The Financial Assistance Scheme (FAS) was set up under s.286 PA 2004, originally to provide financial assistance to members of certain defined benefit pension schemes who lost all, or part of, their pensions before April 2005 because their schemes wound up underfunded between January 1997 and April 2005.

Coverage has been extended many times since by successive amendments to the principal regulations (SI 2005/2189); see previous article on this site. The primary legislation itself has been significantly amended, in particular by s.18 PA 2007 and s.124 PA 2008. (For detailed explanation of all the changes, see the relevant section of the Aries Pensions System). Since 10 July 2009 the FAS has been administered by the Board of the Pension Protection Fund (PPF).

During consideration of the last major set of amending regs (The FAS (Miscellaneous Amendments) Regulations 2010 (SI 2010/1149), which ran to 73 pages, Parliament itself realised it had gone too far and the mess ought to be sorted out ASAP. The twelve sets of Regs that govern FAS payments and the administration of the Scheme would have to be consolidated.

Aries comment

This rampant complification stems in part from pressure on behalf of individuals who stood to lose their pensions, but more fundamentally from a failure of Government to understand that it is not possible in the pensions world - or arguably, anywhere else in the real world which humans inhabit - to identify all the possible combinations of factors which might fall into a particular class of events. The unauthorised payments saga ought to have been an object lesson for those who still believe legislation can specify everything that might happen.

The latest illustration to emerge involved the George and Harding pension scheme. This was closed to new members and to future accrual as far back as 2002, but never wound up. It fell outside the scope of the FAS, and also the PPF because when the company responsible for the scheme, which had been paying PPF levies, became insolvent last year it was deemed not to meet the PPF's definition of a sponsoring employer because it had not actually employed any scheme members since it took it on in 2002. Forty employees stood to lose their pension.

Triggered partly by this event, as well as the need to disentangle the morass of legislation, this month the DWP has launched a consultation on a set of draft consolidating regs amounting to 93 pages of small print. As the 2005 Regs will be revoked, the DWP has also provided a Destination Table showing where to find the original provisions in the new regs.

The consultation document explains how the draft Regs propose to:

* change what schemes can qualify for the FAS
This will enable certain pension schemes that are ineligible for the PPF because they are not linked to an employer meeting the statutory definition of 'employer' to become qualifying schemes for the FAS where the connection between the scheme and the last statutory employer was severed before 10 June 2011. This is designed to cover the George and Harding scheme.

* change the way FAS payments are calculated
To allow for the FAS to reflect the implementation of a pension sharing order during scheme wind up. The changes allow for the calculation of assistance payments to pension credit members - that is a person who has been given rights in the scheme as a consequence of a divorce - and the appropriate reduction in the amount of assistance paid to the member.

* remove the age limit for payments to certain surviving dependants
Payments will be allowed to certain disabled dependants to continue after age 23 where they are under the age of 23 at the calculation date and are members of a scheme which is transferring assets to government.

* ensure survivors and surviving dependants receive the correct amount of assistance in all circumstances
Changes will prevent unintentional excess payments to members during wind up, for members receiving actuarially reduced assistance on the grounds of ill health. This is to avoid excess payments building up during wind up in the future, which would need to be recovered, leading to a reduction in assistance for those future members.

* create additional powers for the Scheme Manager
To make payments to compensate for administrative errors; delegate ill health and survivor financial dependency determinations; and decide on the actuarial factors used in the FAS calculations.

* enable payments to be made to estates where appropriate
To allow for arrears of pension to be paid to the estates of members who have died between the calculation date and the transfer of assets,where the member had an underlying entitlement to FAS and was funded above normal FAS levels.

* transfer the responsibility for reviewing investigating complaints against the Scheme Manager from the Parliamentary and Health Service Ombudsman to the Pension Protection Fund Ombudsman.

In addition, the condoc calls for view on two options for dealing with schemes with a money purchase underpin. When a scheme transfers all its assets to government under the current FAS arrangements, and the value of the money purchase underpin exceeds the defined benefit value, there is a risk that such members would not receive the appropriate value of their money purchase pot. The Government wishes to avoid the possibility of members suffering such an impact when assets are transferred to Government and assistance calculated. The two options are:

1. To require trustees to discharge the money purchase underpin pot, where it exceeds the defined benefit pension, prior to transferring the assets to the FAS, thus removing it from the asset share calculation; or
2. To convert the money purchase underpin pot, where it exceeds the defined benefit pension, into a notional pension and provide FAS assistance on that amount.

The consolidation of the main FAS Regulations means that a number of the existing amending regulations are no longer required, either entirely or in part. In addition, legislative cross references in other sets of regulations that deal with the FAS, in particular those dealing with internal review, appeals and the provision of information, need to be altered. The draft Consequential Provision Regulations published with this consultation make these consequential amendments.