UK - The government has rejected suggestions that it should increase funding to the Financial Assistance Scheme (FAS) and allow it to cover all lost benefits when a scheme has wound up, by arguing that the FAS was never intended to replicate each pension fund's structure of benefits.
In its response to a recent consultation on the draft Financial Assistance Scheme (miscellaneous provisions) regulations 2009, the government said "many individuals" expressed their disagreement with the extension to the FAS announced in December 2007, rather than discussing how the changes should be implemented. (See earlier IPE article: DWP finances collapsed pensions with scheme top-up)
The government warned that the FAS "was never intended or presented as a replacement for all of the benefits lost when schemes went into wind-up underfunded", and rejected claims that the organisation should receive further funding to cover all losses following the recent taxpayer support to the banking system.
It argued "the government does not believe that an appropriate comparison can be drawn between the justifiable support given to certain banks and the structure of the FAS", as taking action in relation to the banks "was essential" and the cost of doing nothing would have been far greater.
The response paper is also claimed to express a "misunderstanding" of the government's commitment in relation to guaranteeing that members receive 90% of their benefits, as it stressed the 90% figure only relates to the amount of the expected pension at the date the scheme began to wind up, with the figure then revalued in line with price inflation with a cap of 5% a year.
The document, published following a six-week consultation between February and March 2009, also confirmed it would not to allow early access to pension benefits with an actuarial deduction on the basis that this would "bring costs forward", while the normal retirement age will remain as "the age specified in the scheme rules at the point ceased to accrue benefits".
The indexation cap on assistance would also remain at 2.5%, despite objections, as the FAS "was never designed to replace in full the structure of the lost scheme pensions".
Plans for the Pension Protection Fund (PPF) to take over as scheme manager of the FAS were met with general agreement, although concerns were raised that the funding of the two bodies should remain "transparently separate" as the FAS is funded by the government and the PPF by the pension industry through scheme levies.
As a result the government stated it "can give an absolute commitment that funding for FAS will remain separate to that of the PPF and the administration costs and assistance payments will continue to be met by government".
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