Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018 — House of Lords, 2018-01-22
Topic: Labor
Peta Buscombe (Conservative, Centre-right): My Lords, I thank all noble Lords who have taken part in this brief debate. What I sense is a general welcome for these regulations. I shall do my utmost to try to respond to a number of questions that were put forward, particularly by the noble Lord, Lord McKenzie. I am not sure whether my pen could work fast enough for me to respond to all the questions and if there is anything I leave out, which I suspect there may be, I will endeavour to write to all noble Lords to fill in the detail Perhaps I may reiterate that the important thing about the regulations is responding to the policy, which, importantly, is to treat members of the Pension Protection Fund and the Financial Assistance Scheme as consistently as possible, where possible. The long-service cap for the Pension Protection Fund came into force on 6 April 2017. These regulations will introduce an equivalent long-service cap for the Financial Assistance Scheme. This cap applies to any pension that is in payment or will be paid. For example, if a member’s pension from their scheme was £39,000 a year and that scheme could not pay anything, the Financial Assistance Scheme would work out as 90% of that £39,000, which is £35,100. As the Financial Assistance Scheme cannot pay more than the cap amount which applies to the member, the member in this example would receive £34,229 Following the introduction of the long service cap, Financial Assistance Scheme members will have their cap increased by 3% for each full year of pensionable service above 20 years when they first become entitled to payments from the Financial Assistance Scheme, subject to a new maximum of double the standard cap. Only a full year of pensionable service will be counted. Part years will not be included in the calculation The increase is applied to the cap amount in place for the member at the time assistance is first put into payment. The increase is not backdated and takes effect from the member’s first payday on or after the regulations come into force, currently expected to be implemented on 6 April 2018. From 1 April 2018, the basic cap amount will be increased to £35,256 In response to the noble Lord, Lord McKenzie, it is important to emphasise that all members of the Financial Assistance Scheme will receive 90% of the maximum, while PPF members who are already in retirement will receive 100%. The assistance is calculated differently I was asked to comment on the difference between actual and expected pensions. The Financial Assistance Scheme is not intended to meet all pension costs; it is 90% of pension costs subject to the cap. I will write to the noble Lord to give some detail on the difference between actual and expected pensions I hear what my noble friend Lady Altman says about the assets of an insolvent company being passed to the Pension Protection Fund, which administers both schemes, but the Financial Assistance Scheme is funded through general taxation. The long service cap will increase the overall cost of Financial Assistance Scheme payments by approximately £1.2 million a year in the first eight years before starting to decrease slowly. The actual costs will depend on a number of factors, including pensioner deaths and the fact that the Financial Assistance Scheme closed to new schemes in September 2016. The actual costs in future years may be lower than the £1.2 million quoted. The Financial Assistance Scheme has paid £1.1 billion to March 2017. The assets are passed to the PPF The noble Lord, Lord McKenzie, asked why 3% was chosen as the escalation amount. It was chosen because we believe it is sufficient to lift a substantial number of the target group out of the compensation cap entirely, while still being affordable for the taxpayer. Lower percentages did not achieve this outcome. Of the 500 people affected by the cap, 290 will benefit from this measure On the Hampshire legal challenge going to the Court of Justice of the European Union, the noble Lord, Lord Kirkwood, is correct. A hearing in the European Court of Justice is set for 8 March 2018. For the benefit of all noble Lords, this legal challenge by Mr Hampshire contends that article 8 of the EU insolvency directive requires the UK to ensure that every pension scheme member gets at least 50% of their accrued benefits in the event of the insolvency of the sponsoring employer It is possible for the capped amount of compensation or assistance to be less than 50% of the member’s accrued pension, for example where a member has a large pension due to a high salary and/or long service within the same pension scheme. However, we believe the numbers affected to be very low. Only around 400 PPF and 500 FAS members are currently affected by the cap, which represents around 0.3% of the total membership of both schemes as at April 2017. We estimate that a very small proportion of these capped members are not receiving at least 50% of their accrued pension, and the increased FAS cap for long service will further reduce the number of members affected.