Stephen Timms , chair of the Work and Pensions Committee, has written to pensions minister Guy Opperman asking for clarity over the compensation cap placed on the Financial Assistance Scheme.

Last year the Court of Appeal ruled that the cap on compensation paid by the Pension
Protection Fund (PPF) was unlawful. The Court of Appeal also supported the PPF’s approach to increasing payments to its members and to members of the Financial Assistance Scheme (FAS), which is administered by the PPF, following the 2018 European Court of Justice judgement in the Hampshire case.

But it’s not turning out to be that simple.

The approach to paying arrears now due is different for members of the PPF and the FAS, which is taxpayer funded and where DWP has more responsibility for decision making. PPF members will receive uncapped arrears with interest paid and no time limit. FAS members will similarly receive arrears with no time limit, but no interest will be paid and a cap, not dissimilar to the one ruled unlawful for PPF members, remains in place

Until recently, compensation caps applied both to the Pension Protection Fund and the FAS, itself administered by the PPF. In the former case, the cap was set at £41,461 at age 65, meaning that high earners could have effectively ended up with a pension worth less than 90 per cent of their benefits.

In 2018, the European Court of Justice, in its Hampshire ruling, ruled that members must receive 50 per cent of the value of their entitlement, and in 2020 the High Court found the PPF cap to be unlawful on grounds of age discrimination, a verdict backed that same year by the Court of Appeal.

The PPF was therefore obliged to dis-apply the cap with respect to itself, but it is still applied to the FAS. The PPF only administers FAS , it has no role in setting the rates of payment.

The FAS cap was increased from £36,717 a year to £36,901 on April 1 2021, a move the PPF said reflected the level of inflation over the period. It only applied to members retiring on or after that date — members already receiving payments would not be affected. 

The PPF website explains that the reason the FAS remains subject to a cap is that the PPF operates “under different regulations to the FAS”. 

“The PPF’s regulations require the compensation cap to be linked to increases in UK average earnings, whereas the FAS regulations require its cap to be linked to increases in inflation,” 

Stephen Timms is probing the matter further, concluding his letter to Guy Opperman

I would be grateful if you could please set out in detail to the Committee the reasons for these differences and confirm whether or not the Department is still in the process of finalising its approach to this case?

A word of thanks to Terry Monk and the Pensions Action Group.

Terry Monk

The leading non-governmental expert on this subject is Terry Monk who has written to me repeatedly , explaining that an injustice is being done to those being paid pensions from FAS.

Terry has , since 2005,  been campaigning for fairer treatment for those whose pensions have been reduced as a result of the scheme sponsors (employers) not being able to meet their pension commitments. Terry runs the Pensions Action Group and you can read about his work and the back history here.

Terry’s work has helped Ros Altmann to campaign for action following the collapse of schemes such as Bradshaws (Terry’s scheme), ASW and Dexion in the early years of this century. The Pensions Action Group has spent much to support Grenville Hampshire in his case to improve benefits and Terry continues to campaign to ensure that FAS pensioners are not treated like second class citizens.

As with the State Pension, there are injustices created by legal rulings and deals done between different Government departments which are made worse by the passage of time. It has been five years since the Hampshire ruling, and fifteen years since the deal between the Treasury and the DWP which was designed to provide parity between those getting pensions from the PPF and those from FAS.

In Terry’s view, the Treasury have been  sitting on £1.8bn of assets assigned to them by the DWP in 2007 and it’s these assets that can be used to do justice for FAS members.

Thankfully we have in Stephen Timms, a man who knows pensions from the DWP and Treasury’s perspective. There can be no better advocate for Terry’s campaign than he.