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The functions of the agency are to obtain information about such classes of unclaimed assets as may be prescribed by the Secretary of State, to provide the Secretary of State with information on those assets and to administer a scheme for the transfer of those assets. Significant progress has already been made on those objectives, without the need for all the rigmarole and expense that would inevitably surround the launch of a new government agency.
At this juncture, I make the Committee aware that a meeting has been arranged with Andy Young, who is leading the review. We heard today that we have fixed it for 20 June at 5.15 pm in Committee Room 3A. I will write to noble Lords who may want to come along to see what progress is being made. The review of pension scheme assets announced by the Secretary of State for Work and Pensions on 28 March has already started work. By the end of summer, it will provide the Secretary of State with initial findings. It will provide a full report on the availability of assets within relevant failed pension schemes and what might be done with them by the end of the year.
We may reflect on what the so-called orphan assets are that seem to be floating around on which the Conservatives and Liberal Democrats base their claim to change the FAS scheme provided for in Clause 18. We have heard from the noble Lord, Lord Turnbull, about the issue of assets of long-term with-profits funds of life companies. As he rightly said, they are not free assets. I ask the noble Lord, Lord Skelmersdale, whether he sees assets of that nature as being fair game for the agency that he seeks to establish. Are those assets that he believes can be garnered to support his proposed scheme, or does he accept that those assets are not available and not free?
On banking assets, is the noble Lord saying that we should revisit the proposition already advanced and consulted on that unclaimed banking assets should be made available for community use, especially youth projects? Is part of his proposition to redirect some of those funds? Is he saying that there are free assets in defined benefit occupational schemes written under trust? We are entitled to know, because that goes to the heart of whether his amendment is real or a fiction.
The Government are fully engaged in exploring the potential of unclaimed assets within relevant failed pension schemes. We will, if it would make a real difference to members and not present an unacceptable risk to the taxpayer, use them to supplement FAS payments. It is not sensible to pre-empt the findings of the review, it is not desirable to set up an organisation paralleling the core business of the review, and it is not fair to further raise the expectations of members about the level of assets that might be out there.
Amendment No. 75 would provide that the Secretary of State must make regulations that prevent trustees of FAS qualifying schemes from the purchase of annuities for nine months from 18 April 2007. We have some sympathy with the thinking behind this amendment, which is why we have asked the review that we announced to look specifically at the use of assets which remain in failed pension schemes. We do not think it is sensible to anticipate the findings of the review, or to compel trustees to action which might not be in the best interests of their members or the taxpayer.
We believe that annuity purchase provides some flexibility over the nature of the benefits that are secured for members. For example, annuities might be secured that provide certain guarantees in the event of the member's death. It might not be appropriate to deny individual members such flexibility before we can establish that halting annuitisation would bring greater benefits across the FAS membership as a whole.
Furthermore, halting annuitisation might also mean that the payment of pensions to affected members is delayed. Most qualifying schemes will contain some members who stand to receive an annuity that will cover the full pension that they were expecting. Some of those members may already have reached their normal retirement age. Would it make sense to stop annuity purchase for those members now?
The amendment puts annuity purchase on hold only for nine months. It is not clear what would happen after that. If annuitisation were to restart from that point, annuity rates may well have gone down. The resulting extra cost of the annuity would be borne either by the member, in losing some of his pension, or by the taxpayer, in providing a higher amount of FAS top-up. Those are complex and delicately balanced issues that need to be carefully considered, which is why we have asked the review to look at these points.
In the Statement made on 28 March, the Secretary of State said that it continues to be important to the interests of all members of affected pension schemes that schemes are wound up as quickly as possible. We encourage trustees to continue with the administrative processes of wind-up including data cleansing, pursuing employer debt, liaising with the National Insurance Services to Pensions Industry organisation and allocating asset shares to members.
Trustees must of course take decisions in the best interest of their members but they should bear in mind the deliberations of the assets review. I take this opportunity to encourage trustees to co-operate with the review team in its investigations. I also assure the Committee of our aim that, should the review identify an alternative way of using assets in failed pension schemes, scheme members should not lose out because their pension scheme has completed the wind-up process.
