The Work and Pensions Committee (WPC) has encouraged the Pensions Minister, Guy Opperman, to reconsider his position on the compensation cap and payment of interest on arrears for members of the Financial Assistance Scheme (FAS).

WPC chair, Stephen Timms, wrote to the minister to query the different treatment of members of the FAS and Pension Protection Fund (PPF), suggesting there are grounds for reconsidering the position on both the compensation cap and payment of interest

Responding to similar WPC queries in January and April, Opperman has continued to stand behind the Department for Work and Pensions' (DWP) position that there is “no legal basis to pay interest” on FAS arrears, explaining that "discretionary payments outside of the legal framework are only considered where there is maladministration by the department. This is not the case here.”

However, Timms' latest letter urged the Pensions Minister to reconsider his position on these issues and to meet with the Pensions Action Group, suggesting that despite the DWP's position, Treasury guidance on Managing Public Money appears to provide discretion for payment of interest.

In particular, Timms cited paragraph 4.7.3, which says that “if there has been a lapse of time, for example caused by legal action to establish the correct position, it may be appropriate to consider paying interest.”

Timms also clarified that whilst the DWP says the cap on FAS payments applies to all members irrespective of their age, and is therefore not affected by the Court of Appeal judgement that influenced the PPF, some FAS members "did in fact experience different treatment on ground of age".

“This can be seen, for example, from the debate in parliament in February 2008, when the then Pensions Minister, Mike O’Brien, explained that, previously, schemes were able to buy annuities for pensioner members, protecting their pension benefits in full, while active and deferred members entered the FAS and were subject to the cap," he stated.

In addition to this, Timms argued that the compensation cap,for which the High Court in Hughes v PPF found no reasonable grounds, "has even less justification in the case of the FAS".

"The main argument put forward to justify the compensation cap – that it was needed to prevent moral hazard – is even more tenuous in the case of FAS schemes," he explained.

“Most FAS schemes started to wind up before 2003, when there was no suggestion that a compensation scheme would be set up. In 2003/04, only a very small number of people would have been both likely to be affected and in a position to influence the outcomes for the scheme. Almost 20 years on, this can apply to no-one.”

The WPC chair also pointed out that whilst the DWP has stated that “while the assets of failed schemes were transferred to the Treasury, these assets are not for the purposes of payments under the FAS”, the transfer of FAS scheme assets to the government was “clearly linked to the increase in compensation levels implemented in 2008”.

He explained: “In December 2007, the Young Review said that 'if guaranteed assistance levels are appropriate, then we recommend that government takes in the assets and pays the amounts to all FAS beneficiaries as they fall due.'"

In light of this reasoning, Timms called on Opperman to reconsider his position on both the compensation cap and payment of interest, and to meet with the Pensions Action Group, which has been campaigning on this issue for some time.

Commenting in response to the concerns raised, a DWP spokesperson stated: “While both integral to the pension protection system, the PPF and the FAS are separate schemes.

“PPF and FAS scheme members are being paid any arrears due under the Hampshire Judgment, fully backdated to the point at which the affected member started to receive compensation.

“We will response formally to the letter in due course.”

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