Hope on occupational pensions

There is hope that there will be progress on the issue of occupational pensions after a promising statement in the House today from Pensions Secretary John Hutton. Here's the text:

The Secretary of State for Work and Pensions (Mr. John Hutton): With permission, Mr. Speaker, I want to make a statement on yesterday’s judgment on the Government’s response to the ombudsman’s report concerning the security of final salary occupational pension schemes. Given the importance of the issue to many right hon. and hon. Members, I want to inform the House of the position that we have reached both in the light of that particular ruling and the decision last month of the European Court of Justice on the implementation of the insolvency directive.

The High Court yesterday made five rulings in its judgment. I want to take each in turn. Its first ruling was that the ombudsman was entitled, on the evidence available to her, to reach the conclusion that official information published on the minimum funding requirement for pension schemes was inaccurate and potentially misleading, and therefore amounted to maladministration. The Court particularly criticised the then Government’s guide to the Pensions Act 1995, which was published in 1996. This, it concluded, gave the clear impression that following enactment of the new law, scheme members could be reassured that their pensions were safe whatever happened.

The Government had, in good faith and acting on proper advice, taken a different view from that of the ombudsman, on the basis that the leaflets concerned were not a full statement of the law and were for general guidance only. However, we clearly now need to study the Court’s ruling very carefully. In particular, we need to consider the possible implications across government of the Court’s significant proposition, on which this ruling was based, that findings of fact made by the ombudsman are binding, unless they are flawed, irrational or peripheral, or unless there is fresh evidence.

The Court’s second ruling related to the important issue of causation. The ombudsman had found that maladministration was a significant contributory factor in the creation of the financial losses suffered by individuals. She went on to argue that everyone who between 1997 and 2004 suffered losses on the winding up of their pension scheme was the victim of injustice because of maladministration. The Government had argued that that was not well founded. The Court found in favour of the Government on this point, describing that aspect of the ombudsman’s report as “logically flawed and unreasonable.”

The Court’s third ruling rejected the ombudsman’s finding that the Government were guilty of maladministration when they made changes to the pension scheme funding rules in 2002. It decided that the ombudsman’s finding was not logically sound. In its fourth ruling, the Court also dismissed the claim that the Government’s refusal fully to restore the pension entitlements of all affected scheme members was in breach of the European convention on human rights. The Court’s fifth and final ruling concluded that I should reconsider the ombudsman’s recommendation that the Government should consider making arrangements to restore fully the pension losses of the people concerned when their employers became insolvent.

In a clear sign of both the complexity and, yes, the importance of these matters, both sides have sought and been granted permission to appeal. We have not yet decided the precise grounds for such an appeal, but it is absolutely right and proper that we take time to study the judgment and consider its implications in detail.

The judgment of the European Court of Justice in January on the implementation of the insolvency directive has an important bearing on the issue of financial redress for those who have lost some or all of their pension entitlement. The decision of the European Court of Justice effectively requires the Government to reconsider whether the present arrangements offer sufficient protection for people’s pensions when their employer becomes insolvent. The European Court of Justice has ruled that the system of protection that was in place before 2004 did not comply with the terms of the directive, even taking account of the subsequent introduction of the financial assistance scheme, albeit before its 2006 extension. We are already reviewing the financial assistance scheme with that finding in mind. It is now for the High Court to be asked to decide whether damages for breach of the directive should be paid, taking account of the steer apparently given by the European Court of Justice that damages may not be payable.

The Government have already acted to provide substantial financial assistance to people who lost pension rights when their employers became insolvent. The financial assistance scheme, supported by £2.3 billion of public money, has been set up precisely for that purpose. Throughout, we have always sought to ensure that those who have suffered the most should receive financial assistance to mitigate their loss. At the same time, we have sought to strike a balance with the interests of taxpayers, who cannot be asked to accept responsibility for effectively underwriting the total value of pension savings.

In considering the right way forward, we are always prepared to consider practical proposals from both sides of the House. I can confirm also that, so as not to add to their financial difficulty, we will meet the costs of the applicants in this case so far, together with the costs associated with our appeal.

People who have lost their pension rights in these circumstances have suffered a great deal. My aim will be to return to the House with our conclusions and our proposals for how we should proceed, and to do that before the conclusion of proceedings on the Pensions Bill.

The news that there will be a new package for those such as the Allied Steel and Wire workers who have suffered through losing their pensions is welcome. Responding to the statement, I asked the Secretary of State:

Julie Morgan (Cardiff, North) (Lab): I welcome my right hon. Friend’s statement, particularly his concluding remarks, and I hope that there will soon be an end to the misery that so many of our constituents have experienced. I am thinking in particular of the 800 Allied Steel and Wire workers from Cardiff who lost their jobs, some of whom also lost all their pension. I hope that they can sleep soundly in their beds, confident that the Government are going to come up with something good for them. Is my right hon. Friend aware, however, that there are people in my constituency who have worked for 30 years and paid in dutifully for 30 years, as the Government advised, but who have ended up with absolutely nothing under the present financial assistance scheme arrangements? Will he take them into account when he makes his statement to the House during the passage of the Pensions Bill?

Mr. Hutton: We are looking at all these issues in the context not only of yesterday’s High Court ruling but, most importantly, of last month’s ruling of the European Court of Justice.

I am going ahead with tabling an amendment to the Pensions Bill currently before the Commons to improve the position for the ASW workers. I will continue to keep constituents updated on this crucial issue — at last it appears we may have some good news to look forward to.