Wickham's musings from Chalke

 
Many occupational pension schemes have failed over the past few years. The government set up minimum funding requirements in the late 1990s after the Maxwell pension fund fraud and assured occupational scheme members that funds would be guaranteed. However, shortly afterwards the government withdrew the tax credits which hurt the funds severely. In 2003 the stock market crash left schemes in further trouble. Companies that went bust left the funds severely under-funded. Laws relating to pension funds meant that those with pensions in payment got first claim on assets so usually continued to receive full pensions but those still employed and under retirement age found that there would only be enough left to pay a reduced pension and in some cases no pension at all. Many of them have now retired with totally inadequate pensions.

The government advice in many leaflets at the time assured policyholders that their pensions were guaranteed and secure. Pension rules also prohibited suspicious employees from hedging their bets and spreading the risk by splitting contributions between occupational and private schemes (most employees thought there was no risk). Employment contracts often stated that an employee had to be a member of the firm's scheme so many employees had no choice but to trust the government's assurances.

The government response has been to reject the PO's findings, saying that there is no evidence that policyholders would have acted any differently if the advice had identified some risks. This ignores the fact that most employees had no choice, as explained above. They trusted the governments assurances.

Here are some extracts from posts on The Motley Fool discussion board today:

Today, the 260-page PO report into Occupational Pensions entitled:

“TRUSTING IN THE PENSIONS PROMISE”, is published.
Here, post curfew, are brief extracts from the 10-page summary:

Para 23: …………………

official information on these matters (MFR) was:

(i) inaccurate – by telling scheme members that they would receive the full value of their accrued rights if their scheme wound up and/or that the Minimum Funding Requirement was designed to ensure that schemes had enough assets to meet their liabilities in full

(ii) incomplete – by omitting to mention the most highly significant factors – such as that a pension was only as secure as the employer sponsoring the scheme - when answering specific questions about pension security that such information chose to pose

(iii) unclear – by using expressions such as 'fair value' to indicate the Government's settled intention that non-pensioner members would have only an even chance of receiving their pensions

(iv) inconsistent – from September 2000, some official statements and publications – especially those aimed at the general public - continued not to mention risk and to give a misleading impression as to the security of pension rights, while others began to explain the true position

What were the Ombudsman's findings?

26. The Ombudsman made the following three findings of maladministration:

• first, that official information - about the security that members of final salary occupational pension schemes could expect from the Minimum Funding Requirement provided by the bodies under investigation - was sometimes inaccurate, often incomplete, largely inconsistent and therefore potentially misleading, which was contrary to the Department for Work and Pensions' own standards and also to principles of good administration.

Did this maladministration cause injustice?

28. The Ombudsman has found that maladministration caused injustice in the forms of a sense of outrage, lost opportunities to make informed choices or to take remedial action, and distress, anxiety and uncertainty.

32. The Ombudsman's five recommendations are:

that the Government should consider whether it should make arrangements for the restoration of the core pension and non-core benefits to those scheme members covered by her recommendations - by whichever means is most appropriate, including if necessary by payment from public funds, to replace the full amount lost.

What was the Government's response to the Ombudsman's report?

34. The Government has said that it is not minded to accept the Ombudsman's findings of maladministration nor to implement her recommendations, with the exception of the recommendation concerning the review of the time taken in the process of scheme wind-up.

36. Nothing in the Government's response to her findings and recommendations has persuaded the Ombudsman that those findings and recommendations are unsound or unreasonable.

What happens next?

38. The Ombudsman has laid the report before Parliament using the power to do so provided in section 10(3) of the Parliamentary Commissioner Act 1967. This denotes that, at the time she published the report, she is not satisfied that the injustice that she has found was a consequence of maladministration has been remedied or will be remedied in the future.
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Mr Hutton has said on Today a couple of minutes ago that the PO is wrong and leaflets put out by the government were accurate.
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Mr Hutton has just said on Radio FiveLive the government does not accept the PO has substantiated her case that the leaflets were misleading. He kept saying the problems lay with the various pension trustees.
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'He kept saying the problems lay with the various pension trustees.'

Disingenuous because over-funding of pension funds was then illegal as it was considered by Government to be a tax-dodge on companies' profits.
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The poor people that lost their pensions in the recent scandals are now told that Government leaflets that had the word "Guarantee" in them were just for general guidance - forcing people to save in these schemes was what then? I suspect that some Advertising Agencies will be interested in the new definition of "Guarantee".
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Did anyone seriously believe that the Treasury would accept for one momment the report stating that the government is largely to blame for persuading people that final salary pensions were a good and secure way of saving for the future, and then extracting over 5 billion a year from pension funds?

How DARE they say that they cannot afford to put matters right. Ros Altman said total costs would be betrween 5 and 10 billion - 2 years of Gordon's pension plunder. And these are the santicmonious so-and-sos who are whimpering about their own pension funds?

