Opperman rebuffs Timms’ FAS criticism

Timms last wrote to Opperman on the FAS in May, asking him to reconsider the application of the compensation cap to FAS members and the question of interest on arrears. 

Issues have arisen since the FAS was placed under the purview of the Pension Protection Fund, and after the 2018 Hampshire ruling by the European Court of Justice, which determined that members must receive 50 per cent of the value of their pension entitlement.

The ruling meant that the PPF had to repay a small number of members who had previously had a compensation limit applied to them, and subsequent rulings found that the ECJ judgment applied to the FAS as well.

Although the High Court and Court of Appeal have held that the PPF cap was unlawful on the grounds of age discrimination, the cap still applies on the FAS.

The FAS cap increased from £36,717 a year to £36,901 on April 1 2021, based on the inflation rate at the time. It only applied to members retiring on or after that date — members already receiving payments were not affected.

In his letter in May, Timms suggested that the justification for the FAS cap was “tenuous”, and that it too could potentially give rise to age discrimination.

This is because, prior to the creation of the PPF, active and deferred pension scheme members entered into the FAS were subject to a cap on compensation, while retired members received an annuity for the full amount of their pension.

Opperman has denied that the FAS cap constitutes age discrimination, however.

Timms also questioned the minister’s assertion that, unlike in the PPF, there is no legal basis for paying interest to FAS members.

Opperman argued that the rules enabling payment of interest payments to PPF members did not apply to FAS members, a suggestion with which Timms disagreed, citing Treasury guidance on managing public money.

Timms further questioned how the government was using the assets of failed pension schemes, and asked Opperman to meet again with members of the Pensions Action Group, a member-led campaign calling for changes to the FAS. 

In a letter dated June 29, prior to his resignation on July 7, Opperman explained that the FAS cap was a measure brought in to control the costs of the scheme, in order to “strike a balance between the interests of members of underfunded schemes and those of the taxpayers who support the scheme”.

He cited a number of expansions to the scheme, made broadly in line with the findings of the Young Review, “which focused on obtaining greater value for FAS members from the assets remaining in failed schemes”.

“The government at the time accepted the key recommendation of the review that, rather than the FAS ‘topping-up’ annuities purchased by the scheme so that all members received at least the level of FAS standard assistance, the assets of failed schemes would be transferred to the Treasury and the FAS would take responsibility for payments to scheme members,” Opperman explained. 

“Members would then receive the greater of standard assistance or the amount generated by the member’s asset share in the underfunded scheme.”

Though the remaining assets of failed schemes “may indirectly contribute to the costs of the FAS”, he said it was “worth noting that the Young Review identified only £1.7bn as available from residual scheme assets, whereas provision of £5bn has been made for the FAS”.

Opperman rejected Timms’ suggestion that the structure of the FAS “gives rise to direct or indirect age discrimination”, but did promise to consult officials at the Department for Work and Pensions on the question of interest payments, pertaining to the “managing public money” guidance Timms mentioned in his letter.

He stressed, however, that “this should not be taken as an indication that there is likely to be any change in the original decision that no interest payments are due”. 

The minister also declined to meet again with the Pensions Action Group on the grounds that he “[did] not believe that a further meeting [...] would be productive”.

“The government’s position on the matters raised in your letter has not changed and is not likely to do so,” Opperman said.