Allied Steel and Wire (Pensions)

Debate between Gordon Henderson and Philip Hollobone

Tuesday 10th February 2015 Westminster Hall

[Mr Philip Hollobone (in the Chair)]

Kicking off this morning’s proceedings on the important topic of Allied Steel and Wire pensions is Mr Gordon Henderson.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

Thank you, Mr Hollobone—it is a real delight to see such a cheery face in the Chair for a debate so early in the morning.

I want to raise an issue that has been of concern to a group of my constituents for the past 13 years. That group comprises ex-ASW workers who lost their pensions when the company went into receivership in July 2002 and was declared insolvent the following year. Of course, it was not just ASW workers in Cardiff and Sheerness who faced the loss of their pensions in that era, when a large number of final salary pension schemes were wound up. Indeed, 40,000 people were affected at the time, and many more have been affected since. However, I would like to concentrate most of my remarks on members of the ASW pension plan or the ASW Sheerness Steel Group pension fund, which were defined-benefit payment schemes based on final salary and length of service.

Many of those workers lived in my constituency, and they were treated disgracefully. Their story really starts following the raid on the Mirror pension scheme by Robert Maxwell, which led to the introduction of legislation in 1997 with the intention of ensuring that all company pension schemes were correctly funded and protected. The benchmark used was the minimum funding requirement. Pension schemes had to be funded to a level that met the MFR. Therefore, a scheme funded to 100% of the MFR would be properly funded and safe—or so most people believed. However, nothing was further from the truth. In fact, should a scheme funded at 100% of the MFR have been wound up, it would have bought only about 60% of the expected benefits.

The problem was that there was nothing in the legislation to force the higher levels of funding needed to deliver the expected pensions. The MFR was heavily criticised by the parliamentary ombudsman in the report “Trusting in the pensions promise”. The reality was that companies were penalised through increased taxation if their pension schemes were funded at more than 10% above the MFR. Pension funds considered able to finance full pensions were deemed to be overfunded. That led many companies to introduce pensions holidays during the 1990s. That included ASW, whose pension scheme was very healthy, standing at about 130% of the MFR. To avoid taxation, the company introduced a pensions holiday for several years, during which it made no contributions to its pension fund. It eventually reduced the scheme to just over 100% of the MFR.

When the ASW pension plan and the Sheerness Steel Group pension fund were terminated in 2002 and started to be wound up, it was found that there were insufficient assets to meet the schemes’ liabilities. Under the legislation in place at the time, if there were insufficient assets when a scheme was wound up, the employer was required to make up the difference, but an insolvent company such as ASW might not be able to do that. In such cases, those assets that were available had to be distributed in accordance with a statutory priority order—a provision introduced in 1997 under the Pensions Act 1995. Normally, that ensured that existing pensioners got all their due pension, but active and deferred scheme members might get only a small proportion of their entitlement. The proportion of their promised pension to which ASW workers were entitled was about 40%.

As hon. Members can imagine, that was a huge shock to the ASW workers in my constituency, particularly because, before the Sheerness Steel Group pension fund was wound up, the Government had assured them and many other workers that their pensions were safe. One Government booklet on occupational pensions posed the following question:

“How do I know my money is safe?”

It obligingly gave the following answer:

“Occupational pension schemes in the private sector are set up under trust law. The trustees must run the scheme in the interests of the members and in line with…trust law…the trust deed (a legal document) and rules; and…specific laws about pensions.”

It went on to explain:

“Although your employer pays into the scheme and may be a trustee, the assets of the pension scheme belong to the scheme, not to your employer. As a scheme member, you are protected by a number of laws designed to make sure schemes are run properly and to make sure funds are used properly.”

Like workers in many other companies, ASW pensioners believed what they were told. If they had not been given those assurances, they might have transferred to a different scheme, although it is worth noting that independent financial advisers were told by the pension regulator at the time not to transfer people out of “safe” final salary schemes.

Helped by my predecessor in Sittingbourne and Sheppey, Derek Wyatt, and by my right hon. Friend the Member for Thornbury and Yate (Steve Webb), who is now the Pensions Minister, ASW made a complaint to the parliamentary ombudsman, whose subsequent report stated that the general public had every reason to believe that their occupational pensions were safe, because of statements repeatedly made by the Department for Work and Pensions and because of other Government actions.

The then Government rejected that report and took no action. The Pensions Action Group initiated a judicial review of that rejection, and the High Court found in its favour. The Government appealed the ruling, but the Appeal Court upheld the High Court judgment. In 2003, the Government sought to improve protection for members of pension schemes by proposing to introduce the Pension Protection Fund, a levy-based scheme that eventually came into being in April 2005. However, the PPF did not provide protection for workers who had lost pension rights before the legislation came into force.

Following considerable pressure from right hon. and hon. Members on both sides of the House and determined campaigning from the Pensions Action Group, the Government eventually introduced the financial assistance scheme in 2004. The FAS promised 90% of earned pension to workers who had lost their pensions before the introduction of the PPF. However, 90% of an earned pension was not the same as 90% of an expected pension based on any particular scheme, such as that in which ASW workers had invested. Compensation payments were much lower, so for the Government continually to quote a 90% figure was, at best, disingenuous. The FAS also provided little inflation protection. In addition, a £26,000 payments cap was introduced, badly affecting people with good salaries, such as steel workers, and particularly those with long service.

When the PPF was eventually introduced in 2005, it acted like an insurance scheme funded by pension funds and without the input of any Government money.