Radio 4 ‘Today’ programme – Mr. Purnell misleads listeners

by Dr. Ros Altmann

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Mr. Purnell’s interview on Radio 4 Today programme – The truth:

FAS
James Purnell said ‘I don’t accept that it’s not helping people’.  He also said it would cost over £2billion and extend help to 40,000 people.

The truth:
The FAS is not helping those who need most urgent help at all.  In over two years it has helped between 100 and 200 of the thousands of people who are already past pension age.  These are the facts, shown in the Government’s own publications. 

The figure of £2.3billion used by Government is a so-called ‘cash’ cost spread over 50 years.  The Treasury says ‘cash cost’ is not an appropriate way to measure long-term spending, because it inflates the figures.  The DWP’s own figures show that the cost is really £540million, but this is still a significant over-estimate.  All FAS payments are taxed and people receiving FAS will not get means tested benefits that they would otherwise have to claim so the net cost to taxpayers will be much lower.

Changes to the law after 1997:
Sarah Montague pointed out that trustees, since 1997, have been prevented from using their discretionary powers to allow scheme members to access their pensions, even though their scheme has money sitting in the bank.

James Purnell said this was completely incorrect and that the reason the pension losses occurred was because the schemes were underfunded.  He said the legal framework was actually strengthened in 1997.

The truth:
The legal changes in 1997 removed trustee discretion and prevented them from dividing the assets fairly on wind-up.  Every scheme, which has not yet finished winding up, has money available to pay pensions, but the law does not allow trustees to do so.  Before 1997, it would not be possible, particularly for members with long service and close to retirement, to be left with no pension at all, while other scheme members got their full pensions.  The legal rules governing scheme wind-up, which were changed in 1997, made pensions far less secure on wind-up and the funding regime did not do what Government said it would do.   Government said the funding regime would ensure all members received their full pensions if the scheme wound up and that these pensions would be safe ‘whatever happened to the employer’.  However, this proved to be totally untrue.  After 1997, of course, the Treasury removed billions of pounds each year from pension schemes and kept weakening the funding requirements but kept leading everyone to believe there was proper protection on wind-up and that accrued pensions were safe ‘whatever happened to the employer’.  These schemes were not ‘underfunded’, for example Andrew Parr’s scheme was 104% funded, but he has lost his pension because the Government’s funding standard was too weak.  In other countries, the funding standards were strong enough and members did not lose their pensions (such as IFI, where workers in the company’s Southern Ireland factories have got their full pensions, but those in the Northern Ireland plant, whose pensions are governed by UK law, have lost theirs).

These were employer schemes, the employer made the pension promises:
James Purnell said that the promises were made by the employer and were not underwritten by the Government and these are schemes where the employer has gone bust.  He said the employers have failed to live up to their pension promises.

The truth:
The problem is the rules governing pensions and wind-up, it is not the employers.  Many schemes have wound up with employers who are still solvent, and they have done all that the law required them to do.  The law did not make them meet their pension promises properly, even though members were told that it did.  Workers would not have believed that their employer pension was safe, if the Government had not told them so.  Government endorsed the employer’s pension promise after Maxwell, in all its official statements, press releases and public information.  These were not just private schemes after 1997, because the Government changed the law to interfere with the process of wind-up and also said its laws would protect employer final salary schemes, but the laws actually made things worse, particularly for long-serving and older workers.  If the Government was not underwriting the schemes, it should not have assured everyone they were safe, but should have explained the risks.  In fact, however, the Government misled the country into believing that money in a final salary scheme would deliver the promised pension.

The Barlow Clowes case:
Mr. Purnell said this is not unprecedented, because the Government rejected the Ombudsman’s findings of maladministration in the Barlow Clowes case in 1989.

The truth: 
This situation is definitely unprecedented, as said by the PASC.  For example, in the Barlow Clowes case, full compensation was paid, even though the Government rejected the Ombudsman’s findings of maladministration.  Allowing the Government to flout its own Ombudsman and its own backbench inquiry would set a dangerous constitutional precedent.  They don’t seem to have quite understood this yet, but we must make them do so.

The FAS needs to ‘strike a balance’, ensuring a ‘proper use of taxpayers’ money’
Mr. Purnell said the Government could not commit more taxpayers’ money.  He said the FAS was generous, because some people will get a pension of £10,000 a year, while 90% of the population have pensions of less than this.

The truth:
What kind of argument is this?  Just because 90% of people have not saved enough to provide pensions above £10,000 a year, does not justify penalising those who did, in good faith.  Government told them their pensions were safe and protected by law.  Government encouraged them to contribute their own money and also to put in additional contributions.  Government prevented them from holding any other pensions too, so they could not spread their risk.  Effectively, Government is guilty of a huge mis-selling scandal but is pretending it did nothing wrong.

