Government caves in on Serps

Five million bereaved widows and widowers stand to benefit from a revised £12bn compensation scheme aimed at correcting a gigantic blunder in the State Earnings Related Pension Scheme (Serps)

There was good news for around 5 million people this week when the Government scrapped its proposed compensation scheme for victims of a multi-billion pound pensions blunder in favour of a more generous package. The new compensation scheme will cost £12bn over the next 50 years, £4bn more than originally planned.

There was good news for around 5 million people this week when the Government scrapped its proposed compensation scheme for victims of a multi-billion pound pensions blunder in favour of a more generous package. The new compensation scheme will cost £12bn over the next 50 years, £4bn more than originally planned.

What was the blunder?

The last Conservative Government failed to publicise changes to the State Earnings Related Pension Scheme (Serps) made in 1986 which halved the amount of Serps that widows or widowers could inherit on the death of their spouse.

What is Serps?

Serps was set up in 1978 to provide a state second pension for those without occupational or personal pension schemes. Around 20 million people pay into Serps. The Conservative Government set the changes to start in 2000, so people could make alternative provision for their spouses. However, the Government failed to publicise the change for a full 14 years, raising the prospect of millions of people claiming they had not been given time to make new arrangements.

How would the old compensation scheme have worked?

In March, Alistair Darling, the Social Security Secretary, announced a "protected rights" compensation scheme in two parts. People who could show they had been misled by the Government could claim a permanent exemption from the changes. For those still facing the cut in pension, the changes would not occur until October 2002. Critics said this would be an invitation to fraud, and that it would be impossible for most people affected to prove they had been misled. The sheer size of the problem also made the scheme a logistical nightmare, according to these critics. This week Mr Darling came up with a new, three-part scheme.

How will the new scheme work?

First, under the new scheme everyone over state pension age (65 for men, 60 for women) on 5 October 2002 will be exempt from the proposal to halve the Serps entitlement available to bereaved spouses. They will be able to pass on 100 per cent of their Serps entitlement, as now. This will benefit about 3 million people.

Second, the new rules will only apply to men and women who are now 10 years or more away from state pension age. For these people, the changes will be phased in.

Contributors to Serps reaching pensionable age between 2002 and 2004 will be able to pass on 90 per cent of their pension. Anyone claiming their pension between 2004 and 2006 can pass on 80 per cent, between 2006 and 2008, 70 per cent, and between 2010 and 2012, 60 per cent.

This second measure should help a further 2 million people. The 50 per cent cut will only apply to people retiring on 6 October 2010 or later.

Third, if you can produce documentary evidence that you were misled by the Government over Serps, you will still be able to claim 100 per cent of your inherited pension, however old you are. The DSS will write this week to all those who have contacted the Department already to explain the scheme.

The Government's view

Mr Darling commented on the new scheme, saying: "Millions of people were given wrong, misleading or incomplete information about changes to Serps introduced by the last Government in 1986.

"This problem should have been sorted out 14 years ago. What happened in the years after 1986 was a series of colossal blunders which were inexcusable and caused untold distress to millions of people. In March, I announced that we have already deferred the change in the inheritance rule by 2 years until October 2002. No one will be affected by the policy change before that date."

Age Concern

Gordon Lishman, director-general of Age Concern England, said: "Alistair Darling's announcement is a victory for Age Concern's two-year campaign. It will come as a huge relief to pensioners who have been living under the cloud of the widows' Serps changes. These people can now enjoy retirement knowing their spouse will be properly provided for if they die before them.

"Clearly the Secretary of State has listened to our issues about the existing redress scheme and has made considerable concessions. We hope the Government will learn from this experience and ensure that in future contributors to public pension schemes receive prompt and accurate information about changes. We look forward to talking to the Government about this so that people will never have to live with this kind of worry again.

"Age Concern was the first organisation to identify this issue in autumn 1998 and we are delighted our campaign has been successful."

For more information:

Department of Social Security public enquiries: 020 7712 2171, internet address: www.dss.gov.uk