Government under fire over £300m pensions U-turn

Business leaders, opposition MPs, and pension campaigners hit out at the Government yesterday over its decision to allow companies which are already facing insolvency to dump their pension liabilities on the new Pensions Protection Fund (PPF), due to be launched in April.

Business leaders, opposition MPs, and pension campaigners hit out at the Government yesterday over its decision to allow companies which are already facing insolvency to dump their pension liabilities on the new Pensions Protection Fund (PPF), due to be launched in April.

The controversial move - announced by Malcolm Wicks, the Pensions minister, in a written statement to the House of Commons on Monday - is likely to mean that some £300m of unfunded pension liabilities from Turner & Newall, the insolvent car parts manufacturer, will be passed on to the privately funded pensions lifeboat. The decision comes in spite of earlier government promises that premiums paid by pension funds to the new PPF would be used to cover only future problems.

Earlier this year, the Government announced it would provide some £400m through a new Financial Assistance Scheme (FAS) to compensate members of pension funds which had gone bust before May 2004. However, it made no provision for funds that ran into difficulty between May and next April. Pension campaigners have argued that it is the Government's responsibility to compensate members of all funds that have gone bust or go bust before next April, due to literature it has published over the past few years telling members of final salary pension schemes that their retirement savings were guaranteed.

The Parliamentary Ombudsman, Ann Abraham, is expected to announce this month that she will carry out an investigation into occupational pensions, to determine whether the Government is liable for such compensation.

The National Association of Pension Funds said yesterday it was seeking immediate clarification over the Pension minister's statement. It said: "It would be outrageous if, as Mr Wicks' statement suggests, the Government could resort to a back-door means of forcing employers effectively to subsidise the Financial Assistance Scheme. It would also fly in the face of repeated government assurances that the PPF would not be retrospective."

David Willetts, the Conservative pensions spokesman, said: "Firstly, trying to smuggle out an announcement like this, as the Government did, is not the way to start a grown-up debate on pensions. But ... I think it's very important that premiums going into the PPF cover future risk. Now they're suddenly saying it's going to cover old problems, which are really the responsibility of the FAS."

Stephen Yeo, at Watson Wyatt, the financial consultants, said: "This is yet another stealth tax on pension funds. The Government has no idea how many trustees of schemes with failing companies will now be able to pass the bill to the PPF, yet they are happy to make this announcement and leave good companies to pick up the bill."

Elsewhere yesterday, Amicus and Community, the unions, were granted the right by a High Court judge to take the UK Government to the European Court of Justice on behalf of the former employees of Allied Steel Workers, who lost most of their pensions after the company went bust.