Given our commitment to look at the issue of annuitisation by way of the review, the perils of halting annuitisation without proper consideration of the risks, and our aim to ensure that members of schemes that annuitise will not lose out, I ask the noble Lord to withdraw the amendment.
Amendment No. 76 deals with on-account payments. The amendments that noble Lords have proposed to the Bill on the FAS testify that there is divided opinion on the level of assistance that should be provided to affected members and, more especially, the means of funding that assistance. However, I think that we are all agreed that affected members should receive payments as soon as possible. New Clause 18(10) appears to have that intention at its root. However, I fear that the amendment will not achieve that aim and could in fact have the opposite effect of threatening the timely delivery of assistance to qualifying members. The amendment is intended to shift responsibility for the delivery of payments from the FAS operational unit to pension schemes and allows funds for those payments to be provided by FAS or the lifeboat fund, whether by loan or by retrospective repayment.
The problem with the amendment is that pension scheme administrators would need to learn a new set of procedures to make such payments. That could cause significant delays. It is surely better to use the expertise that already exists in the FAS operational unit rather than to reinvent the wheel and require scheme administrators to learn new skills from scratch.
The amendment would mean asking hundreds of scheme administrators to learn skills already developed elsewhere. Those administrators would expect to be paid for doing so, further depleting the value of scheme assets available to members. That in turn would eventually mean higher top-up payments, the cost of which would ultimately be borne by the taxpayer. It would not even do away with the need for FAS, as many of the pension schemes which fall within the remit of the scheme have already wound-up and have no trustees to administer the sort of scheme envisaged here.
The amendments rationale for funding on-account payments by means of loans or repayments from FAS resources is also opaque. To apply for such loans, schemes would presumably have to assess whether on-account payments were affordable, given their funding position, and would presumably have to make loan applications if they were not. There might be some logic to this approach if significant numbers of a schemes membership did not stand to benefit from the FAS. It might then be important to ensure that assets of schemes were not being used to make payments to members that might cause younger members benefits to be cut; but given our commitment to guarantee that all members will receive at least 80 per cent of their expected core pension, this part of the amendment seems to be particularly unnecessary, as well as burdensome. The expertise for delivering FAS payments quickly lies with the FAS Operational Unit. Currently, where data are received from trustees, FAS payments are assessed within a month. This amendment would be likely to decelerate payments and at some cost.
On Amendment No. 79, tabled by the noble Lords, Lord Oakeshott and Lord Kirkwood, I note that the consensus between the Conservatives and Liberal Democrats appears to break down here, although I believe the noble Baroness, Lady OCathain, is with the Liberal Democrats on this one. I assume that the lack of consensus is because this amendment puts upfront an extra public spending commitment. It calls for FAS assistance to be raised to PPF levels and to be paid for, presumably, from public funds. I have every sympathy with the intention, but the laudable aim of raising FAS benefits needs to be balanced against the considerable cost of doing so. We have made very clear our plans to raise the cap to broadly PPF levels and to abolish the current de minimis rule; so the noble Lords intention to modify the FAS to bring payments up to PPF levels in essence means the FAS providing a top-up to 90 per cent for non-pensioner members, along with some limited indexation.
We estimate that this change would cost the taxpayer an additional £2.7 billion, or £640 million at net present value, which is a third more than the scheme that we are currently proposing. We believe that current FAS benefits, at 80 per cent, are the most that the taxpayer can reasonably be expected to bear. However, our rejection of PPF-level benefits is not simply on the grounds of cost. There are important differences between the principles of the FAS and the PPF, which should be maintained. The PPF is a compensation scheme, funded by a levy on schemes that seeks to provide protection for pensions in the future. In effect, some scheme members benefiting from PPF payments have paid an insurance premium, from which they benefit on employer insolvency. This premium increases the net cost of providing pensions, hence the employment costs of the employers of these scheme members. There is no public money in the PPF compared with the £1.9 billion of public money in the FAS.
The Government do, however, agree with the noble Lords aim of getting more money to people who have lost their pension. We have set up a review into pension scheme assets to consider precisely whether that aim can be achieved through better use of the funds held by qualifying schemes. We have said that the review will present its initial findings in July. It appears that the amendment might not actually meet its apparent purpose. It would require the Secretary of State to make regulations to ensure that payments made to people by the FAS will equal the amount that would be payable if that person were entitled to compensation under the PPF. It does not take account of an essential difference between FAS payments and PPF payments. Given the Governments aim to increase FAS levels of payments through the review of pension scheme assets, and the increased public spending commitment that this amendment would entail, part of which would be unintended, I will urge the noble Lords not to press their amendment.
