The Government’s response to my findings
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Response of Her Majesty's Revenue and Customs
My assessment of the response from DWP
Further response from Government
My response to the Government's position
Introduction
7.1 I recognise that the implications of what I have recommended are significant and might require a considerable amount of cross-Government discussion and consideration. I therefore asked the Government to respond to my report in two stages.
7.2 I asked the Government first to respond to my findings and to address those prior to publication of my report. I asked the Government, once that was done, to formally respond to my recommendations within two months of the publication of my report.
7.3 I received responses to my findings on 27 January 2006 from Her Majesty’s Revenue and Customs and from DWP. The Government Actuary made a submission supplementary to that made by DWP. The Pensions Regulator confirmed that they wished to make no representations on my report as it related to their predecessor body, OPRA.
7.4 Annex D to this report sets out the initial response of DWP and the Government Actuary to my report. At their request, this is done in their own words, with only minor editing.
7.5 Annex E to this report sets out the response of Dr Ros Altmann, on behalf of complainants, to my report. Again, this is done primarily in her own words.
7.6 The rest of this chapter does four things: first, it sets out the response to my report from Her Majesty’s Revenue and Customs; secondly, it sets out my assessment of the Government’s initial response to my report (see annex D); thirdly, it sets out the further response to my report that was provided at my request by DWP in response to my assessment of their initial response; and, finally, it sets out my consideration of the Government’s further response to my report.
Response of Her Majesty’s Revenue and Customs
7.7 The Chairman of the Board of Her Majesty’s Revenue and Customs said that he welcomed the fact that I had not upheld complaints about maladministration by NICO in the process of winding-up final salary pension schemes.
7.8 He said that his Department had noted my concern about the routinely lengthy time it takes to wind up schemes and also my recommendation that the Government conduct a review to establish what could be done to speed this process up.
7.9 The Chairman said that he also welcomed that recommendation and that his Department stood ready to participate fully in any such review.
7.10 He also informed me that NICO had initiated a new project, which was fully supported by the main pensions industry representative bodies. He said that they had embraced the opportunity to collaborate with his Department.
7.11 The Chairman told me that this initiative aimed to reduce the time it takes to wind up final salary schemes and involved the development of a system that would enable the electronic exchange of data between NICO and those scheme administrators who choose to use it within a secure IT environment. It was hoped that this would be tested through a trial with scheme administrators in the first half of 2006.
7.12 I welcome the positive response of Her Majesty’s Revenue and Customs to my report.
DWP’s initial response
7.13 As is explained above, the response of DWP to my report is set out in annex D to this report.
7.14 In seeking to summarise that response (and the supplementary submission of the Government Actuary), it seems to me that their representations revolve around four principal headings: the quality of the content of official information; the role that such official information could reasonably be said to have played in the events relevant to this investigation; my finding related to the 2002 decision to change the MFR basis; and questions of causality between any shortcomings in official information and any injustice suffered by complainants.
The content of official information
7.15 The Permanent Secretary told me that DWP believed that my report did not substantiate findings that official information issued about the level of security provided by a scheme being funded to the MFR level was not consistent, accurate or complete - nor that the failure of DWP to review existing leaflets, after it was told that people did not know of the risks to their accrued pension rights, constituted maladministration.
7.16 In support of this view, he said that my report had had insufficient regard to four propositions:
(i) that ‘Ministers and others repeatedly stressed that the MFR was intended to provide “greater” protection rather than any absolute guarantee’;
(ii) that ‘it was repeatedly stressed that the MFR was intended as a balance between the interests of scheme members and employers’;
(iii) that ‘all of the leaflets to which the report refers carried a general health warning that they were not complete explanations of the law and were for general guidance only’; and
(iv) that it had always been accurate for official information to state that ‘most members of an occupational pension scheme would be better off when they retire than they would be if they did not join it’.
The role of official information
7.17 DWP said that, for a number of reasons, it was their view that ‘given the wide range of sources of information available to the complainants, and the very general nature of the Departmental publications, it is unlikely in the extreme that [official] publications would have materially influenced’ the actions of complainants.
7.18 Those reasons included:
(i) that only approximately half of the respondents to my survey could demonstrate that they had seen the relevant official publications;
(ii) that there was no substantial evidence that, even where an individual had seen the relevant publications, they had acted differently from how they would otherwise have acted; and
(iii) that it could not be assumed that individuals who had acted differently as a result of reading official publications had been entitled to do so, in a position in which the primary responsibility for safeguarding the interests of scheme members lay with scheme trustees.
The 2002 MFR decision
7.19 DWP told me that it did not consider that my report substantiated a finding of maladministration in relation to the 2002 decision, for the reasons set out in annex D to this report.
