The importance of taxpayer support must not be overlooked when it comes to any changes to the rules regarding payments to pensioners from the Financial Assistance Scheme (FAS) when a scheme transfers into the Pension Protection Fund (PPF), says First Actuarial.

In response to a consultation on draft regulations by the Department of Work and Pensions (DWP), the actuarial consultancy said it welcomes the idea of improving efficiency and lowering costs bringing the two pensions safety nets onto a level practicing field. However, it must be remembered that the schemes have differences, and the FAS should only follow PPF procedures where the benefits outweigh the costs.

Charlotte Nolan, technical actuary at First Actuarial, commented: "Unlike the PPF which is funded by a levy on final salary schemes, FAS has a duty to balance the
benefits it can pay to pensioners against the cost to taxpayers who are footing the bill.

Any proposed 'improvement' in terms of an uplift to FAS assistance needs to be closely scrutinised to ensure it is fair to taxpayers, rather than fair compared to what the PPF does."

She added that, ideally, full compensation would be available for all losses. However, First Actuarial recognised that in reality, already strained public finances must be used as best they can: "FAS should be applauded for trying to offer maximum support at minimum cost. However, it should not try to deliver perfection if that means aligning itself with the PPF down to the last penny of payment."

Overall, First Actuarial believes that the proposals achieve a satisfactory conclusion in delivering what can be justified to the taxpayer as reasonable. However, Nolan did say that there are areas where practicality and simplicity should take precedence over removing irregularities. For example, she suggested focusing on data that is readily available in order to minimise costs.

She also warned that, should the PPF have funding problems and have to rely on the taxpayer for help, it would be "unfortunate" if the FAS had tried to replicate PPF funding levels and procedures. "In such a scenario the result would be the taxpayer shouldering potentially unsustainable levels of compensation on two fronts," she warned.

- Pensions Age April 2009

Share Story: