BMI Pension Fund Compensation

Eilidh Whiteford Excerpts

Wednesday 17th December 2014 Westminster Hall

[Mark Lazarowicz]

Well, that was certainly the outcome in many cases; that was what happened to the pension scheme members. Certainly, it was clear that part of the agreement that Lufthansa reached with the companies taking over the former BMI operation was that effectively the pension scheme responsibility would not go with the airline, which is very concerning and, as I have said, has much wider implications beyond the BMI pension scheme, although I am obviously concentrating on that today.

The arrangement by Lufthansa to top up members’ benefits outside the PPF seems, on the face of it, relatively generous. However, hundreds of staff in the BMI pension scheme will lose substantial sums in pension money, and I understand from the British Air Line Pilots Association that there are now some people in the Monarch Airlines pension fund who are in similar circumstances. Hundreds will lose out. At least 30 of the BMI pensioners and 13 Monarch members will lose more than 50% of their expected scheme pension, and that is taking account of the top-up payments from Lufthansa. Her Majesty’s Revenue and Customs has decided that although those top-up payments do not in any sense compensate for the full loss of pension entitlement, they must be taxed. That decision is wrong, and addressing it is the purpose of raising this issue today.

The tax treatment is, of course, intimately bound up with issues about the PPF, which is a wider problem that the Government also need to address. I will try to tackle both the immediate and the broader issue, in so far as I can in the time available this morning.

The Government response to the concerns that have been raised by a number of members of the BMI pension fund scheme has so far been, in general terms, one of sympathy. They are basically saying, “'Well, the tax rules are the tax rules and they must be applied, and that’s really all there is to it.” However, that is not in any sense a satisfactory response—not in the slightest. Ultimately, the tax rules are what Parliament—we as MPs, and our colleagues in the Lords—decide them to be, and the Government have frequently taken action to deal with other situations where the application of the tax law has seemed unfair or inequitable in its outcome.

For example, a couple of years ago the Government decided to impose VAT on building alterations to listed buildings. However, because that change would have hit churches and other places of worship particularly hard, the Government set up a special scheme to allow grants to be paid to those bodies to pay for the costs of extra VAT. When the Government want to find a way round the rules, they can do so.

On another pensions issue, a very relevant comparison can be made with the case of Equitable Life. In that case, although it appeared that the Government had no legal obligation to pay those people whose pensions had been hit by the Equitable Life fiasco, as a result of political pressure they of course set up a fund to pay out compensation—I think it is £1.5 billion in total—to Equitable Life policyholders, which Members across the House had called for. Of course, the payments to the Equitable Life pension holders will be tax-free, because the Government passed a law to say that that would be the case. Yet the Government are trying to distinguish between the logic behind the Equitable Life scheme decision, and that behind the BMI pension fund scheme decision.

In that context, I will quote a previous Minister, who told the House, or perhaps wrote in a letter—I am not entirely certain—that:

“Following an Independent Commission report, The Equitable Life Act”—

That is, the Equitable Life Pensions Act 2010—

“came into effect in December 2010 authorising the Government to make payments to the Equitable Life Payments Scheme. The Act provides that payments under the ELPS are tax free.”

He said, or implied, that there was a contrast with the BMI case, by going on to say:

“The £84 million payment made by Lufthansa is a voluntary payment intended to compensate BMI Pension Scheme members for the reduction in pension benefits they may face due to the BMI Pension Scheme entering the Pension Protection Fund. Where the payment is made into a registered pension scheme, it is subject to the registered pensions scheme tax legislation. As such, the payments will benefit from receiving tax relief when it is made, but that relief is subject to the normal limits within the annual and lifetime allowances. The ELPS payment and the payment made by Lufthansa are therefore fundamentally different and cannot be compared in this way.”

As I have pointed out, the two cases are “fundamentally different” because the Government passed legislation to make them fundamentally different, and not because they are, in essence, fundamentally different. These are both cases in which people lost out because of circumstances beyond their control, and we have a moral duty as Parliament and as Government to respect that in the case of the BMI pension fund holders as well as in the case of the Equitable Life pension fund holders, and indeed in other cases.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I congratulate the hon. Gentleman on securing this important debate and I also apologise to him, because I will not be able to stay for the duration. He is making a really important point about the Lufthansa deal. I share his concern about the individuals affected, but does he agree that there are implications beyond this individual deal for staff of other companies that might seek to do copycat deals?

[Mark Lazarowicz]

Absolutely. I have made that point already and I will touch on it briefly again. Certainly, this raises much wider issues.

Just as the payments quite rightly made to the Equitable Life pension scheme members were compensation—they were not a direct benefit arising from the scheme—similarly, the BMI pension fund members have lost out through no fault of their own, and I believe they require better treatment. The Equitable Life experience shows that where the Government decide that they want, for political reasons, to compensate those who have suffered adversely through circumstances beyond their control, they can find a way to do so. I believe that they should do so for the BMI pension scheme members.