HC Deb 06 May 1953 vol 515 cc518-22
Mr. Macmillan

I beg to move, in page 21, line 27, after "conditions," to insert: as to proof of health and other matters. This Amendment is really linked with the remaining Amendments to this Clause. With your permission, Sir Charles, we might take them together, because they must be read together and they operate together.

They are rather technical in character and they are designed to secure the position of the spouse or other dependant of a contributory employee who, in advance of retirement, decides to surrender part of his prospective pension in order to secure a pension for his dependant upon his own death. Those who were on the Standing Committee will know that this is a provision which is valuable and helpful to contributors and is much welcomed by them. However, since we went into 'it, it has raised a certain point of a purely technical character as to how a valuation is to be made of their rights.

Section 9 of both the English and Scottish Acts of 1937 enable a contributory employee on retirement to surrender up to one-third of the pension to provide a pension for the spouse after the death of the contributory employee. Clause 15 extends the scope of this provision in two ways. One as to the beneficiary, because it allows for dependants as well as the spouse to be made the subject of this arrangement; the other by allowing the surrender to be made in advance of retirement, provided that the right to retire on pension has accrued.

This makes it necessary for a valuation to be made of the pension to be paid to the spouse or dependant, and it has to be actuarially equivalent to the value of the part of the pension surrendered which the contributory employee receives on retirement or, in the case of the person who dies in service, the pension he would have received if he had retired immediately before his death. In accordance with existing practice it is intended that the tables to be applied for this purpose should be based on the normal expectation of life at the date of retirement or, in the case of death, the notional expectation.

The Clause therefore places on the Government actuary the duty of preparing the necessary tables. He has advised that, owing to the requirement as to the actuarial equivalence in the Clause as drafted, he could not give effect to this intention in the case of an employee who surrenders part of his prospective pension in advance of retirement. The reason for this is that for the purposes of the tables the part of the pension to be surrendered is valued on this assumption: It is assumed that on the date on which it becomes payable or is deemed to become payable—on the date of retiring or immediately on death, whichever it may be—the employee is in a normal state of health. This may not correspond with the facts, particularly if the relevant date is immediately before his death. The beneficiary might therefore get a higher pension under the tables than the Clause as drafted permits and it is intended that the beneficiary should receive.

To overcome the difficulty and provide a legal foundation for the table, it is necessary to entitle the Government actuary to assume that the employee is in a good state of health at the time the pension is valued and this rather complicated transaction gives legal authority to the actuary to make a valuation based on the man—whatever may be the actual fact—having been in a normal state of health and, therefore, is beneficial 10 the contributor because it prevents any questions being raised of whether, should he had made the surrender just before his death, his expectation of life was normally shorter than would have been expected. That is assumed and no questions are asked, but he is given the benefit of the actuarial valuation based on the most beneficial valuation of his life.

Mr. Joseph T. Price (Westhoughton)

I am sure that the whole House would like to congratulate the Minister on weaving his way so skilfully through the troubled waters that he has had to negotiate. If I get the point aright, the Government actuary has advised the Minister that instead of having an election against the fund by reason of impaired life a man who is not in full health at the time of pension has that fact ignored. I am not sure that all professional actuaries would agree, but if the Minister has been advised on those lines we should not make heavy weather of it tonight.

The question which seems more germane to this matter than the fact of the contributor's state of health when he makes his election to take a joint annuity is what rate of interest is the Government actuary to assume in valuing pensions on this basis according to this formula? From what I know of these technical matters, the rate of interest to be assumed in a valuation of this kind is of greater significance than the question of mortality or state of health. There has been a very marked change in the rate of interest. Can the Minister say whether it is to be 4 per cent., or 4½ per cent., because it makes a great difference in ascertaining the pension?

10.30 p.m.

Mr. H. Macmillan

The answer is that account will be taken of the appropriate rate of interest from time to time. It merely relieves the actuary of having to go through what would be a painful and sometimes an oppressive duty of asking whether a man, who perhaps a few months before his death made this apportionment, was likely to die or whether he could be assumed to have the normal expectation of life for a man of his age. It would be very difficult and rather oppressive to put upon the actuary the duty of making that kind of individual inquiry.

The normal expectation of life is assumed, and the actuary makes the calculation in the ordinary way; he does not go in for what I might call a health test of the condition of a man before he made this arrangement for his dependants. It would be rather distasteful if that kind of inquiry were made in the circumstances of the time, when the man had died and we had to ascertain whether, at the time he made the arrangement, it was likely that he would die soon or whether he could be assumed to have the normal expectation of life.

Mr. Douglas Houghton (Sowerby)

Can the Minister say how there can possibly be a notional expectation of life at the time of death, or is that a silly question?

Mr. Macmillan

The hon. Member has served many years in the Inland Revenue, and I should have thought that that was not beyond him.

Amendment agreed to.

Further Amendments made: In page 21, line 38, leave out from "which," to in," in line 40, and insert: he ceases to hold his employment.

In line 42, after "benefit," insert: to which he would otherwise be entitled.

In page 22, line 1, leave out "or would have been."

In line 2, leave out "relevant."

In line 3, at the end, insert: and, for the purposes of a surrender by virtue of paragraph (b) of this subsection, it shall be assumed—

  1. (i) that there will be no change in the employee's state of health between the date on which he is allowed to make the surrender and the date on which he ceases to hold his employment; and
  2. (ii) if he ceases to hold his employment by reason of his death, that he had retired from his employment immediately before he died." —[Mr. H. Macmillan.]

Clause, as amended, ordered to stand part of the Bill.