'Inaccurate, unclear' - the occupational hazard of pension schemes

What price your company pension scheme?

Last week's report by Ann Abraham, the Parliamentary Ombudsman, condemning the Government's mishandling of advice to members of final salary occupational pension plans, will have sent shivers down the spines of many workers.

"Inaccurate, incomplete, unclear and inconsistent" was her verdict on public information about the security of such schemes in literature that included leaflets from the Department for Work and Pensions.

Ms Abraham accused the Government of "maladministration" affecting tens of thousands of workers who, as a result of its misleading claims, "lost the opportunity to make informed choices about their future". More than 85,000 people lost their pensions when their company schemes were wound up after their employers went bust.

The Pensions Action Group is demanding compensation. As part of a protest campaign, its members stripped off outside the Treasury on Tuesday.

But the Government has rejected outright the Ombudsman's recommendations that those affected should have their pension rights restored.

Stephen Timms, the minister for pensions reform, called it a "huge and unsustainable leap of logic" to ask the taxpayer to pay up. He argued that government leaflets "did not claim to offer comprehensive financial advice" and were for general guidance only.

Amid growing anger at this reaction (see page 21), the Public Administration Select Committee, chaired by Tony Wright, Labour MP for Cannock Chase, now looks set to investigate the debacle.

For workers in final salary schemes, the Government has now set up the Pension Protection Fund. Funded by company levies, this pays compensation where any employer (from April 2005) becomes insolvent and where the pension scheme is underfunded.

For those in a final salary scheme who are already retired, the fund will pay out 100 per cent of their pension; workers still saving will get 90 per cent up to an annual £25,000 cap.

For workers in final salary schemes run by companies that went under before April 2005, the Government has set up the Financial Assistance Scheme. However, with just £400m in funding and tens of thousands of workers claiming on it, critics have warned that the scheme is hopelessly underfunded. To date, barely 30 people have received money from it.

Workers in "defined contribution" pension schemes - where you put money into a pension pot run by an outside fund manager, usually with help from your employer - don't have the same worries, says Tom McPhail of independent financial adviser Hargreaves Lansdown. "In theory, they should be fine because the money goes into a separate pot that is ring-fenced."

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