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Last Updated: Wednesday, 15 March 2006, 18:10 GMT
Government rejects pension ruling
Protesting pensioners
PAG members protest at Labour's 2004 Brighton conference
The government has rejected a report which calls for it to compensate 85,000 people who have lost all or part of their company pensions.

The Parliamentary Ombudsman, Ann Abraham, made the ruling after finding the Department for Work & Pensions (DWP) guilty of maladministration.

She said official guidance on company pension schemes had been "inaccurate, incomplete, unclear and inconsistent".

Tony Blair said taxpayers should not have to bail out private schemes.

Speaking to the House of Commons, the prime minister said the government simply could not take on the estimated 15bn compensation bill.

He said such a move would "set a precedent of extraordinary financial proportions".

"We simply cannot do that in circumstances where the reason for the loss is the collapse of those pensions schemes themselves," added Mr Blair.

Government 'failure'

Ms Abraham argued in her 254-page report that the government's "maladministration" had "caused injustice to a large number of people who, as a result, lost the opportunity to make informed choices about their future".

However, the report is non-binding and the ombudsman cannot force the government to take up her recommendations.

For the report to assert that the taxpayer should make good all such losses - however they arose - is a huge and unsustainable leap of logic
Stephen Timms, Pension Reform Minister

Much of the criticism in the ombudsman's report is directed at government information leaflets which it says gave a misleading impression of the security of company pension schemes.

But Work and Pensions Secretary John Hutton told the BBC there was no evidence that these leaflets were inaccurate or incomplete.

He added that the ombudsman had "not established that people relied exclusively or alone or heavily on the leaflets we did produce as the basis for their financial decisions".

"This was a general advice leaflet designed to provide general information. These leaflets were not designed to provide detailed financial advice for people to make investment decisions."

Stephen Timms, the minister for pensions reform, said "it could not be the responsibility of taxpayers to bail out failed corporate pension schemes.

OMBUDSMAN'S REPORT
Most computers will open PDF documents automatically, but you may need to download Adobe Acrobat Reader.

"For the report to assert that the taxpayer should make good all such losses - however they arose - is a huge and unsustainable leap of logic."

Opposition parties condemned the government's response.

Shadow work and pensions secretary Philip Hammond spoke of "failure... across several government departments and over a number of years."

David Laws, the Liberal Democrat's work and pensions spokesman, called it a "damning account of the government's mishandling of occupational pensions".

Several trade unions said they would now proceed with legal action against the government to enforce their members' claims for compensation.

5bn bill?

About 400 company pensions schemes have gone under so far, and to restore the pensions lost by their members would cost a lump sum of 5bn, or between 100m and 150m a year for 40 years, according to the Pensions Action Group (PAG), which has campaigned on the issue.

Dave Baker
The government's response is absolutely disgusting... they are trying to avoid their obligation
Dave Baker

Ros Altmann, the PAG's spokeswoman, said "every right-thinking person... when reading the evidence uncovered by this investigation, cannot fail to appreciate that these individuals have been dreadfully wronged by our government.

"The real worry is that government itself, having seen the Parliamentary Ombudsman's report, seems to be trying to deny the evidence clearly put before it," she added.

She said she hoped the matter would be taken up by MPs.

"If ministers can't see for themselves, then Parliament must force them to," she said.

Ombudsman's findings

Ms Abraham said she uncovered evidence of real suffering among people who had lost their pension after their company went under.

After reviewing the evidence she decided that the government's official information had been:

  • inaccurate - by telling scheme members that they would receive the full value of their accrued rights if their scheme wound up and/or that the Minimum Funding Requirement was designed to ensure that schemes had enough assets to meet their liabilities in full;

  • incomplete - by omitting to mention the most highly significant factors - such as that a pension was only as secure as the employer sponsoring the scheme;

  • unclear - by using expressions such as 'fair value' to indicate the government's settled intention that non-pensioner members would have only an even chance of receiving their pensions;

  • inconsistent - from September 2000, some official statements and publications - especially those aimed at the general public - continued not to mention risk and to give a misleading impression as to the security of pension rights, while others began to explain the true position.

Complaints

The ombudsman launched her enquiry in 2004 after receiving more than 200 complaints from members of pension schemes that had been wound up.

Ann Abrahams
Ann Abrahams says the government should compensate pensioners

Most of them came from the estimated 85,000 people who lost all or part of their pensions when their company schemes went bust between 1994 and 2005.

Ms Abraham agreed that information and official guidance from bodies, such as the Department for Work & Pensions, had misled scheme trustees and scheme members about how secure their pensions might be if their schemes were wound up.

Many complaints focused on a policy known as the Minimum Funding Requirement (MFR), introduced in 1995 in the wake of the Maxwell pensions scandal.

Ms Abraham found that government advice and literature gave the impression that if schemes were funded to meet the MFR this would ensure the security of current and future pensions if their employer went bust and the pension scheme had to be wound up.

GUIDE TO UK PENSIONS
Facts and figures outlining the depth of the UK pensions crisis

In fact the MFR was never intended to ensure this.

She also found that the DWP ignored advice from the actuarial profession, in the year 2000, that it should point out to pension scheme members that they were at risk if they relied solely on the MFR as a measure of their security.

What next?

Even though the ombudsman's suggestions are non-binding, the Public Administration Select Committee can hold an inquiry into why the government rejected them.

The committee's chairman Dr Tony Wright said: "We will be asking the government to explain itself and review its decision not to accept the ombudsman's recommendations."


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