PENSIONS campaigners were yesterday gearing up for battle as it emerged that the Government planned to fight recommendations that it should pay compensation for lost pensions.
The Parliamentary Ombudsman, Ann Abraham, is expected to report at Easter that the Government misled workers over the safety of their final salary schemes, resulting in as many as 85,000 people losing their life savings. The compensation bill could come to more than £5 billion, according to reports.
But Whitehall sources yesterday cast doubt on this figure and were adamant that, even if the report placed blame at the door of the Department for Work and Pensions (DWP), ministers would not automatically pay out in full.
“Her report is important and will increase the pressure for compensation but the DWP will not just roll over and foot the bill,” one Whitehall official said. “They will contest it.” Other sources gave similar responses.
At present, about 15,000 of the 85,000 people who lost their final salary pensions are eligible for compensation under the Government’s £400 million Financial Assistance Scheme (FAS). The DWP confirmed that, so far, only 15 people had received a payment from the FAS.
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The TUC said yesterday that it would continue to fight for compensation on top of what is offered by the FAS. A union spokesman said: “The TUC has been putting pressure on the Government to substantially increase funding for the FAS.”
Ros Altmann, a former pensions adviser to 10 Downing Street, said that it was vital Ms Abraham stood firm in the face of what is expected to be intense pressure from the Government to drop her recommendation for compensation.
“This must be the biggest social injustice of the new Labour era and it’s been dragging on for years because the Treasury has refused to acknowledge any responsibility,” Dr Altmann said.
Ms Abraham is close to completing a 15-month report into whether the Government was negligent in assuring employees that final salary schemes were safe under its minimum funding requirement (MFR) regime. Actuaries had long been concerned that the MFR, introduced by the Government in 1997, did not force companies to fund their final salary schemes as prudently as needed to meet their pension promises.
A draft of the Ombudsman’s report is circulating in Westminster, to give the Government a chance to formulate its response to the final version.
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The MFR was replaced last December by a more stringent funding regime called scheme-specific funding. But for a number of years ministers had continued to assure workers that their savings were safe in final salary schemes.
In March 2002, Malcolm Wicks, the Pensions Minister at that time, told the Commons: “Legislation is in place to ensure that the pensions rights that individuals have already built up in schemes are protected.”
In recent years more than 400 companies have gone bust with a deficit in their scheme, robbing workers of their savings.