We all know that Government kept promising these schemes were safe, that the law had been changed to protect members etc. etc.  This wasn’t true and Government must compensate for its sustained campaign of misinformation.  And it must organise this quickly.  If it thinks there are others who share some responsibility, then pay compensation and try to claim it back from other parties if it can.  But this situation is urgent and needs to be sorted properly now!

Detailed Transcript of Interview, with comments in red:

Wednesday 2nd August @ 7.53am or so  …Radio 4 Today programme

SM   Well, James Purnell is the Minister for Pensions Reform and he is on the line now.  Good morning.

JP      Good Morning

SM   You rejected the Ombudsman’s Report when it came out in March,  when it found you guilty of maladministration.  The Commons Public Administration Committee has come to the same conclusion.  Do you reject what they say, too?

JP       Obviously I will study their report and one of the things they said in their report is that we made our views up too quickly last time round.  So we are going to look at their report very carefully.  The first thing I’d say is that it is terrible when you hear any of the stories of the people who have been affected  . . ..   and I have read all the e-mails on your website and have spoken … and met dozens of those involved ……. and answered probably hundreds of letters and anybody who goes through these stories does feel incredibly distraught by what happened to these people but, at the end of the day, that’s exactly why we put in place the Financial Assistance scheme to help people in that situation.  But the FAS is not helping them at all.  If you are so distraught, why are you not making sure they get help straight away?
SM   But, as you will have just heard there, it’s not helping people, not if it’s just giving a small amount of help to a few people.  Do you accept that you need to increase the amount of compensation that is available to these people? 

JP   I don’t accept your premise that it’s not helping many people or giving a small amount of help. The DWPs own figures show that between 100 and 200 people out of the thousands who are already past pension age and struggling with no pension, have had any money at all from the FAS.

It’s actually a scheme which will cost about £2 Billion this cost of £2bn is not correct – firstly all the payments are taxed and people getting money from FAS will not get means tested benefits, so the actual cost to the tax payer is much less, but also the £2bn figure is misleading, because it is just a ‘cash cost’ which, as the Treasury says, is not the right way to account for spending over 50 years or more

and to take the listener who was on yesterday, for example, it will be giving him about £10,000 a year, which is not as much as he was expecting but it’s more than 90% of the population get in retirement.  This is not the point, since 90% of the population did not save in a final salary scheme, nor put in as much money as Mr. Parr, so why is he being penalised for making the provision for himself that Government told him to make?  Also, his scheme pension age was 62, but FAS does not pay out until age 65 at the earliest – possibly later depending on when the scheme finishes winding up, so he is losing 3 years’ worth of his pension, losing his tax free lump sum, no inflation linking, much reduced widow’s benefits etc. etc.

We extended the scheme from helping about to under the scheme 15,000 people now to 40,000 people – that’s about a third of the people affected – and it will mean that people like your interviewee yesterday will be on up to £10,000 compared to perhaps having been on nothing or a very, very small pension. The extension of the FAS does not cost you anything for many years.  If you want to help people who need their pension now – like Mr. Parr from yesterday, then you should be making sure he gets his money immediately, but this is not being done.

SM   But you say it cost £2 billion.   According to your own former adviser on pensions, Dr Ros Altman, that’s £2 billion over 50 years – now she works that out at a cost of £540 million.  The Ombudsman and the Commons Public Administrations committee say you need to come up with some more money to compensate these people for the actions of the Government.

JP   Well, we do need to strike a balance and, as I say, because of the situation these people are in, then          we’ve put in place a scheme but we do have to balance it against a proper use of taxpayers’ money … Now, as I say,  90% of people have a pension of less than £10,000 in  retirement so therefore we have to strike the balance and it is worth saying that …. That is not relevant, if compensation is owed, it should not come with a means test!

SM   You say that is the argument ..and I have to interrupt you that’s the argument that the Government has consistently used but, as Dr. Altmann pointed out this morning, it needn’t be money that comes from taxpayers.  It was as a result of government changes to the laws that trustees are not allowed the discretionary powers to allocate money that they have, that’s money sitting in bank accounts that can’t be released that was paid in by these hard working people who thought they were paying (into) their pensions and, as a result of changes that the Government made, they cannot get access to what effectively amounts to their money.

