July 17, 2007 / 7:12 AM / 12 years ago

Insurer assets won't be used to boost pensions lifeboat

LONDON (Reuters) - A report for the government on Monday ruled out topping up a pensions lifeboat fund with surplus cash from the country’s life insurers, and said there would also be barriers to using money from unclaimed pensions.

Andrew Young of the Government Actuary’s Department was charged with finding “non public sources of funding” for the government-backed Financial Assistance Scheme (FAS), which aims to help those whose pension schemes were wound up before the industry-sponsored Pension Protection Fund began in 2005.

Media reports had suggested the government could raid the surplus cash, or “orphan assets”, held by life insurers to increase the amount of compensation paid to thousands of workers who lost out when their company pensions schemes were wound up.

These “orphan assets” — also referred to as a firm’s inherited estate — amount to money built up in insurers’ with-profits funds over the years and above the amount needed to meet policyholder commitments.

But in an interim review on Monday, Young said non-tax sources of funding for the FAS — including orphan assets, windfall taxes or an extension of existing levies on solvent occupational pension schemes — were largely unsuitable.

He said the use of unclaimed personal pensions and life insurance could provide a source of funding but there would be “substantial legislative and administrative barriers to establishing such a scheme”.

The insurance industry, which has consistently argued that unclaimed pension assets are not an appropriate source of funding, welcomed Monday’s news.

“Their use would take funds away from one group of pensioners to pay another,” said Stephen Haddrill, Director General of the Association of British Insurers (ABI).

Monday’s review said an estimated 1.7 billion pounds of assets in schemes that have been wound up because their company sponsor collapsed could provide better value for pensioners.

It said bulk purchase of annuities for these schemes, risk sharing among schemes and managing the assets and liabilities in the schemes could make the money in them go further.

The review also said it had insufficient evidence whether it should recommend extending the FAS to members of schemes wound up by solvent firms.

The government is facing a battle in parliament on Tuesday on whether the FAS should be widened to include these people, who have lost pensions entitlements, and whether the government should raise the amount of compensation it offers to pensioners under the scheme.

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