UK Government Will not Take Responsibility for Pension Loss

March 16, 2006 ( - England's Prime Minister Tony Blair said the government could not take on a £15 billion pension commitment suggested by a report from Parliamentary Ombudsman Ann Abraham.

Saying the acceptance of liability for the whole of the loss would “set a precedent of extraordinary financial proportions,” Blair said, “We simply cannot do that in circumstances where the reason for the loss is the collapse of those pensions schemes themselves,” according to the London Daily Mail.   He said he took the findings of the Ombudsman very seriously and that a review of the Financial Assistance Scheme may help some with the pension problem.

The Daily Mail reports that Work and Pensions Secretary John Hutton agreed with the rejection of calls for compensation for people who lost their pensions, telling BBC Radio 4’s Today program, “I don’t think that the taxpayer can be held liable for the failure of these private pension schemes. Absolutely not.”

Members of Parliament had referred more than 200 complaints to Abraham, who also received 500 direct complaints from members of the public, according to  a guide to the  254-page report received from the Ombudsman’s Web site.   The complaints were made against the Department for Work and Pensions, the Treasury, the former Occupational Pensions Regulatory Authority and the National Insurance Contributions Office.

The guide summarized the main complaints against the government offices concerning their role in pension security as follows:

  • Information provided by the Department for Work and Pensions, the Occupational Pensions Regulatory Authority and other Government bodies was misleading in that it did not explain the security of the pension rights of members of final salary occupational schemes accurately, completely, clearly and consistently;
  • The Department for Work and Pensions did not take action to warn scheme members of the risks to their pensions when the actuarial profession recommended in May 2000 that such warnings should be given as scheme members had no idea of the risks to their pensions if their scheme were to close;
  • The Government weakened the security provided by the statutory Minimum Funding Requirement twice without regard to the impact that this would have on the security of pensions; and
  • Delays and error by the National Insurance Contributions Office had led to the process of winding-up schemes taking much longer than was necessary.

The complainants claimed these acts of maladministration by the government cost them lost opportunities to make informed decisions when considering pensions and savings options or to take remedial action in relation to the funding position of their scheme to prevent wind-up or to ameliorate individual loss, according to the guide.   In addition, they claimed these acts caused them to suffer financial loss of a considerable proportion (in some cases all) of the expected pension – once the wind-up of a scheme was triggered.

Abraham, in her report, asks the government to explain its actions and provide a “tangible recognition” of the effects of its maladministration on the complainants and their families.   She calls for replacement of core benefits lost as well as replacement of associated benefits lost, such as life cover, survivor benefits and health care.

The government did not accept Abraham’s accusation of maladministration.   It said it would, however, look into the time taken in the process of plan closings.

Hutton specifically rejected the accusation that government information was misleading, saying there was no evidence the information was inaccurate or incomplete or that people relied exclusively on the information as a basis for their investment decisions, according to the Daily Mail.

Hutton noted that government leaflets included a message saying they were not a full explanation of the law and were for general guidance only.

The Ombudsman’s press release on the report is here .