European Commission Petition 1107/2003 Company Pensions in the UK Appeal to European Commission on behalf of Mr. Maurice Jones and over 100,000 UK citizens 25 th April 2006 Dr. Ros Altmann 1
Why EU being asked to help � UK Government ignored EU rules in an attempt to keep state pensions unsustainably low – sacrificed member security � 1 in every 100 members has lost some or all pension � UK ignoring maladministration verdict of own Ombudsman - official info inaccurate, incomplete, unclear, misleading � Encouraged joining company schemes, no risk warning, said properly protected, lulled into false sense of security � Not allowed other pension, members no chance to protect � Like forcing members to bet all retirement income on shares of one company – would never do it if they knew! 2 Dr. Ros Altmann
UK Government responsible for private pension losses � Parliamentary Ombudsman blames UK Government – says full compensation should be paid � Mr. Jones has lost all 38 years’ worth of contributions to his company final salary occupational pension � Lost some state pension too as unique UK ‘contracting out’ system transfers state pensions to private schemes � Government called them ‘Guaranteed Minimum Pensions’ � Before 1997, they were ‘guaranteed’, after 1997 only ‘protected’ by the Minimum Funding Requirement (MFR) � Government secretly decided MFR only designed to give 50/50 chance of workers’ full pensions 3 Dr. Ros Altmann
UK only pretended to comply with EU law - misled EU and members � Government said trust basis (separating assets from employer) + MFR + Regulator + priority order protects � In truth, no proper protection because system depended on totally inadequate MFR (weakened to help employers) � EU law requires solvency to be ensured with reasonable amount of certainty: < 50/50 chance not ‘reasonable’ � UK state pension so low that private pensions vital � Government not been honest about pensions – post Maxwell ‘protection’ actually made things worse! � Could not happen in other EU countries – IFI/Richardsons all N. Ireland workers lost pensions, all Eire workers safe 4 Dr. Ros Altmann
Why is UK Government at fault? � UK pension system run for ongoing funding not solvency � Legal rules on wind-up force scheme assets to buy annuities with legally determined ‘priority order’ � Not private schemes-Government endorsed and interfered � Other members have first call on Mr. Jones’ contributions � Allowed contribution holidays, solvent wind-up, removed dividend tax relief, members not diversify, weakened MFR � Assumed equity returns provide adequate pension funding � If financial companies encourage investing risky products, with no risk warning, must compensate for financial losses 5 Dr. Ros Altmann
Urgent appeal to EU � EU law provides for protection, UK has accepted this, but not implemented it properly – false assurances � Article 1, 1 st Protocol Human Rights, 1980 Insolvency Dir. � UK Government has refused to accept its responsibility � This injustice demands pension replacement not just assistance – lives in ruins, some already died � Europe cannot allow member state to flout law like this � What can be done? Article 226 force UK to remedy failure � EU help urgent – biggest social injustice of our time 6 Dr. Ros Altmann
END OF FORMAL PRESENTATION � The following slides are for more detailed information… 7 Dr. Ros Altmann
What happened? Mr. Maurice Jones is 66 and contributed to his company pension � for 38 years In 1997, his company failed and he found he had lost his job, his � whole company pension and part of his state pension Over 100,000 members have lost some or all the pensions which � the UK Government assured them were safe � Even some pensioners have had their pensions cut Their – and their families’ - lives have been ruined � Despite fighting for several years, they have still not received help � How can this be allowed to happen in 21 st Century EU? � 8 Dr. Ros Altmann
UK Governments failed to adopt EU laws � UK Government told everyone pensions were safe when they were not � Government policy set out to make people believe that occupational pensions were secure � Government told the public they were ‘safe’ ‘protected’ and ‘guaranteed’ � They were not � Members were denied an informed choice � The law took away their contributions to pay other people’s pensions 9 Dr. Ros Altmann
