the first time in April 2004 – this constituted ‘a huge betrayal of trust’. Many scheme members had told her that they had been shocked to discover that the Government had failed to tell them the truth about the security of their pensions. One had asked her ‘if you can’t trust the Government, who can you trust?’ She said that the evidence set out in my report confirmed this ‘betrayal’.
11. Furthermore, Dr Altmann told me that she did not understand how Government could have felt it was acceptable to design and operate a system that would only provide a 50% chance of protection to non-pensioner scheme members. She asked whether it would be considered acceptable if the Government ‘had encouraged people to put their money into a bank and told them it was safe, without warning them that they had only a 50% chance of getting it back’. Or, indeed, ‘whether MPs and civil servants would consider it acceptable if they were not told that they had only a 50% chance of getting their pensions?’
12. Dr Altmann told me that it was clear from the evidence that Government had deliberately decided to encourage pension scheme membership - and that such a policy had driven their agenda of informing the public of the benefits of joining.
13. However, at the same time, she said that my report showed that that policy also determined the omission of any warnings about the risks to pension rights. It appeared that Government had decided that it would damage their aim of increased private pension provision if official publications aimed at the public were to deal with risk at all. In her view that was ‘dishonest and irresponsible’ – and did not accord with any reasonable standard for the proper discharge of public functions.
14. Dr Altmann told me that the evidence in my report also clearly showed that the Government had been consistently more concerned for the interests of employers than ensuring an adequate degree of member security. This was evident from the decisions taken on the MFR basis and on the other decisions taken by Government on related matters, including in relation to the extension of deficit correction periods.
15. Dr Altmann pointed out that the law had allowed solvent employers, who could well afford more, to ‘walk away from their pension liabilities’ without having to ensure that the pensions of their scheme members were paid in full.
16. She told me that the evidence disclosed by my investigation suggested that the decisions relating to changing the MFR basis had been taken by Government without due regard to the possibility of solvent employers choosing to wind-up their scheme and without paying attention to the decreasing number of suppliers and increasing costs of bulk annuities.
17. Dr Altmann said that there was no evidence that the Government had considered the risks to members of solvent employer scheme wind-ups – their discussions on the MFR had clearly focused on the risks of employer insolvency.
18. Nor had any evidence been found to suggest that, when changing the MFR, the Government had considered the fact that security for non-pensioner benefits and Guaranteed Minimum Pensions would be dramatically reduced - as the rising costs of annuities necessarily meant that far more of the fund assets would be needed to secure pensioner benefits, leaving much less for non-pensioners.
19. She told me that all of the above pointed to a comprehensive failure by Government to ensure that its policies were properly explained, that its actions were taken in a transparent manner, and that the reality of the ‘pensions promise’ and associated risks were disclosed clearly to people to enable them to make informed choices and to protect their financial future and that of their families.
20. Dr Altmann said that all of the above demonstrably constituted maladministration of a most significant and far-reaching kind and that my report set this out clearly.
Findings - injustice
21. Dr Altmann told me that my report had identified a number of contextual factors that helped to explain the circumstances in which schemes had wound-up without sufficient assets to meet their liabilities to all members.
22. She said, however, that it should also be properly recognised that this injustice was further compounded by the legal requirement that schemes in such a position have to discharge their liabilities through the purchase of annuities. Only Government could remove this requirement, thereby enabling schemes to use the assets of the scheme for the benefit of all its members.
23. In addition, Dr Altmann said that one other aspect of the legal framework had further added to the injustice suffered by scheme members – the requirement that individuals who were members of a final salary scheme could only contribute to one pension at a time. In such a context, she told me that the Government had restricted the freedom to diversify investment that might have enabled scheme members to protect their position. This meant that the protection provided by the framework devised by Government was all the more important to individuals and that it should both have been robust and properly explained to scheme members. Where, as here, such protection failed, the Government had a responsibility to remedy the injustice caused by such failures.
24. Furthermore, she told me that it was incorrect for Government to state that it had not given individual financial advice through its official publications. By endorsing membership of an occupational pension scheme, particularly in a situation in which the law for which it was responsible did not allow individuals to join more than one pension scheme, the Government was effectively giving citizens advice as to the benefits of joining one particular scheme. If they had only one employer, that constituted advice to join that one scheme. Had official information dealt with both benefits and risk in a proper and balanced manner, individuals would have been better able to assess their options and to make informed decisions about joining, about remaining in, about transferring money in from another scheme, and about when to take their pension. She said that my report made this extremely clear.
