Minister admits pensions shortfall

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The Independent Online

The Government finally admitted yesterday that the £400m it has put aside to compensate the thousands who have lost pensions in insolvent final salary schemes must be significantly increased if younger victims are to receive any recompense.

The Government finally admitted yesterday that the £400m it has put aside to compensate the thousands who have lost pensions in insolvent final salary schemes must be significantly increased if younger victims are to receive any recompense.

After almost 10 months of refusing to concede the funds allocated for its Financial Assistance Scheme (FAS) were woefully inadequate, Malcolm Wicks, the Pensions minister, said the Government had earmarked the whole £400m to cover the 15,000 victims who are within three years of retirement.

Mr Wicks intimated he was now counting on securing more money from the Treasury to fund pension benefits for the remaining 50,000 victims, when the Government holds its spending review in the summer of 2006. Experts say a further £2.6bn over 40 years is needed to fund these victims' pension benefits.

Mr Wicks announced last week that all victims who were within three years of retirement, as of May last year, would be guaranteed 80 per cent of their lost pensions, up to a limit of £12,000 a year. This has committed the Government to spending most of the £400m it has allocated on the eldest victims of the pensions scandal.

Mr Wicks said yesterday: "With the £400m, we are confident we can meet the 80 per cent [for those nearest retirement]. And then we've got the spending review."

The move looks to have set up a post-election showdown with the Treasury, which is strongly opposed to providing any more money for the FAS. The initial £400m was won last May only after the Government realised it was facing a backbench revolt. If the Treasury refuses to contribute more money to the fund, the Government will be forced to renege on its promise of compensation for all 65,000 victims, and be likely to face another revolt.

Ros Altmann, the Downing Street adviser and pensions campaigner, said even the £400m would not be enough to fund the now-guaranteed 80 per cent to those nearest retirement. But she said the Department of Work and Pensions appears increasingly committed to securing compensation for all victims of the pensions scandal. "My hope is that Alan Johnson [Secretary of State for Work and Pensions] is throwing down the gauntlet to Gordon Brown here, and saying 'we can't do this without more money'," she said.

"It was always my hope that Brown would release more money in [next month's] Budget, but it will need a lot more pressure before he will do that."

David Willetts, the Conservative spokesman for Work and Pensions criticised the move to guarantee 80 per cent benefits only for those nearest retirement. "This will leave 50,000 victims of pension wind-ups facing desperate uncertainty. It would be unacceptable for the Government to raise the expectations of sometimes desperate people only to dash those hopes."

Yesterday's admission from the Government came as it rolled out plans for the new Pensions Protection Fund (PPF) - a privately funded safety net providing compensation for members of final salary pension schemes which go bust after its inception on 6 April. Within the first 12 months of its launch, the fund is expected to be landed with the pension liabilities of Turner & Newall, the UK car parts maker whose US parent company, Federal Mogul, is in Chapter 11 bankruptcy protection. The scheme has 40,000 members and a £900m deficit. Allders and Courts are two other recent high-profile UK companies which look set to land their pension fund liabilities on the PPF.

Lawrence Churchill, the chairman of the PPF, said he was confident the fund would be able to cope with potential liabilities.

A pensions regulator has also been set up to ensure companies are responsible about their pension fund liabilities, but David Norgrove, its chairman, conceded it would be difficult to pursue companies domiciled outside the UK.

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