7.20 In the light of those reasons, DWP could not agree that they had not given proper consideration to the issue. The Government Actuary said that he agreed with this assessment.
Causality
7.21 DWP also told me that they do not accept that the necessary causal link had been demonstrated between any maladministration and the losses incurred by complainants.
7.22 They said that they found the examples given in my report of actions that properly informed scheme members, trustees or sponsoring employers might have taken were ‘unconvincing’, because:
(i) the suggestions that accurate official information on scheme security might have led to different action by employers ‘are wholly speculative’;
(ii) my report did not recognise the uncertainty that any remedial action taken by scheme trustees or members would have had any effect;
(iii) there was no evidence that many of the complainants’ decisions would have been unquestionably different had they known the true position; and
(iv) an individual who, knowing the potential risks to their final salary pension, chose to transfer out into, for example, a personal pension might have suffered a loss if their final salary scheme never wound up ‘under-funded’.
7.23 In summary, DWP said that my report 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’.
7.24 The Permanent Secretary continued:
Given the number of causal factors at work, the vast majority of which fall wholly outside the scope of [my] jurisdiction (and indeed wholly outside the Government’s control), the Department would suggest that the only rational conclusion is that the matters criticised, even if (which we do not accept) such criticisms were justified, are unlikely to have made any difference to the outcomes for the individual complainants.
My assessment of the response from DWP
7.25 I am not persuaded by the reservations about my report expressed in the response of the Permanent Secretary of DWP. As DWP knows from my responses to their submissions, in my view some of the detailed points set out in annex D to this report are misconceived. Others have been dealt with already elsewhere in this report. What follows is restricted to an assessment of what I consider are the key submissions made by DWP that have some relevance to my findings and recommendations.
Content of official information
7.26 In relation to whether the evidence set out in my report justifies a finding of maladministration in relation to the content of official information, I should first state quite clearly that Parliament has decided that it is my role – and not that of any party to a complaint – to determine what constitutes maladministration.
7.27 I also note that DWP in its response did not question the six conclusions I draw at the beginning of my findings about the evidence set out in some considerable detail in chapter 4 of my report. Nor has DWP contested the factual description of the contents of the official information to which I have had regard – or the policy and guidance frameworks within which DWP and its predecessor placed their own actions at the relevant time.
7.28 The Government has therefore not questioned the factual basis on which my finding that official information was deficient rests. While it may not agree with my approach, the Government has given no reasoned argument as to why I should not assess DWP’s action in accordance with the standards it set itself at the relevant time. Nor have I seen anything in its response to persuade me that my approach to assessing whether the content of official information constituted maladministration is either unsound or unreasonable.
‘Greater protection’
7.29 Turning to each specific submission on the content of official information made by DWP, I agree that Ministers have over many years said that the MFR was intended to provide ‘greater’ protection than the regime that was in existence prior to the commencement of the Pensions Act 1995. References to such statements are set out within my report.
7.30 However, I do not consider that such statements mean that the information provided by DWP and its predecessor did not constitute maladministration.
7.31 First, most of the public information leaflets to which my investigation has had regard do not contain such statements about ‘greater protection’.
7.32 Secondly, it seems to me that recognition that this was said on occasion does not remove the need for consideration of the rest of the official information provided in parallel to such statements.
7.33 In other words, if official information said that a particular provision – in this case, the MFR – was intended to provide a greater degree of protection, I would rightly be expected to have regard to the description from the same source of what that greater protection involved.
7.34 I consider that my report amply sets out the deficiencies in official information already. However, taking one example, official publicity issued in June 1996, at the time when the MFR was agreed, referred to the new regime as being one that would provide ‘greater protection’ but, in relation to the MFR, went on to say that ‘schemes funded to this minimum level will be able, in the event of an employer going out of business, to continue paying existing pensions and provide younger members with a fair value of their accrued rights which they can transfer to another scheme or to a personal pension’. That was not accurate.
7.35 Giving another example, leaflet PEC3, issued in January 1996, said, in response to a question ‘Why was the Pensions Act needed?’, that ‘the Government wanted to remove any worries people had about the safety of their occupational (company) pension following the Maxwell affair’. It then went on to provide assurance that a scheme funded to the MFR level would, regardless of what happened to the sponsoring employer, be able to continue to pay pensions in payment and provide non-pensioners with a cash value of their accrued rights. That also was not accurate.
7.36 Indeed, by the time this leaflet was issued, the Government had instructed the actuarial profession to devise a basis for the MFR that would only give non-pensioners an ‘even chance’ of replicating their pensions.
