Thousands of workers who lost the majority of their pension savings when their employer went bust have been warned that any payments they receive from their funds over the coming years could be taken back due to the Government's refusal to alter a piece of archaic legislation.
Current law requires pension schemes to use their assets to buy annuities for their members as soon as they reach their retirement date. However, bust schemes which are in the process of winding up are not able to know how much they will have left for each member, so are forced to begin making payments based on estimates. If these estimates turn out to be wrong, the pensioner could be forced to make repayments.
A group representing the thousands who have lost their lifetime savings in bust schemes met John Hutton, the Secretary of State for Work and Pensions, on Monday to ask him to change the law to allow pension schemes to pay their assets directly to their members.
But the request was turned down. Although those who are closest to retirement have been assured they will receive some form of financial assistance from the Government's Financial Assistance Scheme (FAS) to replace part of their lost savings, only 13 people had received a penny from the FAS by last week.
Ros Altmann, a governor of the London School of Economics and a government adviser, said thousands of people would be able to receive their pensions immediately if the Government would agree to make one simple legislative change. In the absence of such a change, it is likely many people will die before receiving any meaningful proportion of their pension.
"The scheme assets are there, they could be used to pay pension assets tomorrow," she said. "But the Government is refusing to let trustees pay out pensions directly from scheme assets. Every scheme has got enough to pay out its members for five to seven years, maybe even 10 years."
So far, the Government has committed to providing compensation from the FAS only for those who were within three years of retirement in May 2004, and has promised to review the situation at the next spending review. But a Parliamentary Ombudsman report into the scandal, due this month, may force the Government to take action sooner.Reuse content