JP  I’m afraid that is a false hope because these schemes are schemes where companies  have gone bust This is absolutely wrong.  Many of theses schemes are winding up when the employer is still solvent

and the point I was about to make, which is a direct answer to the point you have just made is that these were not the Government schemes, they were not schemes underwritten by the Government, they were schemes, where the promises were made by the employers the promises were made by employers but the Government endorsed these promises.  Members would not have believed their pensions were safe with a weak employer, if the Governmnet had not led them to believe so.  Government told the public and Parliament that these pensions would be safe ‘whatever happens to the employer’!

and, because of economic  circumstances, those employers went bust and were not able to pay out on these policies. The employers did not all go bust and many solvent companies wound up schemes and members still have lost most of their pensions.  The problem is the rules of wind-up and inadequate funding standards, not the employer going bust!  If these were the Government schemes, if we had underwritten them, the situation would have been very different but we did not go round …..
(SM interrupts)

SM   If you hadn’t changed the funding standards, the funding requirements and, if you hadn’t changed the rules that affect how the trustees can divide out the money, these individuals would not have been affected in the way that they are.

JP   No. I’m afraid that is completely incorrect. Mr. Purnell is the one who is completely incorrect here. The reason that these schemes are not able to pay out is that they are under-funded This is also not right, for example Mr Parr’s scheme – the interviewee from yesterday – was 104% funded on the Governments own official funding standard and the great majority of the schemes involved would have been under-funded, whatever the legal framework we had put in place this is also not true – again especially for solvent employer schemes.  The Government’s funding standard governed how much money a solvent employer needed to put in, when winding up its pension scheme.  All the employer legally had to put in was enough to meet the Government’s official funding standard (MFR) .  For other schemes, if the official funding standards had been stronger, trustees would have been able to get more money from their employer, but once the scheme was 100% funded on this MFR measure, trustees were powerless to ask for more!

– the legal framework, which was put in place in 1995, actually strengthened the amount of money that people had to put in This is again simply wrong.  The legal framework put in place by the 1995 Pensions Act reduced the protection for long-serving members’ pensions if their scheme wound up and also reduced protections for the contracted out pension rights that should have replaced members’ state pensions.  Before 1997, trustees had discretion to divide assets fairly on wind-up, but after the legal changes, they could no longer do so and this led directly to the losses suffered on wind-up by workers with many years’ contributions to their schemes.– so it is totally untrue to say that is because the Government … (interrupted by S M)

SM   … but the money comes from taxpayers

JP     Well, I mean, people do say this but previous Secretaries of State have gone round and spoken to the CBI and others about where they will find money and understandably employers, who are putting money into their pension schemes, are reluctant to go out and put money into schemes where the employers failed to live up to their promises.  It is just there is not big pot of money out there, which can be found to pay for this. There is money in the schemes themselves, there is money in unclaimed assets, there are emergency funds in the Government budget and the Government could also pursue people it thinks may be partly responsible for some of the losses (for example, it has blamed employers, but only Government could ask them to put in more), the Inland Revenue took money out of insolvent companies, which is money that could otherwise have gone to the pension scheme, the Chancellor took billions of pounds every year out of these schemes etc. etc.  We are talking about £100-£150m a year and this money could easily be found, if the Government wanted to.

SM   The point about having an Ombudsman and a Select Committee is to guard against maladministration.  Now, you have rejected the Ombudsman’s finding that the Government is guilty of maladministration.  If you reject the Select Committee’s findings, which are exactly the same, then you are eroding constitutional safeguards.  Do you accept that?

JP   We don’t.  With great respect there have been two precedents where the Government has reluctantly disagreed with the Ombudsman’s findings in the past.  This is not true. No Government has ever rejected both the findings and recommendations of the Parliamentary Ombudsman before.  This is unprecedented and the PASC makes clear it raises serious constitutional issues.

SM   … and Select Committees as well, who have found exactly the same thing?

JP   Under the previous Government, Barlow Clowes for example, there is a very similar case, where exactly the same thing happened and I don’t want to go into. This is again wrong, because in the case of Barlow Clowes, the Government paid full compensation, anyway, so the victims received their money.

SM   There were four findings of maladministration over the past 40 years.

JP Exactly, and, on very rare occasions, where we disagree with what the Ombudsman found we and previous governments have done exactly what we have done, which is to say that we disagree but we have put in place an assistance scheme, which will help, as I say , the people who have been most affected This is again not true, it is not helping those most affected and some have already died, so they will never be helped

and to take, for example, your first interviewee today, he will benefit from the Pension Protection Fund.

SM    and he has gone to the back of the queue as a result from the changes

JP    Well, that’s because the amount of meony in that fund, which is paid for by a levy on companies that provide occupational pension schemes, has to be paid to those people in most need, and those are the people who are beyond retirement age.  And there was no Pension Protection Fund before and there is now – and it is much safer for people to save because of that and we will be  …. we have put in place a scheme to help people.

SM   James Purnell, many thanks.