7.37 At no time until April 2004 did the DWP’s leaflets set out in clear and consistent terms what scheme members might expect from the protection afforded by being funded to the MFR level – even in answer to specific questions such as ‘how do I know my money is safe?’ and ‘what do I need to think about?’
7.38 In any case, I do not consider that general statements to the effect that the regime of which the MFR was a part was intended to provide ‘greater protection’ could be seen to be a clear and consistent statement that pension rights were at risk from scheme wind-up even if a scheme were fully funded to the MFR level.
7.39 I consider that this is even more apparent when those statements are considered together with the specific explanations that were provided in official information of what protection was provided where a scheme was funded to the MFR level.
7.40 Government bodies chose to supply information that purported to answer questions such as ‘how do I know my money is safe?’ and to provide information about ‘other things that could affect your pension’. It does not seem to me unreasonable that citizens would have had regard to such information. Nor does it seem unreasonable that they would have trusted that information.
7.41 It came, after all, from a source with no apparent interest in promoting a particular pension choice, was said to be part of a wider financial education programme, and was produced by those responsible for the relevant statutory framework - and who therefore might reasonably be seen as best placed to know what the relevant legal provisions entailed.
Balance between the interests of scheme members and employers
7.42 I also agree that what was the appropriate level at which DWP and its predecessor should prescribe the MFR was a consideration that would naturally require regard to both the interests of employers and those of scheme members.
7.43 That the often competing interests of employers and scheme members were – and indeed are - a prime factor in pension scheme funding must be accepted by everyone.
7.44 It is therefore all the more surprising that such a key consideration was not mentioned in any of the official leaflets on these matters.
7.45 Moreover, I am not convinced that the existence of general statements that pension scheme funding is a matter of balancing the interests of employers with those of scheme members can make acceptable specific but misleading statements in a range of official publications as to the level of security that was provided by the MFR.
‘Health warnings’
7.46 In relation to the existence of ‘general health warnings’, it may indeed be the case that a statement that a particular leaflet was not a complete statement of the law and was for general guidance only might on occasion mean that it was understood that not all particular circumstances or possible scenarios were covered in that leaflet. This would be particularly true if a reader was seeking to gain a comprehensive understanding of the law or was seeking specific and tailored individual financial advice. In any case, in my view it is always preferable that such exclusions are set out explicitly.
7.47 However, where an official leaflet purports to answer the specific question ‘how do I know my money is safe?’, I do not think that such a ‘health warning’ can excuse the omission of perhaps the most significant factor in any reasonable answer to that question – that a pension was only as secure as the employer standing behind it.
7.48 As my report shows, that question – which DWP and its predecessor chose to pose - was never answered accurately. Only in April 2004 was its replacement – ‘is my money protected?’ – answered in broadly accurate terms, with information provided about scheme wind-up as a relevant factor.
7.49 A failure to cover scenarios that might only reasonably arise in extreme or highly unusual circumstances may be acceptable. However, a failure to mention the most highly material consideration in relation to a specific question that a leaflet posed would not meet DWP’s own standard, agreed on 11 September 2001, that there should be ‘no significant omissions’ in the information provided by the Department.
7.50 It is also because it is so far short of what has always been acceptable that I have concluded that it constitutes maladministration.
Accuracy of advice to join an occupational scheme
7.51 I do not doubt the statements in official leaflets that, for the majority of members who join a final salary occupational pension scheme, there are considerable benefits to doing so. Nor have I said in my report that such general advice was inaccurate.
7.52 What I have found is that, while there was a considerable degree of emphasis placed in official leaflets as to the benefits of joining such a scheme, there was inadequate disclosure of the risks.
7.53 I have accepted that there was no obligation on DWP and its predecessor to provide information about occupational pension schemes. However, as my report sets out, it has long been accepted – not least by DWP itself – that where public bodies choose to provide such information there are concomitant obligations on them to ensure that the information they produce is complete and accurate.
7.54 That did not happen in relation to the official leaflets covered by my investigation.
Role of official information
7.55 Turning now to DWP’s submissions as to whether official information was actually read by complainants and, if so, whether it would have prompted complainants to take remedial action or otherwise have materially influenced their actions, again I am not persuaded by their submissions.
7.56 First, while it is true that only approximately one-half of those complainants who responded to my survey can now demonstrate that they had seen the official information that I consider to be deficient, I think that it cannot be forgotten that a considerable time has passed since many of the leaflets were issued and read. Nor is it the case that all of those who cannot now demonstrate it did not see such information in the past.
7.57 I do not consider that it is reasonable to expect all individuals to now provide evidence in the form of copies of leaflets that were read many years ago. Such an expectation does not accord with the approach that my Office has taken in previous similar cases – nor is it one that DWP accepted in those cases.
