Pensions Minister shares updates with WPC

The Pensions Minister, Laura Trott, has said that there are no plans to change the Financial Assistance Scheme (FAS) indexation legislation, also confirming that the review of the state pension age will be published “in due course”.

Work and Pensions Committee (WPC) chair, Stephen Timms, previously wrote to Trott to seek updates in a number of areas, including the state pension age review, as well as ongoing issues around the payment of arrears to members of the FAS.

In her response, Trott confirmed that the state pension age review reports from both the Government Actuary and Baroness Neville-Rolfe will be published in “due course”, and are being considered as part of the wide range of evidence that will inform the second government review of state pension age.

Trott also stood by Department for Work and Pensions’ (DWP) treatment of FAS arrears, emphasising that the Pension Protection Fund (PPF) and FAS, whilst moving closer in terms of the compensation they offer, remain “two separate compensation schemes”.

Issues around the differing treatment of members of the FAS and PPF have been repeatedly raised by the WPC, with Timms' recent letter to Trott seeking clarification as to why the compensation cap still applies to FAS members, despite a similar compensation cap for the PPF being ruled unlawful following the Hughes judgement.

However, Trott clarified that the FAS cap applies to all FAS members irrespective of age, explaining that it was therefore not affected by the Court of Appeal judgment.

In addition to this, Trott emphasised the need to strike a balance between the interests of members of failed schemes and the wider taxpayer, explaining: “The PPF is funded primarily by a levy on eligible defined benefit pension schemes; investment returns; and the recovery of assets, whereas the FAS is funded from general taxation."

Trott also stated that while the remaining assets of failed schemes were recovered and transferred to HM Treasury, these assets "are not ring-fenced for the purposes of payments under the FAS".

She continued: “Although HM Treasury has received £1.7bn from the residual assets of FAS schemes, the government has made further provisions for FAS liabilities well in excess of that amount.

"In the DWP's Annual Reports and Accounts (2021-2022), provision has been made for FAS liabilities of approximately £6.3bn.

"The FAS indexation rules are generally in line with the legal requirements placed on pension schemes, i.e., that compensation based on benefits accrued after 6 April 1997 is increased in line with prices, capped at 2.5 per cent."

“Although DWP keeps its legislation under review, there are no plans to change the FAS indexation legislation."

Trott also suggested that the HM Treasury guidance flagged by Timms as potentially giving discretion to pay interest on the arrears "cannot be read in isolation", explaining that the award of interest a remedy available for redress in the event a service failure, yet no service failure has been identified in the payment of arrears.

She stated: "Having considered the guidance in Managing Public Money and our wider obligations to protect the Exchequer, I remain of the view that the payment of interest is not appropriate in these cases.

"The FAS is funded by the taxpayer, so we must strike a balance between protecting members’ interests and managing public money.

"I sympathise with members potentially receiving less than expected in retirement due to the FAS cap and FAS indexation rules, however, we must not forget that the FAS is a compensation scheme. As such, the intention was not to replicate the benefits of schemes which were unable to secure their liabilities."

More broadly, Trott responded to concerns raised around the DWP’s GMP factsheet, stressing that the DWP can only provide accurate information about the impact of the new state pensions on GMPs once individuals have contacted the department.

“We encourage individuals to do so,” she stated. “To this end, we have asked The Pensions Regulator to include information in their monthly bulletin to schemes so they can alert members to the uprating policy change and direct them to the factsheet on GOV.UK.”

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