Recommendations

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Introduction

6.1 In this chapter, I make recommendations to put right the injustice that I have found remains to be remedied.

6.2 Before setting out my recommendations, I will first describe the remedies that complainants are seeking. I will then set out my understanding of who might be fully covered by any recommendations that I make.

6.3 Once I have set out my recommendations, I will make a number of further observations about the subject matter covered by this report which have been informed by the evidence I have reviewed during this investigation.

Remedies sought

6.4 Complainants have sought through my investigation financial redress for the injustice they have suffered and also financial recognition of the outrage, distress, inconvenience and uncertainty that they have endured.

6.5 They have also sought a full explanation of what has happened to them. I hope that my report has now provided that explanation.

6.6 In terms of the financial remedies sought, these can be placed into three distinct categories:

(i) financial redress that would provide complainants with the pension (including that deriving from additional voluntary contributions) that they would have received from their scheme had it not wound up without sufficient funds to meet all of its liabilities – we might call this core pension replacement;

(ii) financial redress that would replicate ‘lost’ associated benefits - such as life cover, survivor benefits, and ill-health benefits - that have in some cases already been foregone by many of the complainants and in other cases will in future necessarily be foregone – we might call this the restoration of non-core benefits; and

(iii) financial redress to provide tangible recognition of the effects of the maladministration that I have identified on complainants and their families – we might call these consolatory payments.

Who is covered by my recommendations?

6.7 The maladministration I have identified in this report occurred in the period from January 1996 until April 2004 – being the period from when the first deficient official leaflet on the Pensions Act 1995 was issued until official leaflets aimed at the public were issued that were broadly accurate.

6.8 However, I am aware that the first official leaflet was describing a regime – which included the protection offered by the MFR – which was only to come into force in April 1997. I do not consider that anyone who read that leaflet, which purported to explain the future protection that would be provided by the MFR, could expect that that protection would extend to those schemes which wound-up before the date on which the MFR was said to come into force.

6.9 In light of the above, I have considered who should be fully covered by the recommendations I go on to make. I have determined that my recommendations should apply to those individuals:

(i) who are or were a member of a final salary scheme which commenced wind-up from 6 April 1997 to 31 March 2004; where

(ii) their scheme wound-up with insufficient assets to secure pensions in payment and to pay cash equivalent transfer values in respect of full accrued pension rights to all non-pensioner members or to secure the full liabilities for each non-pensioner in other ways; and where

(iii) the scheme is not eligible for the pensions compensation scheme - because it has not suffered losses wholly attributable to fraud or other unlawful behaviour; and where

(iv) the individual has incurred an actual financial loss because of a shortfall in the pension promised in respect of any or all of the following:

  • the contributions made by them and/or their employer to the scheme (that is, the scheme pension); and/or
  • contracted-out national insurance contributions that were rebated to the scheme (that is the ‘Guaranteed Minimum Pension’ and similar provision – which, despite its different provenance, was due to be paid with the scheme pension); and/or
  • other benefits due (such as survivor benefits and life cover).

My recommendations

6.10 Having set out the remedies sought and those who are covered by my recommendations, I now turn to set out what I consider should be done to remedy the injustice I have found was caused by maladministration.

6.11 In making these recommendations, I consider that the following should be recognised:

  • first, that, while I have found that maladministration has caused injustice, I have also found that, insofar as the financial losses suffered by complainants are concerned, maladministration was one of a number of factors which led to the circumstances in which those losses were sustained;
  • secondly, that, as a result, I cannot say that maladministration alone caused the financial losses suffered by complainants – although I consider that maladministration was a significant factor among the causes of those losses;
  • thirdly, that, accordingly, those public bodies responsible for that maladministration cannot be held solely responsible for the financial losses sustained by complainants;
  • fourthly, that, nonetheless, I consider that the contribution of public bodies to the circumstances in which those financial losses were sustained went beyond the maladministration I have identified. Through the policy behind – and the provisions of – the legal framework and certain decisions concerning both, those public bodies played a significant role in the factors which led to the financial losses sustained by complainants; and
  • finally, that, leaving strict responsibility aside, I consider that the position of those individuals who have lost a significant proportion – in some cases all – of their accrued pension rights should not be forgotten among all of these considerations. Neither should it be forgotten that one form of injustice was caused by maladministration in the form of the distortion of the reality underpinning the financial security of pension rights.