7.58 Secondly, I do not accept that my report is deficient because it ‘offers no substantial evidence’ that, even where individuals had read the official leaflets that I have found were misleading, those individuals acted differently from how they otherwise would have acted.
7.59 In my view the submission that, had different information been provided, it would have had no effect on complainants is incompatible with other submissions made by DWP that, had their information leaflets dealt with risk, this might have ‘intimidated’ scheme members to leave the scheme to their likely detriment should their scheme not eventually wind-up. Nor is such a submission consistent with evidence set out in DWP’s own research among scheme members, which was undertaken in 2002 and published in February 2003.
7.60 The official information provided – whatever it said – either was a proper source of information to which citizens could reasonably have regard, or it was not - which begs the question as to why it was produced at all.
7.61 I note that the National Audit Office has recently said that ‘citizens should be able to rely on the accuracy and completeness of information provided by all government departments’ and that ‘written communication (in particular leaflets, letters and paid-for advertising) is regarded by the public as the most trustworthy source of information from Government’.
7.62 The case of complainants is that they read or had regard to official assurances that, so long as their schemes were funded to the MFR level, they could expect that pensions would be paid in full and that non-pensioners would receive a cash transfer of their full pension rights as calculated by an actuary.
7.63 That being so, and being reassured that this was the case – a reassurance provided by the public body responsible for the system of regulation over their pension provision and for the relevant provisions of the law – complainants took no action to diversify the risk to their pensions or to take any remedial action that was possible in the particular circumstances of their scheme.
7.64 Thus, what would have to be proved by complainants is a negative – that they did nothing because of the contents of official leaflets. Seeking to prove a negative such as this is notoriously difficult and does not seem to me to be a reasonable way to proceed.
7.65 When assessing what might have happened had maladministration not occurred, it is often the case that I will need to assess conflicting assertions. When considering such assertions, I will normally proceed on the basis of a balance of probabilities assessment, as it is often impossible to demonstrate conclusively which assertion – by a body under investigation or by a complainant – is correct.
7.66 Having had regard to all the circumstances, I consider that it is highly probable that any reasonable individual would have acted differently had they known the true position about the risks to their pension rights – for example, by making different choices about additional contributions, or by considering and taking the other actions I discuss in this report.
The 2002 MFR decision
7.67 I will now set out my assessment of the submissions of DWP and the Government Actuary related to the decision in March 2002 to amend the MFR basis.
7.68 It seems to me that these rest on the following three propositions:
(i) that the actuarial profession recommended the 2002 change to the MFR basis and the Government’s decision to implement it was wholly consistent with ensuring that the MFR was aligned to the original policy intention;
(ii) that the profession’s recommendation was supplemented by advice from GAD, which further reinforced the reasonableness of a decision to implement it; and
(iii) that the effects of the decision were in any case not significant.
7.69 I will consider each of these propositions in turn.
The profession’s recommendation and alignment with the policy intention
7.70 I have accepted that it was the case that the actuarial profession recommended the change to DWP – and I have not said that such a recommendation was unexpected by DWP or unwelcome among those who responded to consultations on such matters.
7.71 It should be remembered, however, that the MFR consultation had been published without reference to the actuarial profession’s recommendations of 5 September 2001.
7.72 The actuarial profession had subsequently informed its members that it had made those recommendations, but no other publicity at that time had been given to their specific recommendations regarding the MFR basis. Many individual actuaries responded to the MFR consultation – largely on behalf of scheme administrators or trustees. Some seemingly combined their response to the matters covered by the MFR consultation – which were in the public domain – with comments on the actuarial profession’s September 2001 proposals to amend the MFR basis – which were not yet in the public domain.
7.73 Thus, any responses received by DWP setting out views on the actuarial profession’s September 2001 recommendations to amend the MFR basis would have been received within a context in which many of those most affected by the MFR – such as scheme members – did not have an equal opportunity to comment on those recommendations.
7.74 Turning to the other submissions made by the Government, it may well be that the actuarial profession’s September 2001 recommendation was thoroughly discussed within the profession and that the profession had evidence which supported its analysis. Such evidence, however, was not provided to DWP at the relevant time.
7.75 Nor do I question that the Government had instructed the profession to devise a basis for the MFR that would provide only a certain degree of security for scheme members - and that it had asked the profession thereafter to monitor the economic and demographic contexts to ensure that the MFR maintained that original intended level of security. It seems to me that the profession undertook those responsibilities entirely properly within the remit that Government had set.
7.76 However, for the reasons I have already given I am not persuaded that the reasons for DWP’s decision can be explained by the fact that the profession had made a recommendation and that that recommendation aimed to realign the MFR with the Government’s original policy intention.