It was blatent mis-selling by the government and no amount of weasel words and hypocritical denials will alter that fact. Twice, since the Maxwell scandal, the treasury weakened the Minimum Funding Requirement, in spite of being warned by the oft maligned actuaries about the risk of doing this.

The greedy government blighters have built a pension structure on sand and are now pretending that they are not to blame.

I am sure Mr. Brown and his do-gooding cronies will continue to pump millions of pounds into overseas aid - likely to be acquired, en route, by corrupt officials, whilst leaving his pensioniable countrymen and women betrayed, embittered, impoverished and helpless.

SHAME, SHAME, SHAME.
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As everyone says, it was only to be expected that the government would ignore yet another PO report recommending that they compensate. I do find John Hutton's comments quite gobsmacking. It is like the financial services industry being allowed to issue leaflets saying shares and investments will go up and not mentioning that they might go down as well. However it seems government is not regulated by the FSA and can tell half truths with impunity irrespective of the consequences to trusting individuals.

I thought you may be interested in the following press release from the Pensionstheft group:

PRESS RELEASE EMBARGOED UNTIL 00:01 HOURS WEDNESDAY 15TH MARCH 2006

GORDON BROWN'S BIG TEST: IS HE FIT TO BE LEADER? WE CALL ON HIM TO RIGHT THIS WRONG IMMEDIATELY

PARLIAMENTARY OMBUDSMAN REPORT FINDS GOVERNMENT GUILTY AND RECOMMENDS FULL RESTORATION OF ALL LOST PENSIONS PLUS DAMAGES FOR THE STRESS AND SUFFERING CAUSED BY GOVERNMENT'S REFUSAL TO ADMIT ITS RESPONSIBILITY – HEADLINE COST COULD BE £5-£10BILLION BUT CAN BE PAID OVER 40 YEARS AT AROUND £100-£150MILLION A YEAR

I attach three papers to help understand the contents of the Parliamentary Ombudsman's report.

Summary:

I call on Gordon Brown to accept the findings of this independent report, admit to mistakes that he has made on pensions policy and demonstrate whether he has the leadership qualities necessary to tackle a national crisis. An independent verdict says the Government is guilty of betraying 85000 families – innocent victims of broken promises and a betrayal of trust.

If the Chancellor decides to continue to defy Parliament's own Ombudsman, then we hope the House of Commons and all duly elected Members of Parliament will hold Government to account for its actions. If our Parliamentary democracy is to mean anything, then justice must be done here.

There are so many dreadful indictments of Government in this Report that it is hard to know which to single out. The basic message that comes through loud and clear is that Government says one thing, that it thinks will sound good to the public, but then does something different in practice, without telling people that it is not actually doing what it said it was. I would point to the following in particular, but read the report and judge for yourself:

1. The MFR was only originally designed to give a 50/50 chance of full pensions, but Parliament and the public were never told this!
2. The Government decided members needed to believe their pensions were secure, and it should help employers fund pensions as cheaply as possible, so it decided to tell members their pensions were safe, even though they were not.
3. Government told the public it was issuing information to help them understand the most important issues about pensions from a source they could trust, but then betrayed that trust by not including the most important information about lack of security
4. Ministers misled Parliament over their handling of member security
5. The FSA believes that there is more than one meaning of the word 'guarantee' and that it does not necessarily mean 'guarantee' as everyone else knows it!
6. When faced with the consequences of its own actions, Government tried to blame everyone else and fails to accept its own responsibility
7. The decent 'silent majority' of good people in this country, who trust their Government, believe official information, try to do what they are told and look after themselves and their families have been betrayed
8. While Government and officials were increasing their own pensions, they were reducing the security of final salary schemes for everyone else, but decided not to tell members the truth.

I welcome this report, but with great sadness that many of those affected did not live to read it. It has been several years since the victims of this social injustice first discovered they had lost most or all of the company pension they had contributed to and which Government had led them to believe was safe and protected by law. The experience of losing one's entire retirement income and the uncertainty hanging over these individuals and their families is impossible to over-estimate. They have been utterly betrayed by Government.

At last, an independent investigation has highlighted clearly, for all to see, the gravity of the injustice they have suffered. Having been brushed aside and fobbed off by Government for so long, the complainants had almost lost faith in justice . It is to be hoped, therefore, that our Parliamentary democracy does have a mechanism for forcing Governments to face the consequences of their actions, if Ministers and officials are unable, themselves, to appreciate the injustices they are responsible for. We call on Gordon Brown to carefully consider the evidence and findings of this report and immediately agree to rescue these 85,000 innocent victims. If the Chancellor will not accept this, I hope that the House of Commons will hold the Government properly to account.

The Parliamentary Ombudsman has uncovered the full extent of this injustice, and I hope that all Members of Parliament will recognise immediately that they have a duty to ensure pensions are replaced in full. These people have suffered more than enough – it is time they received an apology and full restoration of what has been lawfully taken away from them and what they were always told was actually 'protected' by the law.

