By: BILL BLEVINS
Financial Correspondent, Blevins Franks
British pensioners are furious that the government bailed out Northern Rock savers by offering a multi billion pound guarantee to deposits in the beleaguered bank, while failing to do the same for the 125,000 people in occupational pension schemes who lost millions of pounds when their companies went bust.
The government was accused of “breathtaking hypocrisy” and “double standards” after the pensioners campaigned for a decade to get compensation for losing the hard earned money they had contributed into a company scheme on the assurance of a reasonable occupational pension on retirement.
The pensioners were led to believe that their money was safe.
The retirees affected belong to final salary schemes, which crashed post 1997 prior to the introduction of the Pension Protection Fund in 2005, offering 90 per cent protection.
The Public Administration Select Committee, European Court of Justice and High Court Judicial Review all criticised the government for failing to safeguard the pensions.
A governor of the London School of Economics and a campaigner for the pensioners, Dr Ros Altmann, said: “This government’s treatment of the victims who lost their pensions after believing that their money was completely safe and protected by law – because that is what the government repeatedly told them – is unacceptable”.
Last year, the then Chief Executive of the Financial Services Authority, John Tiner, told MP: “When we said that they were guaranteed, we didn’t mean guaranteed under all circumstances”.
Mixed message
Director of mycompanypension.co.uk, Mike Jones, said in a report on IFA Online that the government is sending out a mixed message to members of final salary schemes, who lost their pensions as a result of policies winding up or their employer going bankrupt and leaving the scheme under-funded.
Jones pointed out that Northern Rock’s savers are covered by the Financial Services Compensation Scheme (FSCS), which provides some compensation in the event of a bank or building society collapse.
“Employees were misled by successive governments into believing their pensions were guaranteed when they were not. What is so different with savers that the government steps in with an unlimited guarantee?”
“The government was dragged kicking and screaming into launching the Financial Assistance Scheme (FAS) to help the tens of thousands of pension scheme members who had lost their pensions through no fault of their own and who were not covered by the Pension Protection Fund (PPF).”
He added: “Nobody wants to see savers losing money. Losing confidence is bad enough, but I can’t help but feel that this is a real slap in the face for workers and pensioners who have fought hard to get compensation since their schemes failed”.
It was in July when proposals to create a Lifeboat Fund to support the FAS was rejected by MPs. The plan was to use unclaimed assets to back the fund but it was opposed by the Association of British Insurers (ABI) with a warning that the FAS could withdraw money from pensions and profits policies to supplement the FAS.
Hypocrisy
Altmann accused the ABI of scaremongering and said that the amendment merely allowed the government to review potential funds that may be used to support the FAS.
She charged the insurance industry of trying to block access to large amounts of unclaimed cash in their possession. “The insurance companies are so frightened of even being asked to identify what unclaimed assets they hold, that they are using false arguments to interfere with the Parliamentary process”.
The minister for Pensions Reform, Mike O’Brien, said: “The government believes that the cost of extending the FAS towards 90 per cent can now be met by making better use of the assets remaining in pension schemes, matched by a further contribution from government”.
Equitable Life, which collapsed in 2001 with one million policy holders, had also been assured by “grossly misleading” statements from the FSA. General Secretary of the Equitable Members’ Action Group, Paul Braithwaite, said in a Daily Telegraph report that the government’s handling of Northern Rock showed “breathtaking hypocrisy. Here we have a business model that was highly questionable and the government is underwriting 100 per cent of it. Yet we have been fighting for six years over a situation where the government was asleep at the wheel over regulation”.
Justice
During the Northern Rock crises, depositors were unimpressed with verbal guarantees that the government stepped in with fall-back protection which put taxpayers’ money on the line. Prime Minister and former Chancellor of the Exchequer, Gordon Brown, has for years maintained that taxpayers’ money could not be used to underwrite the failed pension schemes.
This Is Money reports that while Brown claims that billions have been spent on rescuing the victims, the reality is that only four million pounds sterling has been paid out since 2004 at a cost of nearly 10 million pounds sterling in administration.
In an interview with the Daily Telegraph, Work and Pensions Secretary, Peter Hain, said that the government will address the “scandal” of pensioners left destitute when their employers went bust with a multi-million pound sterling rescue package, promising to bring “justice” to the thousands of people who have lost their retirement savings.
Hain said that the government intends to increase “considerably” the eight billion pound sterling already allocated to the FAS, set up to give money to people whose final salary pension schemes collapsed. Sources at the Department for Work and Pensions say around 200 million pounds sterling extra of taxpayers’ money will be released.
The Pensions Secretary planned to take a pension reform package through parliament in the next few months.