These are serious issues; we are dealing with the pensions of thousands of people. My noble friend Lord Howarth asked about caveat emptor. It is absolutely right that we are dealing here with schemes that are not government schemes, where government trustees are not involved and where the Government did not set the investment policy of the schemes. My noble friend Lady Hollis put it very well when she said that the Government have no legal responsibility. We do, however, have a responsibility to promote benevolent public policy. The noble Baroness, Lady Greengross, said that it was wrong to leave one group out but, as I have tried to explain, there is a difference between the FAS and the PPF. Before 1997, neither of these two schemes existed. If people lost out on their pensions, they simply lost out. I remind noble Lords that the High Court found that there was no causal connection between maladministration and the losses of employees.
I will not range over issues of repayable tax credits; my noble friend Lord Howarth has dealt with those. The noble Lord, Lord Skelmersdale, made some points about survivors benefits. I should properly write to him about those. The noble Lord, Lord Oakeshott, made a point about the 80 per cent expected core pension and the differences that arise from that. These are serious matters, as I said. The Government have gone a long way to address what is a real difficulty for thousands of our fellow citizens. We believe that we have drawn the line in an entirely reasonable place and that it is as much as the taxpayer should bear. We are looking further to see if other use can be made of other assets, but we will not mislead people into thinking that there is a pot of gold out there and will not make commitments against that until we know the assets are there. On that basis, I ask the noble Lord, Lord Skelmersdale, to withdraw his amendment.
Lord Skelmersdale: I am grateful to all Members of the Committee who have spoken in this debate. Many of your Lordships, in particular the Minister and the noble Lords, Lord Oakeshott and Lord Howarth, have spoken of the dire straits for the 125,000 pensioners who, to quote the Minister,
have seen their pension savings disappear. That is why the FAS was set up. The noble Baroness, Lady Hollis, reminded us of this, but I should remind her that we are where we are nownot then. This Government have had to be pushed every time and every inch of the way on improving the FAS.
This group of amendments amounts to another improvement, which is quite a large improvement none the less. However, for the vast majority of these pensioners the money is too little, too late. It is too little because of the amount of the core pension, as we have heard it described many times in this debate, and too late because, unlike the PPF, it is paid only from the state retirement age of 65. Some of these pensioners will die before the money comes through. Others are sick and disabled. The inadequacies of the FAS have been well aired in this debate, which is exactly why we put down these amendments.
I was criticised by the noble Lord, Lord Howarth, for resorting to government spending. I remind your Lordships that this money will be repaid well before the government spending review period. Two main arguments have been put up against these amendments, not least by my noble friend Lady OCathain. Yes, the knife from behind is usually the sharpest, as the Minister will know. But I would remind my noble friend that the White Paper says that 75 per cent of private sector employees have no pension scheme. Therefore, it cannot be a condition of employment.
The first charge that has been levied is that the lifeboat scheme is robbing Peter to pay Paul. There are no Peters. The unclaimed assets that we are saying should be used do not come from mutual funds. They come from non-trust schemes. If anyone subsequently appears to claim the money that has gone into the scheme, they will have it repaid. So I say again, there are no Peters. The second charge is that there is no money anyway, which is not so, as I said earlier. The Unclaimed Assets Register to which insurance firms and large pension firms belong has identified £15.3 billion of such assets, £3 billion of which are attributable to pension funds. The noble Lord, Lord Turnbull, very properly declared his interest in Prudential plc. I note that that firm is a member of the Unclaimed Assets Register, so I found some of his remarks curious, to say the least.
Lastly, the Government intend to extend the FAS to those people who have lost their pension because their scheme was underfunded and whose employer was still solvent but no compromise agreement was reached. They will do this by order after this Bill is passed, but not until the end of the year. Amendment No. 69 does this now because now is when the lifeboat fund is needed for these impecunious pensioners. I wish to test the opinion of the Committee.
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