7.77 My investigation has shown that it was not the case that DWP generally or consistently implemented the recommendations of the actuarial profession in relation to the MFR basis.
7.78 In fact, the actuarial profession had made four sets of recommendations concerning the actuarial basis of the MFR and only two of them had been implemented.
GAD’s advice
7.79 Similarly, I accept that GAD gave advice to DWP and I also accept that GAD had access to the discussions within the actuarial profession about the MFR and other issues.
7.80 As is made clear in my discussion of this head of complaint, my focus has been on the decision-making process within DWP – and not on assessing the soundness of the professional advice provided to DWP.
7.81 My concern about this particular decision relates to whether DWP could be satisfied, as a reasonable decision-maker acting without maladministration, that the evidence base it could document and had verified was sufficient to enable it to make the decision it did in March 2002.
7.82 Given what I have said about the apparent mismatch between the approach taken to the decision on this particular recommendation and that used in relation to deciding whether to implement other similar recommendations from the actuarial profession, it seems to me all the more important that a fully documented evidence base was in place.
7.83 Both DWP and the Government Actuary disagree with my interpretation of the scope of the advice provided by GAD to DWP in September 2001. I note also DWP’s suggestion that too much is being read into the precise wording of that advice.
7.84 However, that the scope and content of such important advice is open to interpretation at all – not on its merits or substance, but on what it purported to encompass – is a matter of concern. That is especially so if the email in question is the only documented record of advice regarding a proposed change to the mechanism that, to use the words of the Minister who piloted the legislation that created it through Parliament, ‘[underpinned] the employer’s pension promise’.
7.85 Finally, much has been made of alignment with an original policy intention. It should not be forgotten that that intention had never been disclosed to the public. Nor should it be forgotten that the decision to amend the MFR in 2002 was taken after DWP had been informed in clear terms that scheme members had no idea of the degree of protection that it was intended should be afforded by the MFR.
7.86 Official statements made at the time that the decision to amend the MFR basis was taken in March 2002, which referred to the change as being one which aligned the MFR with the Government’s policy intention, were of no practical use to scheme members. They were at that time labouring under the misapprehension – promoted by official information – that being funded to the MFR level meant that their pensions were secure.
Significance of change to MFR basis
7.87 It should be clear from the above that my findings do not relate to the effects of the 2002 change to the MFR basis but rather to the way in which the decision to effect that change was taken.
7.88 However, for completeness, I should say that I do not accept the submissions of the Government Actuary on the question of whether the 2002 MFR change – or indeed any other such change – was not material or significant when considering the complaints I have investigated.
7.89 Such decisions involved the level of assets that a scheme had to hold (or bring its funding level up to over time) to meet the MFR ‘test’ - and also the amount of money that a scheme on wind-up could legally reclaim from the sponsoring employer. The level of the MFR also was key in setting cash equivalent transfer values for members leaving the scheme and also for setting compensation where that was due.
7.90 It seems to me that the exact funding level at which a scheme operated – and to which it could, on wind-up, realise its assets in order to discharge its liabilities – is highly significant.
7.91 In addition, the Government Actuary’s submission that a change of around 3% to the MFR strength was not significant runs counter to another made by DWP. The Permanent Secretary of DWP told me that, according to complainants:
…it was thought that, if a scheme was funded up to the MFR, any accrued rights were safe.
Even if we accepted this proposition, which… we do not, it must follow that members of schemes which were not funded to the level of the MFR could not have had such an expectation and, therefore, that their losses cannot be attributed to any alleged maladministration…
By definition, a scheme that was not funded up to the MFR could not have been thought by its members to have satisfied this requirement, whatever protection they may have thought this offered.
…we simply do not regard as remotely plausible the argument [set out in annex C to this report] that a member of a scheme under-funded against the MFR could have drawn the inference that, if the MFR offered full protection, those who were not funded up to the MFR could expect proportionate protection.
7.92 I should explain that I am not persuaded by DWP’s view of whether it was reasonable for scheme members to assume ‘proportionate protection’. Such a view would seem to be contrary to the statement by the then Secretary of State in the December 1994 ‘Butterfill letter’ that the statutory requirement would ‘provide an important, objective measure of the adequacy of a pension fund; something which members and trustees will be able to monitor and against which the performance of the fund… can be measured’. It would also seem inconsistent with the Government’s contemporaneous description of the MFR as a ‘benchmark’.
7.93 Nevertheless, it appears that the Government’s current position is that being 100% funded on the MFR basis invoked the protection, however limited, that was provided by coverage to that level - but that members of those schemes that were less than 100% funded could not expect ‘proportionate’ protection. A Ministerial answer given in July 2003 said that the effects of the 2002 decision to amend the MFR basis may have weakened the MFR test ‘by around 3 per cent’. My advisers suggest that the figure may be somewhat higher.
