‘No blank cheque’ for pension victims

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‘No blank cheque’ for pension victims

Julian Knight, BBC News

November 4, 2003

Workers who lost their pensions when their employer went bust are seeing any chance of government compensation slip away.

Pensions minister Malcolm Wicks on Tuesday told a summit of workers, MPs and pensions experts that to pay compensation would put the government's finances at "grave risk."

The government has unveiled plans for a compulsory insurance plan to protect the pensions of future workers, but Mr Wicks said that the scheme would not bail out workers pensions retrospectively.

On Monday, unions representing 800 steelworkers at Allied Steel and Wire (ASW) in Cardiff and Sheerness, Kent, said they would sue the government for failing to protect their members' pensions.

'Stealing'
The summit, organised by the Pensions Action Group, heard from John Benson, 57, an ASW worker who lost his job, redundancy pay and pension when his firm shut up shop last year.

Mr Benson, his voice cracking with emotion, described what had happened to him as "stealing," and said his health and happiness had been destroyed.

He said he had been forced to take a job as baggage handler at Cardiff airport, against his doctor's advice, in order to make ends meet.
"I am an honest, loyal, hard working person who has done nothing wrong...I am begging the government to give us our pension," Mr Benson said.

Injustice
The ASW case has exposed shortcomings in current pension legislation.
In July 2002, ASW workers, already reeling from news of their employer's collapse, were shocked to discover that their pension scheme was in deficit.

Under the 1995 Pensions Act, retired workers enjoy first call on the available funds when an employee pension scheme is wound up.
In the case of ASW - and many other employee schemes around the UK - members of working age lost 80% of their pensions when their scheme closed.

Mr Wicks said he was "struck by the sense of injustice and anger" expressed by workers who had lost their pensions.

Footing the bill
Mr Wicks reiterated the government's commitment to introduce a US-style pension protection plan, as part of its forthcoming UK Pensions White Paper.

The insurance plan, funded by a levy on solvent pension schemes, will protect the pensions of workers whose employers go bust.
However, the plan will be introduced until April 2005, and it will not compensate workers who have already lost out.

"We can't hold out a blank cheque for fear that it would provide a perverse incentive to a company to close its scheme...some employers may leave their pensions commitments for the government to pick up the tab," Mr Wicks said.

Mr Wicks admitted this would be "cold comfort" to those who had lost their pensions.

However, the minister did offer a ray of hope.

Lifeline
Mr Wicks said he was considering a proposal drawn up by Dr Ros Altmann, governor of the London School of Economics, to help the victims of pension scheme wind-ups.

Under her proposal, the investment income of the pension scheme, along with cash from the sale of some investments, would be used to pay the annual pensions bill of members as they retire.

This means more members would be able to claim retirement income than if the scheme was wound up.

The government would still have to bail out the pension scheme in the end.
But Dr Altmann said it was unlikely that any public funds would be needed for at least five to 10 years, and possibly longer than that, depending on market movements.

Government sued
The government may yet end-up footing the bill for the ASW and other UK pension wind-ups.

The unions are taking the government to the European Court of Justice, claiming it failed to properly implement an EU Directive which would have offered protection to the workers.

The union's case is based on article eight of the European Insolvency Directive of 1980 which, it says, successive governments have failed to implement in the UK.

The directive requires European Union member states to protect pension benefits in situations of insolvency.

The case is due to be heard next February, but the unions are not expecting a decision until the autumn of 2004.