FINANCIAL SERVICES & PENSIONS: Labour pay?

(From The Lawyer)

The fight over the Parliamentary Ombudsman's findings regarding the Government's misleading advice to pensioners is set to continue - and Europe is the next battleground. David Gallagher reports

On 14 March this year, the Parliamentary Ombudsman Ann Abraham delivered her report 'Trusting the Pensions Promise' on her investigations into allegations that the Government and government- sponsored bodies committed maladministration between 1995 and 2005.

The focus of the allegations was the minimum funding requirement (MFR) laws for defined benefit schemes, with the complaints arising after a number of schemes collapsed without sufficient funds to pay for the pensions of the scheme members. In simple terms, a scheme funded at 100 per cent on the MFR basis did not have sufficient assets to pay for members' pensions in the case of a winding up. In many cases, the sponsoring employer had become insolvent, but in some cases the employers used a process permitted by legislation to withdraw support from such schemes without paying any further money in to ensure that the pensions could be paid. Pensions legislation has since been changed to remove that possibility.

The ombudsman upheld some of the allegations and recommended that the Government pay compensation to those who had lost out as a result of the maladministration. The cost of such compensation was estimated by the Government to be GBP15bn.

However, the Government rejected this conclusion because, as Pensions Minister Stephen Timms said: "It could not be the responsibility of taxpayers to bail out failed corporate pension schemes."

Meanwhile, Tony Blair told Parliament that paying compensation would "set a precedent of extraordinary financial proportions... We simply cannot do that in circumstances where the reason for the loss is the collapse of those pension schemes themselves."