The Rt Hon John Hutton MP
Secretary of State for Work and Pensions
Statement:

Occupational Pensions
Thursday 22nd February 2007

With permission Mr Speaker, I would like to make a statement on yesterday's judgment on the Government's response to the Ombudsman's Report concerning the security of final salary occupational pension schemes.

Given the importance of this issue to many Hon Members, I want today to inform the House on the position we have reached - both in the light of this ruling, and the decision last month of the European Court of Justice on the implementation of the Insolvency Directive.

The High Court made five rulings in yesterday's judgment. I will take each in turn.

The Court's first ruling was that the Ombudsman was entitled on the evidence available to her to reach the conclusion that official information published on the Minimum Funding Requirement for pension schemes was inaccurate and potentially misleading and therefore amounted to maladministration. The Court particularly criticised the then Government's guide to the 1995 Pensions Act, published in 1996. This, it concluded, gave the clear impression that following enactment of the new law, scheme members could be reassured that their pensions were safe whatever happened.

The Government had, in good faith and acting on proper advice, taken a different view from that of the Ombudsman, on the basis that the leaflets concerned were not a full statement of the law and were for general guidance only. However, we now need to study the Court's ruling on this matter very carefully. In particular, we need to consider the possible implications across Government of the Court's significant proposition - on which this particular ruling was based - that findings of fact made by the Ombudsman are binding, unless they are flawed, irrational, peripheral or there is fresh evidence.

The Court's second ruling related to the important issue of causation. The Ombudsman had found that maladministration was a significant contributory factor in the creation of the financial losses suffered by individuals. She went on to argue that everyone who between 1997 and 2004 suffered losses on the winding up of their pension scheme was the victim of injustice because of maladministration. The Ombudsman did not argue this at all, she indicated everyone might have suffered, not that they definitely did suffer! She recommended that all should be considered for compensation, and, after inherited SERPS, everyone was compensated because the administration of a scheme to sort out who was and who wasn't misled was too expensive and difficult. The Government had argued that this was not well-founded. The Court found in favour of the Government on this point, describing this aspect of the Ombudsman's Report as being "logically flawed and unreasonable." I believe the judge has misunderstood the Ombudsman's finding, since she did not find that everyone suffered the injustice.

The Court's third ruling rejected the Ombudsman's finding that the Government was guilty of maladministration when it made changes to the pension scheme funding rules in 2002. The Court decided that the Ombudsman's finding was not logically sound. The judge admitted he had not fully understood the Ombudsman's reasoning and that she had access to far more evidence than he had, therefore, his conclusion is not firm. It is open to the claimants or indeed the Ombudsman, to put a clearer perspective to the Appeal court.

In its fourth ruling, the Court dismissed the claim that the Government's refusal fully to restore the pension entitlements of all affected scheme members was in breach of the European Convention on Human Rights.

The Court's fifth and final ruling concluded that I should re-consider the Ombudsman's recommendation that the Government should consider making arrangements to restore fully the pension losses of the people concerned when their employers became insolvent. This is NOT just about employers becoming insolvent. How many times will the Government ignore solvent employer scheme members? The PASC clearly highlighted this point, but Government keeps ignoring it. The reconsideration of the Ombudsman's recommendations is the really important part and there is a clear need to do this very urgently. There is dreadful suffering here.

Mr Speaker, in a clear sign of both the complexity and importance of these matters, both sides have sought and been granted permission to appeal. We have not yet decided the precise grounds for such an appeal. It is absolutely right and proper that we take the time to study this judgment and consider its implications in detail. How long does it take to understand that the Government has misled at least some people very seriously and that 'no reasonable Secretary of State can rationally disagree' with the Ombudsman's conclusions of maladministration on the official information?

