Allied Steel and Wire (Pensions)

Jonathan Evans Excerpts

Tuesday 10th February 2015 Westminster Hall

[Gordon Henderson]

Yes, I certainly do, and I will come to the problems relating to that.

Like the FAS, the PPF gives 90% of earned pension, and it gives protection against inflation for employment post-1997. That indexation ensures that protection under the PPF is much better than protection under the FAS, because it improves over time. Under the FAS there is very little post-1997 inflation protection, and the pre-1997 pensionable service has no inflation protection at all, even though most of the ASW workers in my constituency had paid for indexation with enhanced contributions to the Sheerness Steel Group pension fund. For most ASW FAS members, the pre-1997 element of their pension represents the majority, if not all, of their pensionable service.

I want to give an example of what that means in practice to a typical employee at the steelworks—and, I am sure, to constituents of the hon. Member for Upper Bann (David Simpson)who have been affected. Someone who joined the pension scheme in 1980, with an anticipated retirement date in 2010 at the age of 62—the Sheerness steelworkers’ retirement age—and a salary of £30,000 a year in 2002, would have expected when he retired in 2010, after 30 years of service, to receive a pension equal to 30 sixtieths of at least a £30,000 salary, which would equate to £15,000 a year. However, by the time the steelworks went into liquidation in 2002, that worker had only 22 years of service, so his pension entitlement would have been 22 sixtieths of £30,000, or about £11,000 per annum. However, the FAS paid only 90% of that amount, which is £9,900 per annum.

The FAS then applied limited inflation protection, at 2.5%, but only for service post-1997 until the steelworks went into liquidation—about 4.5 years in total. The employee would therefore have inflation protection on just 4.5 twenty-seconds of £9,900, which equates to £2,025—that sounds a bit complicated, and I have the figures before me which makes it easier for me, but trust me, they are right. However, there would be no inflation protection on the remaining 17.5 twenty-seconds, which would have been £7,875. The maximum indexation that the employee would get was therefore 2.5% of £2,025, which is £50 per year. That is equivalent to a total indexation of about 0.5% maximum over the full amount of the pension.

[Jonathan Evans (Cardiff North) (Con)]

My hon. Friend may recall that a couple of years ago I obtained an Adjournment debate on this very issue, which affected constituents of mine who were ASW workers. What they tell me endlessly is that when the very arrangements he describes were outlined before the last election, all politicians made it clear to them that it was an injustice, which would be corrected. The fact that it has still not been corrected undermines the Government’s record on pensions generally, in my constituents’ view.

[Gordon Henderson]

I fully accept that, and I want to talk about the reasons why the Government have been unable to pursue the matter.

In the example I have been outlining, that typical worker, having expected a pension of £15,000 but with an actual FAS pension of £9,900 and a maximum of 0.5% indexation compared with an average inflation rate over the relevant years of more than 2%, lost an awful lot of money.

An ASW pensioner told me recently that he received his first FAS payment in 2006 and reckons that today it is worth only about 80% of its initial value—which was, of course, only 90% of his actual entitlement. That person calculates that he is actually getting about 75% of his entitlement, a figure that reduces year by year. That is why the DWP-quoted figure of 90% is misleading. The brutal truth for ASW pensioners is that the longer their service, the more negative the effect on their income the lack of proper indexation is. The PPF uses very similar rules, but as the number of years since 1997 is increasing, the multiplier becomes more favourable. There have been 18 years since 1997, so someone with 20 years’ service going into the PPF now will have inflation protection on 18 twentieths, or 90%, of his pension; and only two twentieths, or 10%, will be without protection. Those proportions will become more favourable as time progresses. Under the FAS, indexation is very limited, whereas under the PPF, as each year goes by, the amount of post-1997 service increases and, through Pensions Act disclosure requirements, PPF members are kept fully informed about funding levels and about what would happen if their employer became insolvent.

There is another problem under the FAS, in connection with the period between members reaching retirement and the May 2004 date, when the FAS was introduced. Anyone affected by that gets nothing from the FAS for that period; yet that is not the case under the PPF scheme. Ministers in the previous Government insisted consistently that the country could not afford to provide pre-1997 indexation to ASW pensioners under the financial assistance scheme. However, the very same Government bailed out Northern Rock and fully protected the pensions of the employees and well as investors’ funds. The Government also offered a 100% bail-out to UK investors in Icelandic banks, despite the fact that those investors were fully aware of the risk in such investments. Subsequently, the Government bailed out other British banks to prevent their bankruptcy and fully protected the final salary schemes of the employees. That smacks of double standards.

Furthermore, on the question of the affordability of pre-1997 indexation, £2 billion is being transferred to the Treasury from residual pension scheme assets from failed companies. The total FAS costs are estimated at the same figure of £2 billion, albeit spread over a number of years, and there should be more than enough to fund indexation for ASW pensioners pre-1997. It is likely also that the final costs of the scheme will be well below the original estimate, because more than 10,000 people who were eligible for FAS payments have died since its introduction.

I want to raise one other matter: overpayment of FAS payments. Some ASW FAS members have been overpaid because of errors by either the scheme’s trustees or FAS staff. Almost none of those members knows how the calculations that led to the overpayments were done, and they are unable to check whether the FAS payments were right or not. When the FAS discovers an overpayment, it imposes an inequitable repayment plan; it is harsh and unfair. In some cases the repayment plan results in the total loss of pension payments, as happened to one of my constituents, who raised the matter with me at a recent advice surgery. He alleges that the FAS never even contacted him to negotiate a suitable repayment plan. Instead it simply stopped his pension entirely and without warning. That simply cannot be right.

Another problem with those repayment plans, which, let us remember, are to recover overpayments resulting from mistakes by the FAS, not the pensioners involved, is that because the way they are calculated—a bit like an annuity—members can actually repay significantly more than the overpayment itself. That, too, cannot be right.

I must admit that, unlike my right hon. Friend the Member for Thornbury and Yate, I am no expert on pensions. When writing this speech, I relied heavily on the help of my friend and constituent, Andrew Parr, who is himself an ASW pensioner who has been badly let down by the financial assistance scheme. However, although I am no pensions expert, I recognise injustice when I see it. I genuinely believe that ASW pensioners in my constituency have been hard done by, and I urge the Government to take the following action to improve the situation for ASW pensioners: first, reconsider the decision not to provide pre-1997 indexation to ensure that ASW pensioners receive the inflation-proof pensions for which they paid; secondly, increase the FAS payments cap to help long-service pensioners; and thirdly, look again at the way that overpayments are calculated and recovered.

ASW pensioners have never given up their fight for justice. Working with the Pensioners Action Group, they have campaigned tirelessly, lobbying MPs, demonstrating at party conferences and staging protest marches. In March 2006, I was honoured to join ASW workers from my constituency on a march in Cardiff, and in November of the same year, I marched down Whitehall with the very same workers. My speech today is a reminder to the Government that the protests will continue until ASW pensioners get the justice they deserve.