Just and final settlement for people who lost pensions

Secretary of State for Work and Pensions Peter Hain has announced a substantial package of help for up to 140,000 people who lost savings when their employer-sponsored pension schemes collapsed.

The announcement was made alongside the publication today of the Young Review - commissioned by the Government to look at ways of generating additional value from the failed pension schemes.

The Report by Government Directing Actuary Andrew Young demonstrated that, if the residual assets in failed pension schemes totalling over

£1.7 billion were brought into Government, then it would be possible

- with an additional top up by Government - to meet the demands made by trade unions and campaigners for the workers who lost their pensions.

Mr Hain has decided that, as well as increasing assistance for those affected to 90 per cent of their accrued pension, the settlement will extend cover to 11,000 people in schemes wound up by qualifying solvent employers.

This means that up to 140,000 people in total could potentially be eligible for help, providing a pension for which they had saved but which had been lost when their company schemes went under.

Peter Hain said: "All those who lost their pensions had done the right thing by saving for later life. They played by the rules, only to see their pension savings disappear through no fault of their own.

Some I have spoken to were within weeks of retirement, having paid their contributions for 30 years or more, when they were so cruelly deprived of their pension.

"So I'm delighted that we are able to announce a settlement that will provide justice for the 140,000 people affected when their schemes were wound up, including members of schemes where the company is still solvent. This builds on the substantial steps we've already taken to put right the unfairness they experienced.

"We believe this represents a just and final settlement - bringing the total commitment to #12.5bn in cash terms or #2.9bn in Net Present Value terms. Although the Government has been criticised over this matter, these are huge amounts and it is right that we have been able to maximise the return from residual assets in the schemes which collapsed so that the public purse has had value for money too."

The Government has today announced an extra £3.9bn in cash terms, or

£935 million in Net Present Value. This is on top of the £8.6bn in cash terms, or £2bn in Net Present Value already committed.

The Financial Assistance Scheme (FAS) will be extended so that:

All scheme members will be guaranteed 90 per cent of their accrued pension at the date their scheme began wind-up. This will be subject to a cap of £26,000, the value of which will be protected.

Assistance payments derived from pension accrued post-1997 will be increased each year in payment in line with inflation.

Assistance will be paid from each failed scheme's normal retirement age, subject to a lower age limit of 60.

People who are unable to work due to ill health will also be able to apply for early access to payments from age 60.

Members will be able to draw a tax-free lump sum, up to their full lump sum entitlement, if their share of scheme funds allows.

Help will be extended to members of schemes wound up by qualifying solvent employers.
In April the Government asked Mr Young to look at how better use could be made of the assets in the failed pension schemes.

Regulations have already been introduced putting a temporary halt on the purchase of annuities to protect the £1.7bn in assets he identified.

Minister for Pensions Reform Mike O'Brien said: "I would like to thank Andrew Young for his work. His report says that by the Government taking in the assets of the failed pension schemes and paying the pensioners, we can provide them with the most secure retirement income.

"This is part of a wider programme encouraging greater confidence in pensions, including changes in the 2007 Pensions Act, recent reforms to the State Pension system to tackle pensioner poverty, our deregulation package, and the creation of Personal Accounts. Taken together these will ensure a fair, sustainable and generous pension system for today's and tomorrow's pensioners."