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Last Updated: Wednesday, 15 March 2006, 17:21 GMT
Q&A: Your company pensions concerns
Pensioner
The Parliamentary Ombudsman says that the government should compensate 85,000 people who have lost all or part of their company pensions.

However, the government claims it cannot be held responsible as the cost of compensation would be too high.

The BBC's personal finance reporter Ian Pollock has answered some of your questions on company pensions crisis.

Q: Shouldn't the directors of these companies be held responsible for the crisis?
Shaun Harrison, Nottingham

They certainly bear some responsibility. The 85,000 people who have been left without all or part of their pensions mainly worked for companies that had gone bust. That obviously calls into question how good the directors were at doing their jobs. And it begs the question as to why they had left their pension schemes without sufficient funds in case they did go under.

The counter argument is that pension fund solvency is hard to determine with any certainty, even harder to understand (even for most company executives) and a decade ago was guided by this new Minimum Funding Requirement (MFR) standard which gave the impression to some that schemes which conformed would be safe, when in reality they weren't.

One element in the general pension scandal that I would point to is the fact that many companies stopped making contributions to their schemes because they were in surplus, and then let them fall into deficit. Often that was at the instigation of the companies that had set up those schemes

Q: In addition to compensating people who have lost their company pensions shouldn't the government guarantee that there will be no further attacks on state pensions and also set in stone a commitment to secure the future of final salary pensions?
Euan Dargie, Dundee

Securing all pensions would be very nice wouldn't it? Sadly, to provide absolute certainty that promises will be met is fantastically expensive. So expensive that in fact no pension scheme in the country - state or private sector - really does so.

In the end many rely on the willingness and ability of employers to make up any shortfalls. And that clearly can't be relied upon. In the state sector the government tried - and has so far failed - to cut the cost of its pension schemes for current members.

As for final salary pensions generally, no one in the private sector is in fact obliged to offer such a thing. Many employers have stopped doing so, at least to new recruits. A law forcing them to provide final salary pension schemes, as opposed to any other types, would be hugely controversial.

Q: As a member of a pension scheme with a company that has gone bust, how does this and any future government expect young people to have any faith or trust in starting a pension?
Don Garforth, Barnsley

and

Q: How can the government expect us to save for our pensions after this?
Eddie, Leicester

The government has made some efforts to shore up confidence in pensions. It has put in place a Pensions Regulator to prevent, among other things, jiggery pokery with company schemes by employers.

Recent laws prevent solvent employers winding up their pension schemes without making good any deficit. And the Pension Protection Fund now exists to provide a safety net for schemes that have gone bust since April last year.

So things have improved on some fronts. The truth though is that nothing about pensions is absolutely certain - not even government promises. There will always be some risk, whether it be from employers going bust, investments doing badly, governments changing their minds or trustees and professional advisors being asleep on the job.

Q: My pension fund is currently being assessed by the Pension Protection Fund (PPF). With more and more of the funds failing because of the Government's iniquitous tax on pension funds' investment income, and with fewer companies contributing to the PPF, the PPF cannot possibly survive. Will the PPF be allowed to fail or will the Government underwrite any future under funding and support the PPF?
Dick Forster, Blindley Heath, Surrey

Exactly how the PPF is going to operate in the years and decades to come isn't quite clear.

But one thing that should be understood is that it will absorb the assets of schemes it eventually decides it has to rescue. Levies on all other private pension funds will provide the top up funds needed to make up the shortfall.

In due course the PPF may well end up being one of the biggest pension providers in the country. It is already assessing more than 40 bust schemes that have approached it to be rescued in the last year.

Could the PPF itself go bust? Maybe, but I suspect the law would be changed to lower the "safety net" level of payments it has to make before that actually happened.

Q: Shouldn't those who found out in their late 50s and 60s that the pension they had been saving for all their lives was gone, whether because of company theft, or low stock market returns be compensated?
Liz Jolly, Glasgow

The Parliamentary Ombudsman certainly thinks so with regard to the cases she examined between 1997 and 2005. But it also depends on what sort of scheme people are in.

If a fund goes under because the employer has gone bust (or due to fraud) then mechanisms are now in place to provide some sort of rescue. (see question 3).

If you have a private pension policy and its investments perform badly then it is probably just bad luck, so long as you are not a victim of mis-selling or fraud.

Protestors
Q: Is it still worth joining a company pension or taking out a personal pension? Wouldn't it be safer to keep your money under a mattress?
Sarah, Bedford

You are tempting me to give personal financial advice which I'm not allowed to do. But let me make a few points.

The employer contributions and tax advantages are what make formal pension saving so attractive as well as the fact that most people are well advised to save something for their retirement.

Should you think only of conventional company or personal pension plans? Not necessarily. The rules on pensions are being simplified from next month and individuals will have much more opportunity to make their own pension decisions. We have written about this on the BBC web site.

And people fortunate to have surplus cash at some stage of their lives may chose to invest in property (becoming landlords) to generate cash, or prefer to invest direct in shares and other investments directly, quite separately from any formal pension plan.

But none of these choices is without risk and for most people are simply not realistic.

A last word of advice. If you can, spread your pension savings. Savers with the Equitable Life learned the truth of that old maxim, just as many savers with now insolvent company schemes.

Q: Should companies have been allowed to take "pension holidays"? Has this been a factor in this crisis?
Jel, Cardiff

It certainly has. Horror stories have emerged of companies that took complete pension contribution holidays in the 1990s and into this century.

Often that was because their actuaries told them they had a notional surplus which they could afford to run down and the employers seized on this with glee to cut their costs and boost their profits and dividends.

In their defence they claim they were obeying Inland Revenue rules which put a limit on how big these surpluses could get before losing their tax exempt status.

But quite why some of them waited until they had plunged head-long into a deficit of hundreds of millions of pounds or even, in some cases, billions of pounds, I can't answer, other than to say it now looks like an astonishing level of negligence or stupidity somewhere along the line.

Now that deficits have arisen it has given some employers a good excuse to close their schemes to new members and bring in new versions which are much cheaper to run.

Pound coins
Q: Should company pensions be scrapped? Instead companies would be levied higher national insurance contributions and individuals would make extra NI contributions instead of paying into a company pension scheme. That would provide for a basic state pension.

Anyone who wants a higher pension income could opt to pay more NI or take out a private pension.
Iain, Glasgow

That would be one way of changing the current system. But the government - and also Lord Turner whose Pensions Commission recently published a very important report - are both very much wedded to the idea that pensions should be provided as a standard benefit by employers.

I suspect most employees probably agree. Anyway, would you trust the government (any government) to ensure that all your NI contributions would, in fact, be used to provide you the pension you would like?

Q: What effect will this have on public sector pensions?
Katie, Birmingham

They are in a very different position. Apart from the schemes for local government workers and university staff, all the public sector schemes are paid for directly out of taxation (national taxes or council tax). This includes the pension schemes for civil servants, teachers, the NHS, fire fighters and the Police and armed services. So they can't go bust because of a shortfall in assets.

The Ombudsman's report will have no direct effect on the terms of the state pension schemes and how generous they may be in the future.

But it certainly adds weight to the argument that pension promises must be adhered to. And the government has been trying to dilute its own promises by trying (unsuccessfully so far) to get existing members of its schemes to work longer for their pensions, by retiring later at 65.

Q: My father in law paid into a company pension for over 30 years, and the company went bust a year before his retirement date. He is now retired and has no pension funds to help him.

I think it is a disgrace and definitely feel the Government should help these people. Why should a loyal employee be treated this way and not be compensated?
David Frith, Milton Keynes

That's what the Parliamentary Ombudsman thinks too.


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