25. Dr Altmann also told me that it should be recognised that the legislation governing the MFR meant that it was perfectly legal for schemes to be funded well below the MFR level so long as a plan for the restoration of the funding position – over many years – was in place.
26. She told me that, in the light of all of the above, the Government must recognise that it was responsible for the injustice suffered by complainants that my report had identified. Not only did its failure to provide clear, accurate, complete and consistent information to scheme members constitute maladministration causing injustice to them, but Government could not evade responsibility for the other factors set out in my report.
27. In particular, Dr Altmann said:
(i) that, ‘whatever some sponsoring employers had done, it was the law created and operated by Government which both had allowed solvent employers to fund only to levels that would not secure the pensions of non-pensioner members and had also meant that debts owed to pension schemes by insolvent employers were not accorded priority when their assets were distributed’;
(ii) that other aspects of the legal, regulatory and administrative frameworks that my report set out were the direct responsibility of Government;
(iii) that ‘Government policy was directly relevant to the injustice suffered by scheme members – it may have been entitled to take those policy decisions but Government still had to face up to their consequences’; and
(iv) that the deficiencies in the system of winding-up schemes, which exacerbated injustice, took place within a system that had been designed by Government and for which it also had to take some responsibility.
28. Thus, she said, the Government’s actions and inaction were the direct cause of the injustice caused to scheme members and trustees.
Recommendations
29. Dr Altmann told me that she welcomed my recommendations. She said that primarily it should be recognised by Government – and by Parliament – that a sense of urgency was required in ensuring that Government responded positively to my recommendations and that they put right the injustice my report had identified.
30. She also said that it would be wholly unacceptable for there to be further procrastination and delay on the part of Government, as many individuals were in desperate financial straits and needed money now.
31. In addition, Dr Altmann told me that, while only Government could co-ordinate and organise this, there were ways in which the cost to the taxpayer of pension replacement could be mitigated. She said:
In November 2003, I recommended that the assets of these schemes should not be used to purchase annuities, but that the schemes could be run on, allowing trustees to pay out pensions as they became due and then Government could set aside funding to top up the scheme assets in a pooled vehicle, which would be able to pay the pensions over the long-term. I proposed this again when the Financial Assistance Scheme details were announced and I have consistently asked the DWP to tell trustees to put the annuity purchases on hold, rather than allowing the scheme assets to disappear and making the organisation of compensation far more difficult.
32. She continued:
The assets of all schemes in wind-up should not have been used for buying annuities. They should be pooled, with scheme pension records transferred by the independent trustees to a Government-funded body which could handle all scheme liabilities as if the schemes were still ongoing. The requirement is for pensions to be paid and these are long-term annual commitments. The only capital sums needed would be tax free lump sums for each member reaching retirement age immediately, and life assurance or ill-health benefits may need to be paid from time to time, but the rest of the liabilities can be paid over many years and would not require payments to be capitalised up front.
33. Dr Altmann told me:
I fear that many schemes are very close to buying annuities, or have recently done so, and this will ultimately mean that the bill for taxpayers to fund compensation will be much larger than would otherwise have been the case. I suggest that the Government in response to this report should do the following:
- stop schemes from buying annuities – as is seen in the report, Government recognised as long ago as its Regulatory Impact Assessment of the 2002 MFR changes that buying annuities is not necessarily the most appropriate way for younger members’ pensions to be secured;
- pool all scheme assets that have not already been used for annuities into a fund to run as a satellite of the Pension Protection Fund, utilising the systems and infrastructure which is already being put in place to pay out pensions for schemes in wind-up. This could be funded with top-ups from Government funds as required;
- permit scheme trustees to pay all pensions to those eligible now, including those who are terminally ill. These pensions could be paid in full to all those eligible, using the scheme assets which are available;
- use unallocated funds in the DWP budget, which could be dedicated to paying out compensation; and
- use unclaimed assets to fund the compensation payments required. Since banks often had priority over pension funds when companies became insolvent, there could be said to be a rationale for using these assets to fund compensation payments for scheme wind-ups.
34. Finally, Dr Altmann said that some scheme members had suffered financial injustice beyond that directly related to the loss of their pension and associated benefits.
35. She told me:
… some members have had to sell their houses since they were relying on the pension lump sum to pay off their mortgage, or some need to sell to replace their lost pension income and downsize their house. Others have suffered dreadful effects on their health. I hope that these factors can be recognised within redress provided by Government.