These individuals have done nothing wrong. Their lives have been devastated by the carelessness of Government and their mistake was that they genuinely believed Government would tell them the truth. It beggars belief that Government is now saying that the members either have lied about actually reading and relying on the official information and leaflets or that, if they did read them, of course they should never have believed what they read!

We as a nation should be ashamed of how our Government is behaving on this issue. Gordon Brown has the power to sort this out and we call on him to do so immediately. MPs and officials need to consider carefully the findings of this report, and hopefully take on board the important messages that it highlights.

'Informed choice' has been at the heart of the Government's pension reform agenda, but if it then takes it upon itself to inform citizens, it must do so honestly, clearly and transparently, rather than trying to hide the truth in order to fulfil its own agenda or please wider interest groups. The Government has also claimed that its policy agenda is based on fairness, social justice and personal responsibility. If those who did indeed take personal responsibility for their future are left high and dry after being lulled into a false sense of security by Government, then the public will be unable to trust official assurances in future.

The Parliamentary Ombudsman investigation is an independent verdict on the Government's handling of occupational pensions in the UK. Government cannot simply decide it does not like the findings. This is Parliament's own Ombudsman, set up to monitor the behaviour of Government and her findings cannot be ignored. All MPs must take this report seriously.

The findings are a damning indictment of the manner in which Governments have overseen final salary pension schemes. She has found that members of these schemes were led to believe their retirement income was secure and were encouraged to join or remain in their scheme by untrue assurances of protection. Government policy deliberately wanted to encourage membership of occupational schemes, Government knew that members would not join unless they thought their pensions were secure, so Government decided to tell them they were safe, even though it actually knew that they weren't.

Some of the most damning findings are as follows (but there are many more!)

MFR WAS DESIGNED ONLY TO PROVIDE A 50/50 CHANCE OF FULL PENSION!
After the 1995 Pensions Act and the introduction of the Minimum Funding Requirement (MFR), Parliament and the public were told that this Minimum Funding Requirement would be designed to protect accrued pension rights. What the Parliamentary Ombudsman has uncovered, however, is that the MFR was actually only designed to give non-pensioner members a 50/50 chance of getting their full pension! How would Ministers and civil servants feel if they had only a 50% chance of getting their pensions? Would they call them secure and safe?

GOVERNMENT DECIDED NOT TO WARN MEMBERS THAT THEY COULD LOSE THEIR PENSIONS IF THEIR SCHEME WOUND UP
Even after warnings from the Actuarial Profession that members should be told the truth, Government still decided not to warn members. In fact, officials specifically mentioned that disclosing the true risks to members would alert the public to the fact that the MFR was not actually designed to protect pensions fully!

GOVERNMENT WEAKENED THE MFR TWICE BUT DID NOT FOLLOW ACTUARIAL ADVICE TO STRENGTHEN IT
Malcolm Wicks misled the House of Commons by suggesting that the Government had weakened the MFR because it believed it is right to follow the advice of the Actuarial Profession, but he failed to mention to the house that Government had not followed the two occasions when the profession advised Government to strengthen the MFR.

WAS GOVERNMENT MORE CONCERNED ABOUT CONTROLLING COSTS TO THE TREASURY THAN ENSURING MEMBER SECURITY?
The reason the Government chose not to follow the advice to strengthen the MFR may have been because officials were afraid this might lead to calls for increases in contracting out rebates and the Treasury had not agreed to this.

GOVERNMENT KNEW THAT PENSIONS WERE NOT PROPERLY PROTECTED BUT DECIDED NOT TO WARN MEMBERS BECAUSE IT WANTED TO ENCOURAGE MEMBERSHIP OF OCCUPATIONAL SCHEMES
The Government had a policy objective of increasing private pension coverage and its pensions and savings policy was driven by a principle of 'informed choice'. It undertook to issue public leaflets and information to help people make these choices, but decided not to give them all the information they actually needed. Government decided to give partial information, only explaining the benefits and not the risks.

THE FINANCIAL ASSISTANCE SCHEME HAS COMPOUNDED THE INJUSTICES AND GOVERNMENT NEEDS TO CHANGE IT URGENTLY
The Parliamentary Ombudsman report warns that she has considered complaints about the Financial Assistance Scheme and believes it contains further injustices which need to be remedied.

THE FSA SEEMS TO BELIEVE THAT THERE IS MORE THAN ONE DEFINTION OF THE WORD GUARANTEE.
Apparently, when the FSA uses the term 'guaranteed' to refer to something that is not truly guaranteed at all, it is using the 'lay' definition of the word. The financial services industry and financial advisers need to take careful note of this!

Gordon Brown must agree to sort this out now. Pay everyone the pensions they were relying on and which Government told them were secure and guaranteed. Then maybe we can get on with restoring some confidence in pensions and sorting out the mess surrounding pensions policy for the future.