Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2010

My Lords, as your Lordships are aware, the Financial Assistance Scheme is a result of the Government’s ongoing commitment to help those hit by the collapse of their occupational pension schemes. FAS is an important lifeline to those who have worked hard and saved for their retirement only to lose their pension when the employer hits hard times. It provides financial help to members of qualifying pension schemes who face significant losses because their scheme was underfunded when it began to wind up. As noble Lords may be aware, FAS was first introduced in 2004. Since that time, we have continually expanded and broadened the help that it provides. The extensions to FAS announced in December 2007 were the outcome of recommendations made in the Financial Assistance Scheme review of assets—a review undertaken by Andrew Young of the Government Actuary’s Department—which examined options to generate the best value from assets remaining in FAS-qualifying schemes. Young recommended that the remaining scheme assets be transferred to government. Implementing this recommendation fundamentally changes the structure of the FAS and the way in which it operates. With these regulations, the FAS moves from a scheme that provides only top-ups to reduced scheme pensions purchased as annuities into a system that, in some cases, is responsible for the payment of the whole pension. Since the 2007 announcement, we have increased the proportion of expected pension covered by FAS from 80 to 90 per cent. We will increase in line with inflation those payments derived from post-1997 service, subject to a 2.5 per cent a year limit. We have also increased the cap on payments and allowed for this cap to be protected against inflation. We have provided early access to FAS payments for those who are unable to work due to ill health and we have made special provision for people who are in severe ill health. We have extended payments to survivors to include certain partners and dependent children. Finally, we have also extended the FAS to include certain schemes that have wound up underfunded where the employer is still solvent. As at 28 February, FAS is paying assistance to more than 14,000 people and has paid £87 million in assistance. Around a further 136,000 people will be helped in years to come as they reach retirement age. In addition, these regulations will allow around 20,000 individuals whose shares of scheme assets would be worth more than the 90 per cent assistance to be paid through FAS. Last year, we also conferred management of FAS on the board of the Pension Protection Fund, a body that has, since 2005, developed considerable expertise in winding up pensions. The draft regulations before the House today complete the implementation of the Young review’s recommendation that the assets remaining in FAS-qualifying pension schemes should be transferred to government to part fund the increased assistance promise. There are four key aspects to the draft regulations that I will focus on in this debate. First, as part of the process to transfer the remaining estimated £1.7 billion of assets of relevant schemes to government, the draft regulations provide for assets to be valued before transfer. This valuation will also establish the share of assets relating to each relevant beneficiary so that members receive appropriate payments from FAS. Noble Lords will note that details of how this valuation should be conducted are not set out in the regulations. This actuarial guidance will be published separately, as is usual for such material. Draft guidance was published for consultation on 28 January. The consultation was primarily aimed at pension industry professionals and others with an interest in defined benefit occupational pension schemes. This consultation has now closed and we intend to publish final guidance as soon as possible after the draft regulations come into force. The second key area to be introduced by the draft regulations relates to the way in which assistance payments will be calculated for members whose schemes will be transferring assets to government. These calculations are, I admit, very complex. Noble Lords will note that the regulations before them are significantly larger than those published for consultation. They have been expanded in response to consultation comments that the draft regulations might not capture all the sets of circumstances in which beneficiaries might find themselves when they move to FAS. In addition, it has been necessary to replicate the reconciliation provisions in each of the payment schedules to ensure that individuals receive the correct amount from their scheme and FAS, whatever their circumstances on transfer. Where members are already receiving a pension from their scheme above standard assistance levels, we have sought to ensure that, wherever possible, payments will not go down once the scheme transfers full responsibility to FAS. Where members with high asset shares are not yet receiving payments from their scheme, assistance will be in line with standard FAS rules, but to the full value of their asset share. We considered paying all these members in line with normal assistance rules to provide a consistent approach to calculating all FAS payments. However, this would have meant that some members already receiving a pension from their scheme might have seen their payments reduce when FAS took over—this may have been where the scheme was paying a flat-rate pension but FAS would be providing a lower payment with some indexation. Stakeholders made strong representations to us that this was not acceptable. Therefore, the regulations provide for payments to those members already in receipt of a pension from their scheme to be made in line with scheme rules so that, wherever possible, payments will not reduce when FAS takes over. Where members are not entitled to payments from their scheme when these regulations come into force, their FAS entitlement will be structured in line with the normal assistance rules. Furthermore, where the member is not receiving a scheme pension before their scheme’s assets transfer to government, the draft regulations will enable a qualifying member to commute part of their assistance for a lump sum. The amount that can be taken as a lump sum will be broadly in line with tax rules, though ultimately restricted to the amount of the member’s share of scheme assets. The third key change relates to the reconciliation of FAS payments. The draft regulations amend existing provisions to enable the FAS manager to take into account all pension payments made from the start of wind-up and to make corresponding adjustments to FAS payments where necessary. This will ensure that all beneficiaries receive the correct amount from their scheme and from FAS from the start of wind-up onwards. Fourthly, modifications have also been made to the FAS information, review and appeal provisions to accommodate the changes to assistance that I summarised earlier. To reduce the administrative burden on trustees and insurers, the FAS manager will now be allowed to waive any information required where they consider it appropriate. In addition, the draft regulations allow HMRC to share certain information with the FAS manager and its commercial provider, where that information is both relevant and necessary to FAS work. Finally, we have made changes to statutory deadlines for the provision of information and to deadlines relating to applications for reviews of decisions. These changes take account of our experience to date in delivering FAS. The draft regulations before your Lordships are the last legislative step in the delivery of the considerable extensions to FAS announced in December 2007. They will allow the transfer of an estimated £1.7 billion of remaining assets and expand the number of people who will be paid by FAS by some 20,000. The draft regulations represent an important part of the commitment that the Government have made to protecting members of pension schemes. They are compatible with the European Convention on Human Rights. I commend them to the House.