The judgment of the European Court of Justice in January on the implementation of the Insolvency Directive has an important bearing on the issue of financial redress for those who have lost some or all of their pension entitlement. The decision of the European Court of Justice effectively requires the Government to reconsider whether or not the present arrangements offer sufficient protection for people's pensions when their employer becomes insolvent. The European Court of Justice has ruled that the system of protection which was in place before 2004 did not comply with the Directive, even taking account of the subsequent introduction of the Financial Assistance Scheme, albeit before its 2006 extension. We are therefore already reviewing the Financial Assistance Scheme with this finding in mind. It is now for the High Court to be asked to decide whether damages for breach of the Directive should be paid, taking account of the steer apparently given by the European Court of Justice that damages may not be payable. This will take another 2 or 3 years and will not cover solvent employer scheme members.

Mr Speaker, the Government has already acted to provide substantial financial assistance to people who have lost pension rights when their employers became insolvent. The Financial Assistance Scheme, supported by £2.3 billions of public money, has been set up precisely for this purpose. It is not £2.3billion - it is around £750million spread over 50 years and this figure does not take account of tax being paid on the money and benefits not paid to recipients, thus taking the net cost down even lower! Throughout, we have always sought to ensure those who have suffered the most should receive financial assistance to mitigate their loss. But they have NOT received this assistance. Enough of the spin. Enough of the false promises. There are thousands of people already past pension age and thousands more coming up to pension age who are not receiving a penny and have no idea when they will! At the same time, we have sought to strike a balance with the interests of taxpayers who can not be asked to accept responsibility for effectively underwriting the total value of pension savings. This is not what this case means at all. Here is a defined group of people who were misled into believing their pension schemes were properly protected when they were not. The Government knew they were not, but still told them in its public information, that they were.

In considering the right way forward, we are always prepared to consider practical proposals from all sides of the House.

I can confirm, Mr Speaker, that so as not to add to their financial difficulty, we will meet the costs of the applicants in this case so far - together with any costs associated with our appeal.

Mr Speaker, people who have lost their pension rights in these circumstances have suffered a great deal. My aim will be to return to the House with our conclusions and our proposals for how we should proceed - before the conclusion of proceedings on the Pensions Bill.

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http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070222/debtext/70222-0007.htm#07022240001597

Mr. Hutton: It is certainly likely that if, and when, proposals are brought forward, there will be an opportunity for the House to vote on them. [Interruption.] The question of when that will happen has been asked from a sedentary position. I understand that amendments to the Pensions Bill dealing with the issues that we are discussing today have already been tabled, so I am confident that the House will have an opportunity to vote on them.

Mr. David Winnick (Walsall, North) (Lab): I recognise the difficulties and concerns that the Government must have in respect of how public money is spent, but can I explain to my right hon. Friend one case involving a constituent of mine—although I know that there must be many such cases? My constituent was told in 2001 by the Armstrong Group pension scheme that when he retired he would receive a pension of £10,380. He is due to retire next month, and he is now due to receive just £2,529 a year. I ask my right hon. Friend to imagine what he and his wife must be feeling about having to live in poverty, as opposed to receiving the more substantial amount that they had hoped for. Let us imagine that we, as Ministers and Members of Parliament, were faced with the sort of acute problem that my constituent and many others involved in the failed Armstrong Group pension scheme are facing? How would we feel? I hope that it will be possible for the Government to look very sympathetically on such cases.

Mr. Hutton: We shall certainly try to do so. I do not think that the issue is whether compensation or financial assistance should or should not be paid. We have already put in place a financial assistance scheme. Eventually, the issue that the House will have to consider is whether the scheme needs to be expanded in any way. That will be the focus of our proposals, when we bring them forward. However, the situation is as my hon. Friend has outlined: there are cases of genuine hardship and we have always tried to make sure that those in greatest need got the greatest help.

Mr. Andrew Tyrie (Chichester) (Con): Does the Secretary of State not agree that the delay that we are now experiencing is as painful as any failure to get matters right in the beginning? Does he not also agree that the signal he is sending—for example, to those waiting for the outcome of the ombudsman’s Equitable Life inquiry—will lead to people thinking that that might be overturned too, which would mean further inordinate delay, even after the many years that they have been waiting? Does the Secretary of State not realise that it is crucial that we now have closure on this issue, on an equitable basis and as fast as we can get it?