Why were UK pensions not properly protected? UK Government frightened of imposing high costs on employers � UK pension policy relied on private pensions to supplement very � low state pension If employers pulled out of social welfare pensions, state pension � costs would rise After Maxwell scandal, 1995 Pensions Act introduced Minimum � Funding Requirement (MFR) and Regulator to reassure public Members told accrued pension rights would be protected even if � employer failed – not told MFR only designed for 50/50 chance Members lulled into false sense of security � 10 Dr. Ros Altmann
UK told EU it had protected pensions 1995 Act purported to increase protection – actually reduced it! � Trustees and Regulator only fund to MFR – became maximum � MFR completely inadequate for wind-up security because not � reflect annuity buyout – long-term funding vs. solvency Priority order devastated pensions of long-serving workers � Even ‘ Guaranteed Minimum Pensions’ from state rights not � properly protected – members lose state and private pensions Members denied informed choice – no chance to protect their � retirement income 11 Dr. Ros Altmann
Protection was a myth � Protection radically reduced after 1997 � Priority order gives all assets to pensioners first � All others not protected, irrespective of age, health, years of contributions, amount transferred from other schemes � Anyone who took early retirement gets full pension, while 64-year olds left with nothing � Not even proper protection for solvent employer schemes � Over-rides trustee discretion and scheme rules 12 Dr. Ros Altmann
UK Government negligent � Successive Governments promoted/encouraged joining � Inland Revenue prevented any other pension � Official documents contrasted ‘safety’ of final salary scheme with ‘risky’ money purchase � Government in charge of MFR, misled members that pensions protected – never warned of wind-up risks � Government interfered with private schemes after 1997 – they were no longer just private arrangements � Even state rights not protected fully 13 Dr. Ros Altmann
Effect of our Pensions System Like forcing members to bet their whole retirement income on one � share in the stock market – no-one would do that if they knew! If that company fails, they can lose all their money (and their job) � Inland Revenue did not allow any other pension, but members � were completely unaware of the risks – no chance to protect Government policy encouraged people to join their company � scheme, but deliberately decided not to warn of any risks Government has ignored EU rules in an attempt to keep state � pensions unsustainably low – sacrificed member security 14 Dr. Ros Altmann
UK Parliamentary Ombudsman finds maladministration 16-month independent inquiry finds UK Government is responsible � for these injustices Officials and Ministers knew members thought they were � protected by laws, but they weren’t Decided to inform the public of the benefits of company pension � scheme membership, not mention risks If financial companies encourage purchase of risky products, with � no risk warning, must compensate for financial losses Parliamentary Ombudsman says Government should replace � pensions in full 15 Dr. Ros Altmann
UK Government failures since 1997 � Removed ACT relief in 1997, which undermined MFR calculation � Weakened MFR in 1998 and 2002 � Pensions had become 100% secure, intention 50%! � Government worried that MFR encouraged schemes to buy gilts – wanted to encourage equity investment � Reviews of security failed to address wind-up risks � Government ignored warnings about rising annuity costs on buyout, and risk of solvent employer wind-ups 16 Dr. Ros Altmann
An example: Stan aged 66 Stan is now age 66 and still working! His company pension is zero from 35 years contributions Scheme pension should be: £86pw If he had never put any money into Of which: GMP £48pw his company scheme he would now be Own pension £38pw getting £31pw week more every week and would have had use of the money Scheme paying him just £17pw! he contributed to company pension he has lost! Government deducting £48pw from his State pension because he was contracted out and should get this from company scheme. But he isn’t. 17 Dr. Ros Altmann
Government announced a Financial Assistance Scheme in 2004 � Agreed to pay just £400m in 20 years � Only about 30 people out of 100,000+ been paid! � Interim 60% of pension, losing all inflation-linking � Benefits capped at £12,000 � Maurice Jones will lose over two-thirds of his pension � Also lost £85,500 tax free lump sum and widow’s cover � Parliamentary Ombudsman agrees Financial Assistance Scheme wholly inadequate to remedy this injustice � Excludes over 80% of those affected 18 Dr. Ros Altmann
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