Why John Hutton’s defence of his rejection of Parliamentary Ombudsman report is wrong

by Dr. Ros Altmann

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In a reply to Ros Altmann’s open letter, Mr. Hutton attempted to justify his rejection of the Parliamentary Ombudsman’s report.  MPs must know the truth.  The following explains why Mr. Hutton’s arguments are not correct. 

1. The Ombudsman report does not say maladministration refers only to some leaflets over the years.  It also relates to decisions to change the official funding standards for final salary schemes.  In combination with Ministerial statements, public announcements, White Papers and Opra trustee handbooks, the public were misled into believing their pensions were safe.
2. Members consulted member-nominated trustees, often union shop stewards, but the trustees were misled by wrong information in Opra’s Trustee Handbook.  They were not told of the wind-up risks which Government had created after 1997.  Trustees could not force employers to fund more than the official ‘Minimum Funding Requirement’ (MFR), so they could not protect members better.
3. These were not just employer schemes, they were endorsed by Government.  Members would not have believed their pensions were safe, whatever happened to the employer, if the Government had not said so.  Furthermore, on wind-up, these become Government-controlled schemes.  Trustees have no discretion to divide scheme assets fairly, and the law says  money paid in by workers in their 60s has to be used to buy pensions for 50 year old Directors who took ‘early retirement’. 
4. The Government also paid contributions into these schemes by providing National Insurance rebates which members were told would provide them with ‘Guaranteed Minimum Pensions’.  Due to inadequacies of the MFR, these were actually neither ‘guaranteed’ nor ‘minimum’.
5. None of the official leaflets made clear that members needed to take proper advice.  Perhaps they should have done, but Government cannot just pretend they did when they didn’t!
6. In fact, the FSA material actually said final salary pensions were ‘guaranteed’, contrasting them with personal pensions in which people did not know  how much they would get when they retired. 
7. It is not true that the Government is ‘doing a very great deal to help’.  The Financial Assistance Scheme has only helped about 100 people, yet thousands of members are already past pension age.
8. The costs of the FAS have been overstated.  The recent extension of the scheme will not cost anything for many years and although the eligibility was extended, the amount per person was reduced.  The £2.3billion cited is misleading.  It refers to ‘cash cost’ over about 50 years, but the net present value is only £540 million over that period.  Secondly, all FAS payments are taxed and many recipients will not qualify for means tested benefits, so actual costs will be even lower.
9. It is not true that the FAS pays 80% of accrued rights to those within 7 years of scheme retirement age.  The FAS pays 80% of what is called ‘core pension’ which represents about 50-60% of many people’s ‘expected pension’.  People with scheme pension age of 60 must wait till age 65, there is a cap of £12,000 a year and neither the payments nor this cap is inflation-linked.  The whole FAS payment is taxable, whereas part of the ‘expected pension’ would be tax-free.
10. The Ombudsman report does not say the taxpayer must pay £15billion to compensate.  She says Government must organise compensation, but this can be paid for by other means.  The true cost is around £3billion and even that would be reduced by tax receipts and  benefits not paid.  The Government has not seriously considered the options for organising compensation, instead it has focussed all its efforts on denying the obvious maladministration.  Some funding could come from unclaimed assets or from pursuing other bodies the Government thinks may be responsible.  The important thing is for Government to make sure payments are received now and then find ways to recoup any costs over time, as it is the only body with the power to do so.

Finally, Mr. Hutton says Government would have to pay compensation if the losses were its fault.  There is clear evidence that the losses are, indeed, Government’s fault.  For example, solvent employer wind-ups left members without their pensions due to the inadequacies of the MFR.  Removal of ACT relief, allowing the MFR level to stray from its original intention of providing members pensions on wind-up, members losing AVCs, the legal priority order, lack of protection for GMPs and bowing to employer pressure rather than ensuring member security on wind up are all ways in which Government directly caused people to lose their pensions.  Therefore, it must compensate, as the Ombudsman says!