16 July 2007 - Hain welcomes interim findings of Assets Review
Secretary of State for Work and Pensions Peter Hain today welcomed the first findings of a review examining whether financial assistance for people who lost their pensions could be increased.
The Assets Review, led by Andrew Young of the Government Actuary’s Department, reported there are £1.7bn of assets in occupational pension schemes that qualify for help from the Financial Assistance Scheme (FAS).
The current practice of each scheme purchasing annuities for their members (which are then topped up by the Government) may not offer the best use of these assets, the review found. Alternative approaches which could increase the value include bulk purchase of annuities and pooling of assets in a single fund.
Peter Hain said:
“These findings are very encouraging. They show there are still significant amounts of money available in the collapsed pension schemes which, if managed carefully, could boost assistance for people who lost their pensions.
“We believe we will be able to move the 80 per cent guarantee from the taxpayer further towards 90 per cent.
“But before we bring forward further proposals we must be sure they can be delivered – to do otherwise would be unfair to those who lost their occupational pension saving.
“We now have a solid evidence base as to the available funding - and it is clear that unclaimed defined benefit pension fund assets and orphan pension assets are not serious options.
“The review team will now be examining what is the best way to make the assets in the collapsed pension schemes go further, before delivering its final conclusions later this year.”
Key points of the interim report include:
- There is approximately £1.7bn in assets available in schemes which have qualified for the FAS. Around £1.3bn is in schemes which have not yet committed any assets, and nearly £400m in schemes that have started to commit assets to pay current or future pensioners.
- Additional value could be generated by bringing assets from all these schemes together so that scheme members get the benefits of greater scale in assets management or annuity purchase. Different approaches to sharing the risk associated with assets management (eg investment risk) and liabilities (eg mortality risk) in these pension schemes might also improve the benefits that could be offered to scheme members.
- Many sources of non-tax funding identified are not suitable for providing further FAS assistance, including defined benefit occupational pensions and orphan pension assets.
- The remaining sources – including unclaimed personal pensions and life assurance policies – raise a number of complex legal and operational issues, and at present there is little evidence that they might provide much additional funding. The review team is carrying out further investigation to determine the viability of such options.
- The review team does not at present have sufficient information to make recommendations on whether the FAS should be extended to cover schemes that wound up under funded with a solvent employer. It is carrying out further work in this area.
Notes to editors
- Minister of State for Pensions Reform Mike O’Brien today announced publication of the report in a Written Statement to Parliament. A copy of the report is available at www.dwp.gov.uk/pensionsreform/fas-asset-review.asp
- The interim report concentrated on identifying the value of assets in FAS schemes, their ownership and stewardship; potential uses of these assets and whether there are options to increase the value; other non-tax sources of funding; and the key issues relating to solvent employers.
- The Government has announced an extension of the FAS so that all 125,000 people who lost their pensions will receive 80 per cent of their expected core pension. It has committed £8bn in cash terms towards the FAS, or £1.9bn in net present value.
- The review, which is advised by a panel of external experts, is still keen to hear from interested parties. It intends to undertake further data collection and consultation over the summer. Its final report will be published before the end of the year.
DWP Press Office
Media enquiries: Ben Lloyd: 0203 267 5136; Victoria Hatchett: 0203 267 5121
Out of Hours: 07659 108 883
Textphone: 020 3267 5145
Website: www.dwp.gov.uk