Leighton Andrews AM, Minister for Public Services
I wish to update Members on an issue of concern relating to the pensions payable to firefighters who retired between 2001 and 2006.
Like most retirees, firefighters can choose to take part of their pension as a lump sum instead. This process is known as commutation, and relies on actuaries calculating factors which convert annual pension payments into lump sums of an equivalent value over the typical lifetime of a pensioner.
The Government Actuary’s Department (GAD) is responsible for doing this as regards most public-sector pension schemes. Between 2001 and 2006, GAD did not revise the commutation factors for the fire and police pension schemes, although there were sound reasons why they should have done, such as changes in average life expectancy.
Several pensioners complained about this to the Pensions Ombudsman. In a test case relating to a Scottish firefighter (Mr Milne), the Ombudsman ruled that GAD should have updated the commutation factors, and that the failure to do so means lump sums paid to all firefighters across the UK who retired between these dates were miscalculated. In most cases, retirees will have received smaller lump sums than they were entitled to, and the Ombudsman ruled that they should receive compensation in the form of the balance of the lump sum, plus interest.
The UK Government has accepted the Ombudsman’s ruling, and the Treasury has agreed to meet the costs of compensation across the UK. Work is now under way to identify all those affected, to calculate the compensation they are due, and to pay them. Until that work is complete, we cannot know the extent of the problem; but it is likely to affect hundreds of retired firefighters in Wales, with total compensation running into millions of pounds.
For the most part, that work falls to employers and those who administer pension schemes on their behalf. In Wales, Rhondda Cynon Taf County Borough Council administers pension schemes for the South Wales Fire and Rescue Authority; and Carmarthenshire County Council administers pension schemes for the other two. They alone have the records and contact details which are needed to complete this work. It is not a matter for the Welsh Government, and neither I nor my officials can deal with individual cases. I should also stress that the original error occurred before responsibility for fire and firefighters’ pensions was devolved to Wales.
However, we are responsible for overseeing the process of paying compensation. Those affected by this error understandably wish to immediately receive the lump sums that were due to them up to fourteen years ago. They need to be compensated as soon as possible, but it is also important to ensure that no further mistakes are made in putting this situation right. We have therefore provided the pension scheme administrators with detailed guidance, and with a calculator which GAD has prepared, and which will work out the compensation due in most cases swiftly and accurately. Some other cases will be unavoidably complex, and some individuals may now be hard to contact. Nonetheless, we now expect the administrators to complete this work quickly, and in any event by the end of this calendar year at the latest.