Pensioners 1, Government 0

Four members of collapsed pension schemes defeated the government in the High Court. What does this victory mean?

Following defeat in the High Court yesterday, the government may have to reconsider its treatment of members of company pension schemes which collapsed or were wound up between 1997 and 2005.

Four people who lost some or all of their supposedly secure final-salary pension schemes when their employers went bust scored a crucial victory in their battle for government compensation yesterday. The four argued that the government was wrong to reject outright the report of Ann Abraham, the Parliamentary Ombudsman, and the High Court agreed.

In her report published in March 2006, the Ombudsman had ruled that the government was guilty of maladministration, because it gave the impression that legislation made company pension schemes completely safe, when this was far from the truth.

Indeed, an estimated 85,000 workers have lost part or all of their company pensions when their employers went bust or decided to close schemes with not enough assets to pay benefits to all members. Sadly, the vast majority of these victims have yet to receive a penny from the limited Financial Assistance Scheme which the government created in the aftermath of this scandal.

However, the bad news is that this decision doesn't force the government to hand over compensation to these victims. Naturally, the government has already started spinning like mad, arguing that certain solutions may not be affordable, and coming up with exaggerated figures as to the cost of any rescue package. What's more, the government may yet appeal against the High Court's decision, so the battle is far from over yet.

I think it's scandalous that the government is treating broke (and misinformed) pensioners in such a shabby fashion. Many of these people have saved into their firms' final-salary pension schemes for their entire working lives, only to have their pensions snatched away from them when their employers went under. In total, members of around four hundred schemes have had the rug pulled from under them, which makes this a nationwide problem.

I've written before about this topic in The Great British Pensions Scandal, where I highlighted the case of Don Banham, who had worked for storage systems manufacturer Dexion for 39 years when his employer and its pension scheme imploded. Sadly, Don was just six months away from retirement when this happened. None of us should sit back and argue that we can ignore cases like Don's.

For the sake of argument, let's say that the cost of compensating these pensioners is around £500 million a year for twenty years, or a total of £10 billion (or £5 billion less than the government's estimated total of £15 billion). Given that HM Treasury will soon be collecting a record £500 billion a year from British taxpayers, this compensation amounts to a mere thousandth (0.1%) of the annual tax take.

In my view, government ministers and civil servants should be thoroughly ashamed of themselves for quibbling over such a sum. One legacy that the Chancellor has left for future generations is a weakened and confused pensions system. Let's hope that Gordon Brown sees sense and does the decent thing for cheated pensioners when he becomes Prime Minister.

Ooh, now that was a bit political for The Motley Fool!

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