Mr. Hutton: I do, and that is what I said in my statement.

Dr. Tony Wright (Cannock Chase) (Lab): I welcome very much what my right hon. Friend has said today, and the way in which he has said it. However, does he not agree that there can no longer be any question but that the ombudsman was right to say that the information that Governments of both parties had produced was misleading, and that that was maladministration? Can we clear that question out of the way now? Secondly,

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my right hon. Friend said that there had sometimes between disagreements between Governments and the ombudsman in the past, and that is true. However, in every past case this House has insisted that there should be a satisfactory resolution of the difficulty. Is it not unfortunate that it has taken a judge to ensure that that will happen in this case?

Mr. Hutton: I thank my hon. Friend for what he said at the beginning of his question. As I have said, because we are still considering the grounds of appeal, I am simply not in a position today to give him the clarity that he seeks on his first point—nor will I be able to do that if anyone else asks me the same question through another route. The wider issue of compensation will now be the focus in our full and proper consideration of the implications of this judgment. It is clear, however, that this case has generated issues of great legal complexity and, yes, of constitutional significance. It is right and proper in those circumstances, and given that I have been able to share the terms of the judgment with Ministers only since yesterday morning, that they collectively take a proper view of where we should take this case in future.

Mr. John Redwood (Wokingham) (Con): When I was a Department of Trade and Industry Minister, I had an adverse finding of maladministration regarding Barlow Clowes regulation, and I had no hesitation in paying compensation. How much have this Government so far spent on advice, civil service time and legal fees, how much more are they going to spend on legal fees, and should not that money go to the people who are suffering?

Mr. Hutton: It might be important for the record to say that the right hon. Gentleman actually rejected the ombudsman’s findings in relation to Barlow Clowes.

Mr. Clive Betts (Sheffield, Attercliffe) (Lab): I welcome my right hon. Friend’s commitment to reconsidering the position of those who have lost pensions because the firm that they worked for has gone into liquidation, but will he also consider a related group of people? I and representatives of the Tinsley Bridge pension scheme recently met the Minister for Pensions Reform. That pension scheme was wound up to avoid forcing the firm into liquidation, but people lost their pensions as a result. The scheme therefore cannot join the Pension Protection Fund, but because the firm is not in liquidation as a result of the action taken by the pension trustees, those potential pensioners are not eligible for help from the financial assistance scheme. However, because of the improved conditions of that scheme, the pension trustees might be under a perverse legal obligation to put the firm into liquidation, thereby causing the loss of hundreds of jobs, in order to get that assistance. Will my right hon. Friend look at that issue when he considers those who have lost their pensions because their firm has gone into liquidation?

Mr. Hutton: I am grateful to my hon. Friend for raising that issue, which has been raised by a number of Members in all parts of the House. These are matters of real complexity and we are trying to find a sensible way forward. The Minister for Pensions Reform, whom my hon. Friend recently met, will write to him shortly in dealing with some of the issues that he has raised.

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Mr. Mike Weir (Angus) (SNP): One problem that we all face is the huge gulf in the figures quoted. Campaigners say that the cost of reimbursement is £4 billion over 60 years, peaking at £100 million a year, but the Government say that the cost is £15 billion. Has the Secretary of State considered the possibility of an independent assessment of the true cost, so that Members can at least know what they are talking about in this regard? Does he not also agree with Joe Harris of the National Pensioners Convention, who said:

“The real issue arising from this case now is the need for a bigger basic state pension to be paid to all in retirement that is guaranteed and secure.”?

Is it not time to think about a citizen’s pension?