7.94 In my view, it does not matter which assessment is correct. If what I have described above is indeed the Government’s position, then even a very small percentage point shift in the strength of the MFR would have had very serious implications indeed for schemes broadly funded around the MFR level. Weakening the MFR test would have increased the protection given to the non-pensioner members of schemes just below 100% on the MFR basis – as a scheme funded at, say, 99% on the MFR level (whose members would not, according to the Government’s account, have been protected) would become more than 100% funded, with the resulting extension of protection - and strengthening the test would have had the opposite effect.
7.95 In addition, as it appears that many sponsoring employers only funded to the minimum level, such shifts might therefore have had a very widespread effect.
7.96 Leaving aside the question of whether such important facts should have been disclosed by Government, it seems to me that the MFR – and therefore any change to its basis – was the core of a very central concern for all members of those final salary occupational pension schemes that were covered by it – namely, the security of their pensions.
7.97 As was recognised in the Myners report that was commissioned by Government and published in March 2001, one of the failings of the MFR system was that it was ‘treated as a technical question, for resolution by the actuarial profession’. Such an approach, it was said, was not justified - as the MFR basis was ‘not an obscure technical question, but the very heart of the question of whether the fund is adequately funded or not’.
7.98 Given the nature of the complaints I have investigated, any changes to the MFR basis seem to me to have been both material and significant.
Causality
7.99 Turning now to issues of causality, again I am not persuaded by the submissions made by DWP.
7.100 First, I have not said in this report that financial losses were caused by deficiencies in official information alone. I have found that such maladministration played a role – with other factors - in creating the conditions in which such losses were sustained. That role was to provide false assurance to the extent that no reasonable person reading that information would realise that, in certain circumstances, they needed to consider and/or take action both to seek to remedy scheme funding shortfalls or to otherwise protect their own position. I have also found that financial injustice was a consequence of the maladministration I have identified, as scheme members were unaware that their pensions were only as secure as their employer due to deficient and misleading official information.
7.101 I am recommending that Government consider whether it should take the lead in remedying the injustice identified in this report. I do so because I have found that maladministration was a significant contributory factor to that injustice and because it seems to me that Government is best placed to do so.
7.102 Secondly, it appears that DWP is suggesting that any recommendations I make to remedy the injustice that is a consequence of the maladministration I have identified must be related to each individual complainant - and must be based on those individuals each separately demonstrating beyond reasonable doubt many years later:
- first, that they had read official information;
- secondly, which information they had read and exactly when; and
- thirdly, what effect reading that information had had on them.
7.103 It seems to me that this approach, were I to accept it, would in an unreasonable manner reverse the onus of proof in situations where I have found that maladministration had occurred. In such situations, I look to those responsible for the maladministration I have identified to satisfy me that the relevant shortcomings in their actions have not caused or contributed to the injustice claimed by those individuals affected by those actions.
7.104 The Government’s current approach would also be inconsistent with the approach that my predecessor and DWP have taken in relation to cases which involve deficiencies in widely available public information leaflets in the past - such as in relation to my Office’s inherited SERPS investigation.
7.105 In that case, my predecessor’s view, as reported in paragraph 32 of his report ‘State earnings-related pension scheme inheritance provisions’, which was published on 15 March 2000, was that:
…individuals who claim to have been misled or misdirected by information given by a department are normally expected to provide some evidence that they have been misled into acting, or failing to act, in a way that has been to their disadvantage. Only then is compensation considered.
However, I questioned whether that approach was tenable in the circumstances of the complaints being referred to me. As I saw it, anyone who had read the relevant DSS leaflets might reasonably claim to have been misled by them.
Whatever such a person then did or did not do, it seemed to me that the burden of proof that he or she would not have acted differently had he or she not been misinformed rested on the department.
I therefore considered that, whatever the approach the department decided upon in order to make good the effects of their maladministration, it would need to be capable of providing due redress on a global, rather than an individual, basis. I also felt that any evidential hurdles pertaining to eligibility for compensation should have regard to the principles concerning the burden of proof which I had set out.
7.106 The Government accepted this approach at the time and also accepted that the burden of proof lay with them. In a statement to the House on the day that my predecessor’s report was published, the then Secretary of State for Social Security said:
The giving of wrong information by a government department is inexcusable. There is a clear responsibility to ensure that the information provided is accurate and complete.
7.107 Moreover, the Government accepted that redress was not to be limited to those who could themselves prove that they had definitely made alternative choices. As the then Secretary of State continued to say in the same statement (with emphasis added):
…we will also provide redress for those people who were wrongly informed and who, had they known the true position, might have made different arrangements… As a matter of principle, we believe that when someone loses out because they were given the wrong information by a government department, they are entitled to redress.
