Minister looks to private sector to solve pensions payout fiasco

The Government is considering outsourcing the administration of the Financial Assistance Scheme (FAS) to the private sector, after conceding that thousands of people who qualify for payouts have been left empty-handed more than two years after the scheme was first devised.

Some of those who would have qualified for payments have died before receiving a penny from the scheme.

The FAS was created by the Labour government to "assist" some of the 125,000 people who lost their pensions when their employers went bust at the start of the decade. While several thousand of those affected should have begun receiving payments, the Government admitted that at the start of June just 86 people were receiving anything at all.

James Purnell, the Pensions minister, said yesterday that outsourcing the administration of the FAS to the private sector, or merging it with the Pensions Protection Fund, were among the options being considered to speed up payments.

In a letter to MPs, Mr Purnell conceded that the administration of the FAS had been less than satisfactory. "We clearly need to do more to ensure that eligible members who have reached the FAS payment age of 65 are paid as soon as possible," he said.

Mr Purnell has launched a full-scale review into the administration of the scheme, which he has asked to be completed before Parliament goes into recess at the end of July. It is thought the Department for Work and Pensions is also considering altering secondary legislation so that distressed pension funds are not forced to buy annuities to cover their liabilities. Buying bulk purchase annuities often ensures the schemes get bad value for money.

Pension campaigners want the DWP to roll up the assets of distressed schemes, and to run them off as a large fund, so members can get their hands on the money immediately.

Ros Altmann, a former pensions adviser to the Government, who is leading the fight on behalf of the pensioners, said: "All these people's money has been sitting in a bank since their schemes went bust several years ago. If the Government had permitted them to, trustees could have begun paying some of that money out a long time ago.

"In fact, most people have still not received a penny, and some are terminally ill or have even died without getting their pension."

The Government last month extended the FAS to cover those who were within 15 years of their scheme retirement age in May 2004, but it is thought that only about 40,000 of the 125,000 affected will receive anything. Payouts are capped at £12,000 a year and will not rise in line with inflation. Many of the victims lost much greater pensions.

The Government recently ignored the findings of a Parliamentary Ombudsman into the occupational pensions sector, which concluded that the DWP should fully compensate all 125,000 victims.

Mr Purnell said yesterday he refused to accept the Ombudsman's conclusions.

Dr Altmann is now taking the Ombudsman's decision to the courts to force the Government to adhere to the recommendations.