6.12 In the light of the above, it seems to me that those responsible for responding to my report should consider whether – in addition to their responsibility to remedy the injustice caused by the maladministration I have found - there exists for other reasons a moral imperative to put right the devastating effects of events wholly beyond the control of the people so deeply affected by them.

6.13 It is with that in mind that I offer the following recommendations.

First recommendation

6.14 My first recommendation relates to remedying the financial injustice suffered by those who have complained to me and also those in a similar position as those individuals.

6.15 I recommend that the Government should consider whether it should make arrangements for the restoration of the core pension and non-core benefits promised to all those whom I have identified above are fully covered by my recommendations - by whichever means is most appropriate, including if necessary by payment from public funds, to replace the full amount lost by those individuals.

6.16 I recognise that this would be a significant commitment, although it seems to me that it would be a commitment that could be discharged over a number of years if the right means were identified and that this would be a commitment that would decline over the years.

6.17 I recognise that it may be felt by the Government that it is possible to mitigate the cost to the taxpayer of pension replacement from monies due from other bodies – particularly any that they consider played a significant role in the relevant events. If that is so, I consider that the Government should reflect on whether it would be more appropriate for it to take action itself - rather than to expect individual scheme members or trustees to do so - to recoup such sums using the considerable collection and enforcement powers that Government has.

6.18 I am aware, in addition, that the relevant pension schemes have assets that could assist pension replacement and that alternatives to securing pension liabilities for members of the affected schemes through the purchase of annuities have been suggested. These alternatives, as I understand matters, would still require Government action.

6.19 I recognise that asking the taxpayer to meet part or all of the cost of this recommendation raises significant public policy questions. However, I believe that the Government should consider whether its response to my recommendations should have regard to what might be considered by many – and certainly by some of the people who have complained to me – to be a precedent.

6.20 I note that Government has recently recognised that, even though there may be significant financial implications, it should honour the pension arrangements for existing public sector employees as those people have made employment, financial and other choices based on the information that they were given about such arrangements in the past. New entrants to the public services are to have significantly less attractive arrangements which will be made clear to them prior to entry.

6.21 It seems to me that there are some parallels with the position of those whose pension entitlements were crystallised prior to the introduction of the new pension protection arrangements in April 2005.

6.22 Those who have complained to me were also given information in the past about their pensions. They were told that their pensions were safe, guaranteed and protected by law – and they acted accordingly. It seems to me that sympathetic consideration should be given as to whether those assurances should now be honoured.

Second and third recommendations

6.23 My second and third recommendations relate to the recognition of the effects of the maladministration on those who have suffered as a result – and are directed in different ways at scheme members and scheme trustees.

6.24 I recommend that the Government should consider whether it should provide for the payment of consolatory payments to those scheme members fully covered by my recommendations - as a tangible recognition of the outrage, distress, inconvenience and uncertainty that they have endured.

6.25 I also recommend that the Government should consider whether it should apologise to scheme trustees for the effects on them of the maladministration I have identified, particularly for the distress that they have suffered due to the events relevant to this investigation.

6.26 I recognise that it may not be possible to make a personal apology to every trustee concerned, not least because it would be very difficult to identify them. However, I consider that those people rightly feel that their professional reputations have suffered and I believe that official regret for this should be publicly stated.

Fourth recommendation

6.27 My fourth recommendation relates to those people who otherwise would be fully covered by my recommendations but whose scheme began wind-up between 1 April 2004 and 6 April 2005, when the new pension protection arrangements replaced the regime covered by my investigation.

6.28 I recommend that the Government should consider whether those who have lost a significant proportion of their expected pensions - but whose scheme began wind-up in the year prior to the new regime becoming operational - should be treated in the same manner as those fully covered by my recommendations.

6.29 In doing so, I recognise that, by this time, official information provided to the public was broadly accurate and that it could therefore be said that there was an opportunity for such individuals to take whatever action they could to mitigate their potential loss.