7.108 After announcing the creation of a new designated pensions agency, which became today’s Pensions Service, the then Secretary of State concluded his statement by saying:
We also have a responsibility to provide clear information to the public… The public rely on government information. They are entitled to be reassured that leaflets are accurate and comprehensive… In future, DSS leaflets will be subject to external audit, so that people can rely on clear and accurate information.
7.109 I see no reason to depart from the approach adopted by my predecessor and accepted by the Government at the time.
7.110 In both the inherited SERPS case and in this investigation, the maladministration identified was the omission of significant considerations from the information that the Government said was included in official leaflets. In both cases the leaflets in question contained ‘health warnings’ and were said to be of a general nature that, in their own right, would not be a sufficient basis on which individuals could make important financial decisions.
7.111 In both cases, a financial loss was not caused by that deficient information – with inherited SERPS, the losses were caused by changes to entitlement which had been enacted by Parliament some years previously - but rather in both cases the people affected had had no idea until too late that they might suffer such a loss due to the distorted reality that resulted from the deficient and misleading information in official leaflets.
7.112 In the end, with inherited SERPS, the Government decided to devise a ‘global’ solution to the problem due to the practical problems in devising and administering an ‘individual’ redress scheme where the burden of proof lay on the Department. It may be that similar practical obstacles exist in this case.
7.113 Nevertheless, it seems to me that there is a public interest in asking those whom I have found were responsible for the maladministration I have identified in this case to seek to develop a solution to the losses sustained by those who have had their expected pensions taken away through no fault of their own.
7.114 If an ‘individual’ approach is taken, it also seems reasonable to me that the burden of proof when determining whether or not individuals read the deficient leaflets and acted – or refrained from action – as a result should be on those who placed misleading information in the public domain.
Further response from Government
7.115 In the light of my assessment of their response to my findings which is set out above, I asked DWP for the Government’s final response to my findings.
7.116 DWP provided a further response on behalf of the Government on 28 February 2006. I have reproduced this response in the words of its Permanent Secretary, below.
The Department wishes to make clear at the outset that it has the utmost sympathy with those individuals whose pension schemes have been wound up and who have, as a consequence, lost a significant part of the occupational pension they had been led to expect by their scheme.
That cannot mean, however, that the Department is responsible for the losses. It is clear that 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. All of the issues covered in this report have, in the Government’s view, to be seen within this fundamental context.
As regards the decision to change the MFR in 2002, the Department’s view is that it acted wholly responsibly in implementing the recommendations of the actuarial profession which had received the full backing of the Government’s own professional advisers in the Government Actuary’s Department. The Department’s view is that that is precisely what would have been expected of any responsible Department acting reasonably in an area of acknowledged complexity. In the Department’s view, it would have been far more vulnerable to justified criticism had it substituted an alternative judgement in the face of clear and consistent advice from the actuarial profession and from GAD without good reason.
There were good reasons for not implementing the recommendations made by the actuarial profession in 2000 and 2003. Both of those recommendations involved more complex changes which would have required long administration lead-in times. In both cases the MFR was expected to have been abolished by the time the changes would have had much, if any practical effect.
As regards the issue of alleged misinformation in various speeches, statements and leaflets, the Department – for the reasons set out before – holds strongly to the view that the information put forward was, and was only ever intended to be, of a general nature and carried numerous disclaimers and health warnings making clear that it could not be relied upon by any individual, or their adviser, in reaching detailed decisions about their own best course of action.
Even more importantly, however, leaving aside the issue of whether individual statements in individual leaflets or communications might or might not have been differently worded, the Department takes the view that the primary responsibility for ensuring that individual members of pension schemes were not misled as to the viability and security of those schemes rested fundamentally and clearly with the trustees of those schemes, supported by their professional advisers.
In that context, there is no doubt whatsoever that, whatever misconceptions may have been held by individual scheme members as to the degree of assurance afforded by the MFR, professional advisers to pension schemes were clear from the outset as to the true position. In this connection we believe that the report fails to consider adequately whether individual scheme members received, or should have received, information from their scheme’s trustees (informed as this would have been by advice they received from actuaries or other professional advisers).
The report attaches great significance to the reassurance which scheme members might have gained from funding to the MFR level. We believe that the report pays insufficient regard to the fact that very few schemes involved in this investigation were actually funded to the MFR level when they wound up.
Finally, the Department takes the view that, even if all of the foregoing did not apply, the report has failed to establish the necessary degree of causality between the information by the Department and the decisions taken by individuals. Put at its simplest, the Department believes that the report fails to demonstrates that the decisions which individual complainants took, or did not take, were directly influenced by the information which the Government did or did not make available.
