Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2008

rose to move, That the Grand Committee do report to the House that it has considered the Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2008. The noble Lord said: As noble Lords will recall, the financial assistance scheme—FAS—offers help to certain people whose benefit occupational pension schemes have not provided them with the pension that they were expecting. The regulations present the first key steps towards the delivery of the full package of reforms to the FAS that we announced in December last year. As noble Lords may be aware, the December announcement covered changes to the structure of the FAS as well as to the benefits that will be paid. Where schemes were not already committed to buying annuities from insurers, we announced that the Government would take in the residual assets of those schemes and make associated payments as they fell due. Taking in those assets helps finance greater benefits to existing FAS members, which will be broadly comparable to those provided by the Pension Protection Fund. The residual assets will also help provide for assistance to be extended to those members of schemes connected to solvent employers. In December, we guaranteed that all members would receive 90 per cent of their accrued pension, subject to the cap, instead of 80 per cent as before. We also said that we would pay assistance from a member’s normal retirement age, or 60 if their normal retirement age was earlier, rather than from 65. We said that certain members would be able to apply for early reduced payments on ill health grounds. We also committed to indexing FAS assistance broadly in line with PPF rules. We said that we would ensure that members whose scheme assets were taken into the Government would not be denied the lump sum that they could otherwise have expected to receive from those assets. While some of those changes are relatively simple to deliver, others are complex. Earlier this year, I wrote to the noble Lords, Lord Skelmersdale and Lord Oakeshott, detailing our plans to deliver the reforms in phases to help ensure that changes are made as quickly as possible. First, the regulations before us today will implement the first two cornerstones of the reforms: payment at the 90 per cent rate and payment from the NRA. It is important to realise that for many current FAS recipients those changes alone will make FAS assistance broadly comparable to PPF compensation, but there is still some way to go to deliver the full reform package for all beneficiaries. Next, I expect to bring a further package of regulations to your Lordships before the Summer Recess. That package will allow early access to payments on ill health grounds, subject to actuarial reduction, extend the scheme to certain solvent employer schemes and prepare the ground for further PPF involvement in designing and implementing the reformed scheme. Finally, by the end of this year, we intend to consult on further regulations to deliver the full package of changes. In addition, to support the changes that we intend to make through regulations, we also plan some amendments to primary legislation through the Pensions Bill. I thank the FAS Operational Unit for its continuing work to deliver payments in a rapidly evolving environment. Your Lordships may recall some of the issues we have faced in the past whereby eligible FAS members have not received payment because information has not been provided to the Operational Unit by pension schemes. Your Lordships may also recall the review carried out last year by Mercer Human Resource Consulting, which reported that the process of gathering data to operate the FAS is fit for purpose and is managed in a satisfactory manner. That conclusion is ably supported by the number of payments now being made. As of 9 May 2008, 5,531 beneficiaries are in receipt of FAS payments and a total of around £18.5 million has been paid to date. This is a step change in comparison to the position at the same time last year when around 1,100 people were in payment and around £4.4 million had been paid out. Passage of these regulations will help increase payments further. The operational unit has assessed more than 1,500 members who will be eligible for payment when they reach their NRA. Of these, more than 300 will be eligible for payment immediately when these draft regulations come into force. We estimate that some 5,000 people are currently between their NRA and 65, and thus stand to benefit in the coming months as their information is provided to us. As well as delivering the 90 per cent rate from NRA, the draft regulations make a number of changes to FAS legislation to support those enhancements. Complementary changes are made to the Pensions Act 2007 to ensure that primary legislation is consistent with the changes we are making to secondary legislation. The draft regulations also include some amendments to FAS revaluation rules and transitional protection for certain members affected by those changes. Under current FAS rules, assistance payments are revalued to 65, regardless of the member’s NRA. Revaluation from NRA to 65 was a feature of the original FAS as we felt that it would be unfair to expect people to wait up to five years from their NRA to receive assistance