Secretary of State for Work and Pensions Peter Hain today announced another set of changes to the Financial Assistance Scheme (FAS); perhaps the last needed to make it acceptable. Established by SI 2005/1986 in July 2005 under s.286 of the Pensions Act 2004, the FAS regs have already been modified several times* under a sustained barrage of criticism (eg from the Pensions Action Group). The FAS is supposed to help people who lost savings when their employer-sponsored pension schemes collapsed and were ineligible for entry to the Pension Protection Fund (PPF).

* notably by SIs 2005/3256, 2006/3370 and 2007/2533, with a further batch of amendment regs currently before Parliament (see below).

The Government is to allocate an extra £3.9bn in cash terms, or £935m in Net Present Value. This is on top of the £8.6bn in cash terms, or £2bn in Net Present Value already committed.

The Government's decision is based on a report, also published today, which it commissioned on 28 March 2007 from Government Directing Actuary Andrew Young, to look at ways of generating additional value from the failed pension schemes. Amplifying interim findings published on 16 July 2007 (see earlier Aries report), the Young Review shows that, if the £1.7bn in residual assets in failed pension schemes were brought into Government, then it would be possible - with an additional top up by Government - to meet the demands made by trade unions and campaigners for the workers who lost their pensions.

The campaign has been for parity of treatment with beneficiaries of the PPF. The Government's persistent earlier reluctance to comply, ostensibly on the grounds of cost to the taxpayer, had become politically unsustainable in the wake of the Northern Rock saga when much more taxpayers' money was instantly forthcoming (Aries comment: an ironic twist to the old adage that if you owe the bank £1,000 it’s your problem, but if you owe £1m, it's the bank's problem).

Today's announcement states that the FAS will be extended so that all scheme members will be guaranteed 90% of their accrued pension at the date their scheme began wind-up, subject to a cap of £26,000, the value of which will be protected. This sounds like parity, but given the low level of trust engendered by the Government's intransigence during the prolonged campaign, only the full answer to the question "90% of what, precisely?" might satisfy campaigners.

Some key details are contained in the Government announcement:

• Assistance payments derived from pension accrued post-1997 will be increased each year in payment in line with inflation (capped at 5% pa).
• Assistance will be paid from each failed scheme’s normal retirement age, subject to a lower age limit of 60.
• People who are unable to work due to ill health will also be able to apply for early access to payments from age 60.
• Members will be able to draw a tax-free lump sum, up to their full lump sum entitlement, if their share of scheme funds allows.
• Inflation linking of pensions in payment will be capped at 2.5%.
• Help will be extended to 11,000 members of schemes wound up by qualifying solvent employers.

It is not quite clear where this leaves the Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2007, which were laid on 20 November 2007 with a view to them coming into force by the end of the year, subject to Parliamentary approval. These regs are based on an August 2007 consultation draft (see earlier Aries report). In its formal response to the consultation, the DWP states

"Our priority in these regulations is to introduce the changes to the FAS announced in the Budget 2007 that will increase assistance available to members now."

It seems likely these amendment regs will pass into law** and then the whole panoply will be overhauled in the New Year, perhaps by inserting new clauses into the Pensions Bill to amend s.286 PA 2004.

Update 21 December

Since this article was written the DWP has published The Pensions Act 2007 (Commencement No. 2)* Order 2007 (SI 2007/3512). The Order appoints 14 December 2007 as the date of coming into force of section 18(1) to (3) of the Pensions Act 2007. This section makes a few small changes to s.286 PA 2004 to enable increased payments by the Financial Assistance Scheme.

* the first Commencement Order (SI 2007/3063) set 1 November 2007 as the date for commencement of the sections related to the removal of the Secretary of State's role in approving actuarial guidance.

Update 28 December

** In fact the Regs were published on the OPSI website today, as SI 2007/3581; they came into force on 19 December, the day after they were officially made.