In conclusion, the Department, while reiterating its sympathy and understanding of the distress caused to individuals by the failure of their pension schemes to deliver the benefits to which they believed they were entitled, reiterates its view that this response 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.
7.117 The Permanent Secretary told me that, accordingly, the Government was minded to reject the first four of my recommendations but to accept the fifth. He also told me that, while he was grateful for my offer that they should have two months from publication of my report in which to consider and respond to my recommendations, ‘we consider that such an extension is unnecessary and, given the potential for raising false hopes, undesirable’. DWP told me that, while the Government was minded not to accept my findings or recommendations, it would only provide its final response to my report after it was published.
My response to the Government’s position
7.118 The Government says that DWP is not responsible for the losses suffered by scheme members and that responsibility lies with the companies whose schemes were wound up and with the scheme trustees who, acting with the benefit of professional advice, were responsible for safeguarding the interests of scheme members.
7.119 For the reasons I have already set out in chapter 5 of the report, I have found that maladministration was a significant contributory factor in the creation of financial loss and that it also caused injustice of other kinds. Nothing in DWP’s submissions persuades me otherwise.
7.120 The Government says that the information it provided was only intended to be of a general nature and carried disclaimers and ‘health warnings’, so it should not have been relied upon by individuals, or their advisers, in reaching decisions about their own best course of action.
7.121 For the reasons I have already set out in chapter 5 of the report, I have found that the information provided by DWP did not meet the standards that it set for itself and, being incomplete, unclear, inconsistent and often inaccurate, that it was so far short of what is acceptable administrative practice that it constituted maladministration. Nothing in DWP’s submissions persuades me otherwise.
7.122 The Government says that my report fails to demonstrate that decisions taken by individual scheme members were directly influenced by Government information.
7.123 Chapter 2 of my report shows that complainants told me that this was the case – and many of them provided examples of the leaflets on which they relied. I have found no reason to doubt what those people told me. In making this response, the Government appears to question both the credibility of the people who have complained to me and my judgement in assessing their credibility. Nothing in DWP’s submissions persuades me that my judgement was unsound or unreasonable.
7.124 The Government says that, in March 2002, it acted wholly responsibly in implementing the clear and consistent recommendations of the actuarial profession, which were backed by GAD. The Government also says that, had it not implemented those recommendations without good reason, DWP would have been subject to serious criticism - and that there were good reasons for not implementing other recommendations made in 2000 and 2003 as they were complex and as the MFR was due to be abolished and thus there would be little time for those changes to have had any effect.
7.125 For the reasons I have already given in chapter 5 and above, I have found that the way in which DWP took its decision in 2002 to weaken the MFR basis constituted maladministration. I am not persuaded by the reasoning provided by DWP to explain why it decided to weaken the MFR basis in 2002 but decided, on two occasions, not to strengthen it.
7.126 The complexity of one recommendation can hardly be a reasonable explanation of such decisions when Government acknowledges that the MFR was by necessity always complex and technical.
7.127 Neither can the short time before the expected abolition of the MFR account for DWP’s decision as, if it was a factor in the decision in 2000 not to strengthen the MFR, it was all the more relevant in March 2002, by which time that abolition was closer and there was less time for the change to have any effect.
7.128 Nor can the risk of serious criticism explain the inconsistency with which DWP approached the matter of the strength of the MFR basis. If DWP had to implement the 2002 change to the MFR to avoid such criticism, I fail to see why that factor did not also mean that the 2000 and 2003 recommendations to strengthen it were not also implemented.
7.129 The Government says that very few schemes to which the people who have complained to me belonged were ever funded to the MFR level or were so when they wound up.
7.130 I have already provided my assessment of this submission in annex C to the report. Nothing in DWP’s submissions persuades me that my assessment is unsound or unreasonable.
7.131 The Government says that there is no sound basis on which the Government should accept liability on behalf of taxpayers as a whole for the events relevant to my investigation.
7.132 As I have already explained above, that is not what I have suggested. Nothing in DWP’s submissions persuades me that my conclusions that maladministration played a significant role in causing injustice to individuals or that Government is best placed to take the lead in developing a solution to remedy that injustice are unsound or unreasonable.
7.133 I have carefully considered all of the submissions made by DWP on behalf of the Government in response to my report. Having done so, I remain wholly unpersuaded by those submissions.
7.134 I am therefore laying this report before both Houses of Parliament pursuant to section 10(3) of the Parliamentary Commissioner Act 1967 to denote that I have found injustice in consequence of maladministration which the Government does not propose to remedy.