Mr. Hutton: No, it is certainly not time to look at a citizen’s pension, because the costs would be completely unsustainable. They would certainly be unsustainable if the hon. Gentleman got his way and imposed such a profligate policy on the poor innocent taxpayers of Scotland, so I would not recommend going down that route. On the figures quoted, I agree that it is important to have a common language in dealing with this issue, and we have tried to present our findings and our view of the cost of financial assistance scheme in real and genuine terms, and on the same basis as the Government produce their financial accounts generally. It is therefore not true to say that there has been any sleight of hand. The judge makes clear the difference between the £3 billion and £15 billion figures. One figure is net present value and the other is cash—it is all cash—and that is how the Government produce their accounts. The difference is important as a matter of presentation, but it is

“not, in truth, a difference of substance”.

Julie Morgan (Cardiff, North) (Lab): I welcome my right hon. Friend’s statement, particularly his concluding remarks, and I hope that there will soon be an end to the misery that so many of our constituents have experienced. I am thinking in particular of the 800 Allied Steel and Wire workers from Cardiff who lost their jobs, some of whom also lost all their pension. I hope that they can sleep soundly in their beds, confident that the Government are going to come up with something good for them. Is my right hon. Friend aware, however, that there are people in my constituency who have worked for 30 years and paid in dutifully for 30 years, as the Government advised, but who have ended up with absolutely nothing under the present financial assistance scheme arrangements? Will he take them into account when he makes his statement to the House during the passage of the Pensions Bill?

Mr. Hutton: We are looking at all these issues in the context not only of yesterday’s High Court ruling but, most importantly, of last month’s ruling of the European Court of Justice.

Miss Julie Kirkbride (Bromsgrove) (Con): I was pleased to hear the Secretary of State recognise earlier that some of these people now face severe financial hardship as a result of the loss of their pension savings. Sadly, a number of my own constituents lost their pension savings in the Kalamazoo and United Engineering Forgings schemes. They will of course be disappointed that today is not the end of the road, but they will be a little

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relieved to hear that they will not be picking up any further costs. Will the Secretary of State reflect, however, on what my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said earlier? While the high-profile issue of people having lost their private pension savings remains in the public eye, it sends a terrible signal to the many millions of our fellow citizens who are wondering whether the same thing might happen to them.

Mr. Hutton: I agree that that is not good, but the hon. Lady needs to reflect a little more on, for example, the Pension Protection Fund offers for cases going forward. We have taken the right course of action in setting up the PPF, which offers a very high and proper level of protection, so people can have confidence in their pension savings going forward.

Richard Burden (Birmingham, Northfield) (Lab): I welcome my right hon. Friend’s announcement, particularly what he said about costs, which, as he knows, is an issue that I have raised on a number of occasions; it is very good news that the Government will pay the costs. I am one of those who think that the Government had a genuine motive in introducing the financial assistance scheme to try to ameliorate the losses. However, the problem has been not just one of resourcing, because the scheme does not address the fundamental issues that have been obvious to MPs, that are dealt with in the ombudsman’s report and that underlie the logic of the Pension Protection Fund. Will my right hon. Friend introduce, with some dispatch, proposals that resolve this issue and do not create further uncertainty down the line, so that my constituents who worked for Kalamazoo and others do not have to experience hardship for much longer?

Mr. Hutton: We will certainly try to do that.

Mr. Desmond Swayne (New Forest, West) (Con): The Secretary of State has rejected criticism of the FAS on the basis that a mere 900 payments have been made so far, saying that such criticism rests on unwarranted assumptions. Can he therefore put in the public domain the figures telling us exactly how many of the sample who are eligible for assistance from the FAS have reached retirement age and secured payments?

Mr. Hutton: We have already done that in answer to a question from the hon. Gentleman’s boss, the right hon. Member for Witney (Mr. Cameron).