6.30 However, I nevertheless consider that the Government should also give sympathetic consideration to the position of those whose scheme began wind-up in this year.

6.31 I believe that there are two grounds for such consideration. The first is that it should be recognised that, by the time the official information was rectified, it was probably too late for many of those people within this group both to seek to take some of the remedial actions that I have identified were open to them - and also for such action to have had any effect. In addition, some of the losses suffered by this group of people may not have been recoverable even had such action been undertaken, as there would have been little time to transfer out prior to wind-up.

6.32 Secondly, it may be that any decision not to include this group of people would lead to the introduction of considerable and unnecessary administrative complexity – and a feeling of further unfairness - into whatever scheme is adopted.

Fifth recommendation

6.33 My fifth recommendation relates to the process of winding-up final salary occupational pension schemes.
6.34 I recommend that 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.

6.35 The factors which together account for the often considerable time it takes to wind up such schemes appear to have been the subject of consensus for many years.

6.36 I am conscious that the Government’s initial response to the relevant head of complaint in this investigation contained an almost identical list of factors that it considered were pertinent as that provided by Government in its May 1999 consultation on the same matters. Those representing scheme administrators appear to concur in that view – as do those independent trustees who we interviewed during the course of this investigation. Furthermore, the Government’s initial response to the complaints I have investigated also maintained that delays were attributable to ‘the nature of the process’.

6.37 That being the case, I consider that action should be taken urgently – by Government in partnership with others in the pensions industry – to establish what could be done to ameliorate this unsatisfactory situation.

Other observations

6.38 Having set out my findings and recommendations, I wish to make two further observations concerning the subject matter of this report which have arisen from the evidence I have reviewed during this investigation.

Pension language

6.39 First, it is apparent from all of the publications that I have examined that the language used by pensions professionals and related public bodies has often been unclear.

6.40 Examples include terms such as ‘Guaranteed Minimum Pension’ – which in the circumstances covered by this investigation proved to be neither ‘guaranteed’ nor a ‘minimum’ – and in some cases would not even provide any pension at all. Another example is ‘under-funded’ – which to the Government meant not that a scheme had insufficient funds to meet its liabilities, but rather related to a scheme’s relative position against the varying basis for the MFR.

6.41 It may be that the Government and all those involved in the pensions industry might wish to consider together how best to ensure that language which has a natural and commonsense meaning to most people is not used in relation to pensions in such a way as only to have a narrow, technical and potentially misleading meaning.

The Financial Assistance Scheme

6.42 Secondly, I have begun to receive enquiries from people who wish to complain about the administration of the Financial Assistance Scheme (FAS) beyond the matters covered by this investigation.

6.43 These appear to be mostly related to the underlying policy behind the FAS or to constitute ‘appeals’ against the operation of the scheme in relation to particular schemes or individuals. However, I have also received complaints that DWP Ministers and officials have not answered reasonable questions about the FAS. I will consider those complaints following publication of the report – and in the light of the Government’s response to my recommendations.

6.44 Leaving this aside, it is also clear to me from what complainants in this investigation have told me that many people have been distressed by not being covered by that scheme or, if they are, at the amount of ‘assistance’ that they might receive.

6.45 In addition to this, I am acutely aware that many people have also been distressed by two other aspects of the FAS. These are the language used – ‘assistance’ has deeply negative connotations for many people and also does not recognise that what they seek is the ‘replacement’ of their pension, lost through no fault of their own – and the lack of clear eligibility criteria from the outset of the scheme.

6.46 I recognise the need for proper planning and preparation time before a particular scheme becomes fully operational. However, I am concerned that the FAS eligibility criteria were only announced and clarified over many months and that this has added to the uncertainty and distress felt by those affected.

6.47 In the light of my recommendations above, it is possible that the FAS may need to be reviewed fundamentally in any case. I would hope that part of any such review would deal with the language used.

6.48 In addition, I would hope that any lessons learned from this experience would be fed into whatever arrangements are established by the Government as a result of this report.

6.49 Given all of the above, it may be that I will not need to consider further those complaints about the FAS that I have recently received.

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