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, these regulations will increase assistance payments for members of the Financial Assistance Scheme who may have been disproportionately affected by the cap on the amount of assistance payable to an individual member under the scheme. The cap is set at age 65 and is currently £34,229, reduced if a member opts to receive their assistance early. The cap helps to limit the costs of the Financial Assistance Scheme, which is funded by general taxation Individuals accrue high pensions for two reasons. Some were high earners, in which case they have generally had opportunities to secure alternative savings for retirement. Others have worked for a significant proportion of their working life to build up a pension with their employer and, consequently, may have little or no other private pension savings to offset against the shortfall between the capped assistance and what they had expected from the scheme. This change will benefit the second group of people Plainly put, these regulations will make changes to legislation to increase the current Financial Assistance Scheme cap for those with long service in a single eligible pension scheme. The provisions increase the cap by 3% for each full year of pensionable service over 20 years, subject to a new maximum of double the standard Financial Assistance Scheme cap. The new provisions will ensure that Financial Assistance Scheme members with long service will receive assistance which reflects a higher proportion of their accrued pension benefits It is estimated that 290 FAS members will benefit from the introduction of the regulations over the lifetime of the Financial Assistance Scheme. Although that is not many people, it is a significant proportion of the 500 people estimated to be affected by the cap. The change is expected to be widely welcomed by Financial Assistance Scheme members with long service, and their families Around £1.5 trillion is held under management in defined benefit pension schemes, which helps to fuel the UK economy through investment in UK government bonds, corporate bonds and equities. The pensions provided by these schemes are on average £7,000 per annum, which can be a vital source of income for around 11 million current and future pensioners. The majority of nearly 6,000 defined benefit pension schemes are run effectively, and we are fortunate to have a robust and flexible system of pension regulation in the UK. However, recent events affecting a number of high-profile schemes have shown that, while a robust system is in place, schemes can fail, and it was right to implement the regime of pension protection provided by the Financial Assistance Scheme and the Pension Protection Fund The Pension Protection Fund provides compensation for pension scheme members whose employer became insolvent on or after 6 April 2005; the Financial Assistance Scheme provides assistance to members of schemes that started to wind up before that date. From its commencement, the Financial Assistance Scheme was criticised for providing less generous support than the Pension Protection Fund. However significant improvements have been made to the scheme by successive Governments On 6 April 2017, provisions for a long service cap were implemented in the Pension Protection Fund, and these regulations introduce a similar long service cap to the Financial Assistance Scheme. We estimate that the long service cap will increase the overall cost of the Financial Assistance Scheme payments by approximately £1.2 million per year in the first eight years before starting to slowly decrease over the following years. Unlike the Pension Protection Fund, which is funded by the residual assets topped up by a levy on pension schemes, the Financial Assistance Scheme is funded by general taxation.