Mr. Andy Reed (Loughborough) (Lab/Co-op): I thank my right hon. Friend for his statement today, and particularly for its tone. Opposition Members seem to have shifted their tone as we try to find a workable solution for people such as those suffering after the collapse of the British United Shoe Machinery scheme, who are not eligible for the FAS as it stands. Will my right hon. Friend introduce his proposals in such a way that we can get a consensus on cost? That outstanding problem is preventing us from making progress, in that we seem to be unable to guarantee an annual figure. Will he also ensure that the scheme is extended to cover those who are not

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currently covered? They feel betrayed, in that others are being compensated while they are not. Will he also examine every possibility of generating such income from other sources, not just from the taxpayer?

Mr. Hutton: We will try to do all the things that my hon. Friend has suggested. We will certainly continue to look at other sources of funding, but as I said in my statement and in response to other questions, my own view is that we will find it very difficult to find substantial sums from sources other than general taxation. That discipline should apply to all parts of the House as we—I hope—reach a conclusion on these matters.

Mr. William Cash (Stone) (Con): May I congratulate my constituent, Richard Nicholl, and other brave members of the Pensions Action Group? Some 5,000 people are members of some 20 schemes run by solvent companies, and that is the difference. As I understand it, from 28 February those people will not be entitled to compensation even if the companies in question become insolvent after that date. Subject to what the Secretary of State has to say, I would have thought that that was grossly unfair to my constituents and to others. In the light of the Court judgment, what will the Government do about that? In any event, I am glad to say that the Minister for Pensions Reform was good enough to see Mr. Nicholl and me recently about the issue.

Mr. Hutton: The hon. Gentleman has raised an important and serious issue about the deadline for FAS applications by the end of this month. We are looking again at that in the light of recent decisions by the Court. We hope to be able to be clear to hon. Members about future arrangements.

Mr. Henry Bellingham (North-West Norfolk) (Con): I welcome the fact that the Secretary of State appears to have shifted his attitude and policy on this issue. Is he aware that I represent many of the Albert Fisher pensioners? Most of them are in their late 50s and have lost on average 25 years’ worth of occupational pension benefits. When they eventually reach retirement age, the FAS will give them less then 50 per cent. of their expected pension, so obviously they are still very angry. Further to the question asked by the hon. Member for Angus (Mr. Weir) about the overall cost, will the Secretary of State elaborate on his answer? Surely from the £15 billion must be deducted the cost of benefits to constituents such as mine, and, indeed, the tax that they would pay if they received a bigger pension.

Mr. Hutton: It is very difficult to quantify the figures with the degree of precision for which the hon. Gentleman and others have asked. That has been true from the beginning, and we have not tried to hide the fact that these are estimated figures. It is also worth remembering that the judge said that on any view these are large sums of money. We will not find a sensible way forward on this if people keep bandying sums of money around and claiming that they are affordable. We have to find the money, and the only sensible place to find it from is general taxation. That is a very significant issue, which we must all consider as we think about the right way forward.

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Mr. Graham Stuart (Beverley and Holderness) (Con): Like many Members, I welcome the Secretary of State’s tone, but the issue is more one of trust than tone. Our constituents must be wondering if the Government will ever admit that they are wrong. The Secretary of State has said that he has not yet decided on whether to appeal, but the precise wording of his pre-prepared statement reads, “We have not yet decided the precise grounds for such an appeal”. That is the complete sentence, and it suggests to me that despite his contrite tone today, the Government are set on carrying on the misery and suffering of so many people who have simply paid into a pension for security in old age.

Mr. Hutton: I am sorry that the hon. Gentleman has come to that conclusion, because it is a million miles away from the truth. We have sought and been granted leave to appeal, as have the other side, and to take the case to the Appeal Court. What we have not done yet—I hope that I have been clear on this point today—is decided the grounds of that appeal. These issues have to be resolved and we have to take a sensible view, given the complexities involved. It is clear from the hon. Gentleman’s remarks that he does not really understand the complexities of the issues.

Justine Greening (Putney) (Con): Many young people, some of whom will be in the Public Gallery now, will be listening to this exchange and wondering what is the point of starting a pension. Does the Secretary of State agree that the longer-term cost to the economy of young people not setting up pensions will be far greater than the cost of damaging trust by not compensating people who have saved and then lost everything?

