This piece first appeared in The Daily Telegraph on 2 December 2000
The text here may not be identical to the published text

The government has scrapped a controversial compensation scheme for people who were misled by officials over how much State Earnings Related Pension a widow would inherit on the death of her husband. A week ago a committee of MPs warned the Government that its original plans to sort out the mess could be a ‘cheat’s charter’ and an ‘administrative disaster’. Just six days later the Secretary of State for social security Alistair Darling has done a smart U-turn and changed the scheme which was confirmed to Parliament less than a month ago.

Instead he will set aside another £4 billion – on top of the £8.2 billion already committed – to exempt three million people from the change in the rules and limit the effect on two million others by phasing in the change over the next ten years. The costs will fall over the next 50 years.

The previous Government decided to save money by cutting in half the SERPS pension paid to widows. But it agreed that people needed time to adjust to the new rules and save more to provide themselves with a higher widow’s pension. So it allowed a lead-in time of no less than 14 years – the new rules would not start until April 2000.

But the plan failed when bungling bureaucrats forgot to tell anyone. For the next 12 years people who enquired of the Department of Social Security about their pension rights under SERPS were told by officials that a wife inherited all her husband’s SERPS when he died. The department even put it in leaflets until 1996.

Typical of those who were misled were Maeve and Marko Bijster from Lincolnshire.

"I was a teacher and when I retired in 1994 we rang the Department of Social Security and were told that I would be entitled to my husband’s full SERPS – more than £40 a week – if he died before me. In light of what we were told we decided to spend some of the lump-sum I got on retirement instead of investing all of it. We went for special holiday – three weeks in China. But if we had known we would have dealt with it differently – perhaps invested more in an annuity. And Marko would have changed his private pension when he started drawing it so that I would benefit more. But he didn’t because we were told I would get all his SERPS."

Hundreds of thousands of people were similarly misled by officials. In fact, under the changes introduced by the last government, if Marko died first Maeve would get just £21 a week instead of inheriting the whole of his £43 a week SERPS.

Labour discovered the problem when it came to power in 1997. The leaflets were changed – though not the advice given out at many Benefits Agency offices, which continued to be wrong in some cases until 1999. But Labour – which had opposed the change before the Election – baulked in Government at the cost of cancelling it. Instead it decided to postpone the change for two and a half years – so it would only apply to widows whose husbands died after October 5 2002. And after that it would exempt from the change anyone who said they had enquired and been misled. Three weeks ago Pensions Minister Jeff Rooker explained how it would work

"Claimants do not have to prove anything. They do not have to have documents; they only have to make a claim. They have to fill in a form and answer some questions. The onus of proof is on the Government, not on claimants."

Those plans were condemned ten days ago by the Select Committee on Public Administration as ‘an invitation to fraud’ and a potential ‘cheat’s charter’. It suggested people may simply avoid the new rules by claiming they enquired by phone or read a leaflet some time in the last 14 years and were misled.

And that led Alistair Darling to scrap the plans this week. Instead, he has decided that anyone over pension age on October 6 2002 will be exempt from the changes, So pensioner couples like Maeve and Marko can carry on with their lives safe in the knowledge that if Marko should die first, Maeve will get what she expected – all his SERPS.

Maeve is delighted.

"I think it’s marvellous for us. I am pleased the Government has behaved that way. It is the only thing to do. But there are some younger people who are going to suffer and I still think they have broken their contract with them."

Younger people will still face a cut in their SERPS. Anyone who reaches pension age on October 6 2010 or later will face the full 50% cut. In other words men born on October 6 1945 or later will pass on only half their SERPS to their widow. Men born before then but after October 6 1937 will pass on between 50% and 100% as set out in the table.

At the same time the controversial compensation scheme – tell us you were misled and we will believe you – is scrapped. Anyone who wants compensation now will have to provide evidence they were misled and that they have lost money as a result.

The Government hopes the new phasing in period will give everyone affected time to adjust their finances. But it now faces a new problem of making sure everyone knows. Twenty million people could be affected. Officials revealed recently that writing to them all is impossible – the addresses of eight million are unknown.

2 December 2000

e-mail Paul Lewis on paul@paullewis.co.uk