without that assistance benefiting from some form of index-linking. Under the changes to FAS made by these draft regulations, FAS payments will now be made from NRA or, if later, age 60. This means that assistance payments for some people already receiving FAS will be reassessed and new entitlements will be paid for the period from NRA. The bringing forward of payments for those members means that the period of revaluation will be shorter. In some cases, where there is a significant period between NRA and 65, the reduction of the period of revaluation may mean that ongoing payments will not increase significantly when payments are reassessed from 80 per cent to 90 per cent. In extreme cases, ongoing payments might even fall. However, any members in this position will receive significant payments to cover the period from their NRA. The draft regulations also include related changes to the revaluation that applies to deferred members’ accrued pensions. In certain current cases, such revaluation can apply beyond the age of 65. Changes are made by the draft regulations to ensure that accrued pensions cannot revalue beyond that age. These changes might mean that some beneficiaries whose entitlement dates do not change may not see a significant increase in their ongoing payments. It is unlikely that such members will see their existing payments fall as a result of the changes. However, in the event that members might otherwise be in this position, the draft regulations provide transitional protection so that ongoing assistance payments for those who are already receiving FAS payments and whose entitlement date does not change will not reduce from the level currently in payment. The draft regulations also amend payment ages for certain FAS beneficiaries who qualify as a result of death benefits payable by qualifying schemes. Depending on individual pension scheme rules, some spouses, unmarried partners or dependent children of members of pension schemes who die before the start of scheme wind-up qualify for pensions from their schemes. Under current FAS rules, such members, in common with other qualifying members, receive payment from age 65. In order to reflect the revised payment rules that will apply to other FAS members, such people will be eligible for payment from the later of 14 May 2004 and the date that they became eligible for payment under the qualifying scheme’s rules. Some of these recipients may have qualified for payments as dependent children. Under typical pension scheme rules, payments to dependent children are made only until a fixed age; that is, 18 or until they leave full time education. To reflect such arrangements, the regulations specify that assistance payments to any such recipients end on the date that they would have stopped receiving their pension from their pension scheme. As your Lordships may recall, opposition spokesmen in the other place agreed to proposals made by the Minister of State for Pensions for a written consultation period of two weeks for these regulations. This helped to facilitate their speedy implementation. We have published a full response to the issues raised during that consultation period, and two substantive matters were raised that may be of interest to your Lordships. First, it was noted by some respondents that FAS payments will continue to be made only from 14 May 2004—the date FAS was first announced—even if members reached their NRA before that age. We continue to believe that it is right that FAS payments relate only to periods after the date FAS was first announced. And retaining the 14 May 2004 date assists in current administrative delivery and helps control costs. However, we will continue to consider this point before consulting on further draft regulations later this year. Secondly, it was noted that the definition of NRA used in the draft regulations might not reflect members’ expectations of the age at which they would have been able to take some or all of their scheme pension. We will continue to consider the issues raised in relation to the definition of NRA in the context of achieving broad comparability with the PPF, subject to further consultation and draft regulations later in the year. However, we have retained the definition of NRA in the draft regulations to enable enhanced payments to be delivered as quickly as possible, using information already held by the operational unit. We have built strongly on the foundations provided by the Young review. The announcement that we made in December will ensure all of the estimated 140,000 people who have suffered pension losses as a consequence of their schemes winding-up underfunded between 1 January 1997 and the advent of the Pension Protection Fund will receive benefits broadly comparable to the PPF. We are maintaining momentum by these regulations which will deliver key elements of the reforms to the immediate benefit of many members. In my view, these regulations are compatible with the European Convention on Human Rights and I therefore commend them to the Committee. I beg to move. Moved, that the Grand Committee do report to the House that it has considered the Financial Assistance Scheme (Miscellaneous Provisions) Regulations 2008. 18th report from the Joint Committee on Statutory Instruments.—(Lord McKenzie of Luton.)