Mr. Hutton: Again, it is not true that no financial assistance has been made available to people who have lost out in those circumstances. The hon. Lady is a member of the Work and Pensions Committee and she should know that. Such comments are unlikely to boost confidence for savers in the future. She too has a responsibility in these matters, and I am afraid that today she has failed to discharge it.

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Mr. David Burrowes (Enfield, Southgate) (Con): Would it not be exceptional for the Government not only to reject the findings of the ombudsman and the Public Administration Committee, but to appeal and reject the findings of irrationality concerning the first recommendation of maladministration by the ombudsman? As welcome as the Court judgment is, is it not a sad day for Parliament that the Government may well be obliged to accept the Court’s judgment of maladministration, rather than having properly respected the role of the ombudsman, and indeed of Parliament?

Mr. Hutton: It is precisely the complexity and constitutional dimensions to the case that have now to be resolved, because it is in a judicial setting. As a lawyer, the hon. Gentleman should know that. There is no easy or fast-track way through this. Nor is it true to say that it is not right and proper for a Government to consider exercising a right of appeal. The hon. Gentleman is a lawyer and he may have acted for Government Departments in the past. He must understand that it is entirely proper for the Government, in some cases, to exercise their right to appeal to a higher court for a ruling.

Chris Huhne (Eastleigh) (LD): I welcome the fact that the Secretary of State is looking to review the financial assistance scheme. Some of the most difficult cases include some of my constituents who were involved in the APW scheme. Those under the age of 50, but close to it at the key point, some of whom had transferred substantial sums from other pension schemes into that scheme, are still facing losses of more than 80 per cent. of their previous pension entitlement. Can he assure the House that such cases will be taken into account in the review?

Mr. Hutton: I can give the hon. Gentleman that assurance, because we will consider all aspects of the financial assistance scheme in the light of the recent ruling by the European Court of Justice.

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Hutton delays on pensions despite court ruling

By James Daley. The Independent

Published: 23 February 2007

http://news.independent.co.uk/business/news/article2296893.ece

John Hutton, the Secretary of State for Work & Pensions, yesterday moved to delay any new compensation package for 125,000 workers who lost their occupational pensions, indicating that he would not make a full statement on the issue before the summer.

Speaking in the House of Commons yesterday, Mr Hutton said he needed time to consider the implications of Wednesday's High Court ruling, which demanded that the Government reconsider a Parliamentary Ombudsman's report accusing it of maladministration in its handling of pensions in the 1990s.

As a result, he said, he would aim to return to the House with his proposals "before the conclusion of proceeding on the Pensions Bill", which is not expected to complete its passage through Parliament before the summer.

Many of those who lost their pensions have been waiting for compensation for more than five years. A handful have died waiting, and many have had to continue working well past their planned retirement age despite having saved for a pension throughout their working lives.

Although Mr Hutton refused to make any commitment to compensate all those affected, he conceded that the Government would consider enhancing the terms of the Financial Assistance Scheme, which was set up to provide limited help to some.

"I think the issue for the House eventually will be whether the scheme needs to be expanded in any way," he said.

The Government may be forced into acting sooner, however. Two amendments to the Pensions Bill have been tabled which, if passed, would guarantee compensation for those affected. One has been tabled by the head of the Public Administration Select Committee, the Labour backbencher Tony Wright.

David Laws, the Liberal Democrat spokesman on work and pensions, said: "If they don't do something, the Government will either lose in the Commons, or will end up in trouble in the Lords.

"[After the court ruling] the Government should have said yes, we've got it wrong, we've been caught out a few times and now we're going to put it right. Instead, they're further delaying the situation, leaving thousands of people to carry on waiting for their pensions."

The Government has yet to decide whether or not it will push ahead with an appeal against this week's High Court decision. However, Mr Hutton confirmed yesterday that the Government would pick up the legal costs of the claimants.