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Trustees' cooperation vital to FAS payment drive - O'brien

DEPARTMENT FOR WORK AND PENSIONS News Release (PENS-039) issued by The Government News Network on 20 September 2007

Minister for Pensions Reform Mike O'Brien has called on trustees to cooperate with measures to speed up Financial Assistance Scheme (FAS) payments to people aged 65 and over.

The payment process is to be simplified to get around delays caused by trustees not applying for FAS "initial payments" to top up interim pensions paid by the winding up schemes. There should be no good reason for trustees to not ensure that eligible members receive FAS benefits.

Payments at 80 per cent of expected core pension (subject to a cap) can be made to eligible members of winding up schemes in one of three ways:

* The FAS will pay 80 per cent of core expected pension in full to members of winding up schemes, even if no interim pension is being paid by the scheme itself. This removes the expectation of pension payment from schemes still in wind up.

* Where trustees wish to pay interim pensions in line with scheme funding positions, the FAS can top these up to 80 per cent as before.

* Trustees can pay the 80 per cent from the assets available in their scheme if they feel this is appropriate, taking into account their duty to act in the best interests of their scheme members - with payments to eligible members guaranteed in the longer term by the taxpayer. Trustees should contact the FAS unit for help to calculate payments.

Minister for Pensions Reform Mike O'Brien said:

"We are determined to get help to people who are entitled to money now and we need the cooperation of trustees of winding up schemes to achieve this.

"Some trustees have been very helpful. However, the response of a number of trustees so far has been disappointing. Some 200 schemes in wind-up have not even applied for initial payments for members.

"The FAS has been working closely with trustees to obtain the applications and data needed. We know that some trustees may have reasonable grounds for not applying for initial payments, such as the scheme being close to wind-up or members not yet having reached 65. However, we believe there is scope for more schemes to request initial payments.

"The greater flexibility we are announcing today means that there should now be no good reason for trustees not to apply for FAS payments, or alternatively to pay benefits to eligible members at FAS levels themselves."

Requests for the FAS to pay 80 per cent of core expected pension in its entirety to members of winding up schemes should only be made by trustees where they are confident that final FAS payments would be expected once the scheme has completed winding up.

To receive FAS help, trustees of qualifying schemes need to apply for payments, tell the FAS about people who are approaching or over 65, and return information including details on how much pension members had accrued within their scheme.

Where schemes wish to make payments at 80 per cent levels themselves, the FAS unit will support trustees to calculate such payments.

Ongoing meetings with trustees are having a positive effect upon applications for initial payments. Since April, this year, the FAS unit has met with 14 trustees representing 393 of the 667 qualifying schemes.

Notes To Editors

1. The level of "initial payments" was increased to 80 per cent of core pension, as part of the Pensions Act 2007. Initial payments are made to members of pension schemes which are still winding up. The level of initial payments is now in line with payments to members of schemes which have completed the winding up process.

2. Regulations have been laid under the Pensions Act 2007 requiring trustees to stop buying annuities except where a binding commitment has been entered into, or the FAS scheme manager considers it appropriate for a scheme to continue buying annuities for its members. This will support the work of the Young Review which is looking at how better use can be made of the assets in the FAS-qualifying schemes. The regulations will come into force on 26th September, subject to the Parliamentary process.

3. The Government has committed to match any additional funds generated by the Young Review to increase FAS assistance further towards 90 per cent of core expected pension. Options for making better use of the assets in FAS schemes include bulk-buying of annuities or pooling the available assets in one fund.

4. It is not anticipated that allowing winding up schemes to pay 80 per cent of core pension themselves will significantly impact upon the level of assets available in FAS-qualifying schemes and the work of the Young Review because the number of eligible people aged 65 or over is an estimated 8,500, of which 2220 are already receiving FAS payments.

5. The Government announced in March that the FAS would be extended so that all 125,000 people who lost pensions when their schemes started winding up under funded would receive 80 per cent of their core expected pension guaranteed by the taxpayer, subject to a cap of £26,000 per annum. A total of £8bn in cash terms, or £1.9bn in Net Present Value, has been committed to the scheme. The cap currently stands at £12,000 but will be increased to £26,000 by the end of the year subject to the Parliamentary process.

Textphone: 020 3267 5145
Website: http://www.dwp.gov.uk

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