Financial Assistance Scheme blues
The Financial Assistance Scheme, as you probably know, was unveiled on 14 May this year by the then Secretary of State for Work and Pensions, Andrew Smith. It is a sort of stop-gap measure to help out people whose company pension schemes have gone belly up in advance of the Pension Protection Fund, the so-called ‘lifeboat’, being launched sometime soon.
When the FAS was announced back in May it came with a promise of £400 million being put aside by Government to help recompense members of bust final-salary schemes, many of whom have been left with virtually no pensions after putting money aside for most of their working lives. £400 million sounds like a lot of money, but whether it is sufficient or not rather depends on how many people are affected by schemes closing because of employer insolvency and how much on average they have lost. I dug out the Department for Work and Pensions press release issued in May and note that it said at the time “As part of the process the DWP is completing its detailed research into the extent of the problem and the numbers of those affected.” That didn’t, of course, stop them having a stab in the dark at it (how else was the £400 million derived?), but four months later the DWP seems to be about to have a more scientific look at the whole thing.
It seems that the DWP will be issuing a questionnaire in a rather belated attempt to find out just how many people have actually lost pension benefits because their employers have become insolvent. Crucially, it is also trying to find out just exactly how much pension people have actually lost as a result. A good first step even if it is September already.
To be fair, the Government did put out a press release at the end of June saying they estimated that some 65,000 people may have lost some pension rights, but that only increased criticism of the £400 million as being too little. Sharing out £400 million between 65,000 people gives them just over £6,000 each, whereas experts working with insolvent pension schemes say that average losses may amount to £40,000 a person. If the 65,000 estimate turns out to be right and the experts’ average figure of £40,000 does too then if the assistance scheme is going to be effective it will need something like £2.6 billion backing it rather than just the £400 million currently on the table.
So - yet another pension issue to keep an eye on. It will be very interesting to see the results of the DWP’s survey and the Government’s reaction to the funding of the FAS when the facts are actually known. £2.6 billion sounds like a lot of money I suppose, but we should remember that it’s still only around half the annual amount being siphoned off of pension schemes every year by the tax changes introduced in 1997. Perhaps another good way that taxes levied on pension savings could be used to fix pension problems? It’s just a thought…
22 September 2004
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