Financial Assistance Scheme
36. Dr Altmann said that her response to my recommendations had been informed by her strong view that the Financial Assistance Scheme was a wholly inappropriate remedy for the injustice suffered by complainants.
37. She told me that there was a good case for arguing that the way in which the Financial Assistance Scheme had been established and its eligibility criteria had been developed and announced in itself constituted maladministration.
38. Dr Altmann told me that:
The only payments being made are ‘interim’ payments of just 60% and these are still not paid if this amounts to under £10 per week. The other exclusions and rules are grossly unfair.
39. She continued:
In fact, the FAS itself is directly responsible for many members getting even lower pensions. This is because the costs of providing the FAS with data on scheme membership and details of those who may be eligible are paid out of scheme assets. This reduces assets for all members, but only a few actually qualify for the FAS. Thus, all those who do not qualify must end up with lower pensions as a result of helping those within 3 years of pension age. This is a further injustice.
Government’s response
40. Dr Altmann told me that she was extremely disappointed and distressed by the Government’s initial response to my findings.
41. She said that it was disturbing that Government still did not realise or accept the degree to which it had played such a central role in the events set out in my report.
42. Dr Altmann told me:
If the Government thinks that encouraging membership and failing to warn of risks is fine, and cannot see the error of its ways, then how can we hope for improvements in future? If any private sector firm or organisation behaved in this way, it would be forced to compensate in full for any losses.
43. She also said:
The report makes clear that, after ‘Maxwell’ and the pensions mis-selling scandal, the Government said that people needed to know where to get advice they could trust. The official leaflets were supposed to provide that. Given what had happened, if an individual at that time had been worried about their pension after ‘Maxwell’, people would not have necessarily trusted their employer or the trustees. In addition, if they had been worried about pension mis-selling, they would not have trusted financial advisers.
It is in this context that it was even more likely that they would rely on the Government’s information. It is also all the more disappointing that DWP is trying to suggest that people should not have expected to be able to rely on these leaflets! Why was taxpayers’ money spent on them if they were not reliable?
44. She told me that the Government’s final response to the report was totally unsatisfactory. She described it as ‘outrageous’:
Every right-thinking person with a sense of fairness and natural justice, when reading the evidence uncovered by this investigation, cannot fail to appreciate that what the Government has done to these individuals is wrong.
The real worry is that Government itself, in its response to the report, seems to be trying to deny the evidence clearly put before it.
It is Government that seems not to have told the truth, but it is also apparently now attempting to question what scheme members have said about having read and relied on the official leaflets.
This behaviour is adding insult to injury. These individuals have done nothing wrong.
Their lives have been devastated by the carelessness of Government. Their mistake was that they genuinely believed that Government would tell them the truth and it beggars belief that Government appears to be now saying that the scheme members either have lied about relying on the official materials that they read or that, if they did read them, “of course they should never have believed it”!
Since I first met the members of ASW Cardiff, in 2002, and subsequently having met so many other individuals who have suffered so much these past years, I have been struck by how decent and honest they are.
They believed and trusted in official assurances of safety and are the kind of people who are the bedrock of our British nation. Hard-working people who always wanted to look after themselves, worked and saved hard, tried to check out what they should do, and did what they thought was the right thing to do because Government told them so. We as a nation should be ashamed of how our Government is behaving on this issue.
Government seems to be trying to say that this situation is the fault of everyone else, but not itself. This is a mess that the Government itself has created and which it has consistently refused to acknowledge.
These are people who believe it is wrong to lie and have lived their lives by the principles of personal responsibility and honesty. Many of them still find it almost impossible to believe that Government could really behave dishonestly.
My assessment of Dr Altmann’s response
45. I will comment only on one aspect of the response of Dr Altmann to my report on behalf of complainants – that related to additional financial or other losses that would not be remedied by pension replacement.
46. DWP operates a scheme to provide redress for financial loss and other injustice caused by maladministration for which it or its agencies are responsible. Where an individual claims to have suffered particular financial loss because of maladministration by DWP, it is open to that individual to seek redress through that scheme. Evidence that certain actions were taken will need to be provided – as will evidence of the loss claimed.
47. If an individual is dissatisfied by the outcome of their claim to DWP in such circumstances, it is open to them to ask their Member of Parliament to refer their complaint to me. Such a complaint would then be assessed in the normal way by my Office and treated on its merits.
