§ The Secretary of State for Social Services (Mr. Richard Crossman)
With permission, Mr. Speaker, I would like to make a statement.
I would start by apologising to you and to the House for the length of the statement I have to make, but I would say that the subject is not exactly a simple one to deal with.
Today, I am laying before Parliament a White Paper setting out the terms on which provision for partial contracting-out will be made in the Bill introducing the national superannuation scheme. Copies of the Paper—Command Paper No. 4195—are now available in the Vote Office.
§ Mr. Barnett
On a point of order, Mr. Speaker. Copies are not available, and we have been told that they will not be available until my right hon. Friend has finished speaking.
§ Mr. Crossman
I should have said that they will be available at the conclusion of my statement.
The Government attach great importance to the rôle of occupational schemes as partners with the State scheme; and before deciding on the contracting-out terms we consulted the T.U.C., the C.B.I., and a wide range of organisations with a special interest in occupational pension matters. These consultations gave us a comprehensive view of all the relevant issues, and I am greatly indebted to those who took part.
The purpose of having contracting-out facilities is to offer occupational schemes the opportunity of taking over responsibility for part of the State scheme pension and in this way to limit the extent to which occupational schemes may need to cut back both in contributions and benefits when the enlarged scheme is introduced.
1013 As to the scale of the contracting-out provision, our initial suggestion was that the annual rate of pension for which contracted-out schemes would take over responsibility might be set at around 0.8 per cent. of the earnings on which the employee contributed to the State scheme. It was represented to us, however, that occupational schemes would find it helpful to take over responsibility for a rather bigger share of pension; and we decided, with a wide measure of support from those we consulted, that, for men, the annual amount of pension for which the occupational scheme would take over responsibility as a condition for contracting-out should be 1 per cent. of the employee's reckonable earnings. For women, who have a lower pension age than men, the equivalent figure is 0.55 per cent.
We sought the advice of the Government Actuary on what deduction from State scheme contributions would correspond to these deductions from the State scheme pension. The Actuary advised that, on a strict actuarial calculation, a contribution abatement for the employee amounting to 1.25 per cent. of his reckonable earnings, with an equal deduction from the employer's contribution, would be fair for the average occupational scheme. Most of those we consulted wished to have a bigger contribution abatement, and although we could not go as far as they wished without being unfair to employees not contracted-out, we have decided to go beyond the strictly actuarial terms based on averages and to abate the contributions for contracted-out employees by 1.3 per cent. aside of their reckonable earnings. The Government Actuary has advised that this improvement in the terms should be sufficient to make them financially acceptable to a further number of schemes covering an appreciable number of employees.
I now turn to matters affecting public service pension schemes for which responsibility lies also with other of my right hon. Friends and, in particular, my noble Friend the Lord Privy Seal. The Government have a special responsibility for the public service schemes, and in view of the misunderstandings that have been voiced in recent months about our intentions towards these schemes I 1014 should like to make the following points clear.
First, we have no intention whatever, as has been alleged, of dismantling public service pension schemes. Members of the public services take a pride in their occupational schemes, and the Government understand and share these feelings. It should not be forgotten that occupational pension schemes were pioneered in Government service.
Secondly, whatever changes in present occupational schemes may be necessary after the introduction of the new State scheme, we do not intend that benefits earned by previous service in existing schemes should be subject to retrospective change.
Thirdly, anxieties about the retiring age have been expressed on behalf of the police and fire services and other groups which, because of the special nature of their duties, cannot continue in their present employments until the age at which the State retirement pension comes into payment. There is no intention of making any change in their retiring ages.
Fourthly, where the Government are the employers, any necessary changes in occupational pension arrangements will be fully discussed with staff representatives, as I have no doubt other employers in the public services, and I hope elsewhere, will be doing. Indeed, in many areas such consultations have already begun. We have no intention of acting precipitately, or without full consultation with staff interests.
It is not in question that changes are necessary in public service pension schemes. One of the disadvantages of pioneer schemes is that if they are not periodically reviewed they get out of date. In the Civil Service, for example, we are all aware that despite the many improvements that have been made in recent years, the arrangements for preserving or transferring the pensions of those who leave for other work are still not nearly as comprehensive as we should like to make them. In another field, the Government are already pledged to seek better ways than the series of Pension (Increase) Acts of reviewing the level of pensions already in payment—or, as we call it, uprating.
But it would make no sense at all to reshape occupational schemes to deal with these and other points without at the 1015 same time taking into account the important part to be played by the new State scheme. The pensioner is concerned with his total pension benefits and careful co-ordination is essential to ensure that he gets the right benefits from the two schemes, State and occupational, taken together, without avoidable gaps or duplication. This is the way to ensure that the member does not have to pay too much in contributions, and that he gets value for money. Clearly, any adjustments that may be needed to take account of the State retirement pension will apply only when the individual is old enough to receive it. Those who retire on pension before the State pension age will still receive an immediate pension as good as that which they would now receive; necessary adjustments to take account of the State retirement pension will apply only at the State pension age.
This is the background against which we shall be discussing changes with staff representatives. The discussions will cover not only any changes needed to take account of the new State scheme and whether the public service schemes should make use of the partial contracting out facility, but also any proposals that staff representatives themselves wish to put forward.
The Armed Forces are in a special position, but my right hon. Friend has asked me to say that the same general approach will be adopted in considering what changes may be necessary in their present arrangements.
I have been dealing with those schemes for which the Government have a special responsibility. In setting up occupational pensions schemes, the nationalised industries, also, have exercised a pioneering rôle. Their schemes may also need io be adjusted in the light of the proposals for the new earnings-related State pension scheme. I am, however, confident that, taking the State and occupational pension scheme arrangements as a whole, there will be better provision for future pensioners and their families throughout public sector industry generally, as there will be for public service pensioners.
§ Lord Balniel
The House will be indebted to the Secretary of State by reason of the fact that at very long last some of the crucial figures have been disclosed about his pensions scheme: a 1016 scheme which is totally incomprehensible to the mass of the public; a scheme which is vastly complicated even for professional experts; and a scheme which now, throughout the length and breadth of the country, is looked on with the utmost of suspicion—the more particularly because, after this long delay, it is being brought into operation after and not before the election.
I want to ask the right hon. Gentleman two specific questions and one rather general question. It is widely held by virtually all experts that if there is to be a pensions abatement of 1 per cent., a contribution abatement of 1.3 per cent., which the Secretary of State has now chosen, will involve a cut-back in occupational pensions schemes, and that it is absolute eyewash to pretend anything else. Words like "modification", "adaptation" and "adjustment" quite simply means a cut-back. Is it not clear that the fears of occupational pensioners about the future build-up of their benefits are amply justified?
I personally was not reassured by the statement of the Secretary of State, when referring to public service pensioners, that there will be no retrospective changes for them. It is the future growth of public service pensions which matters. [HON. MEMBERS: "Question."] This is a vastly complex subject. What estimate has been made of the loss of savings in, for instance, the first five years of the scheme as people are being shifted from pension schemes based on savings to pension schemes based on taxation in the shape of contributions which will give them less good benefits?
I come now to my second question. Why do the Government link the review of existing pensions and, overwhelmingly, for pensions of those who will be retiring in five, 10 or 15 years' time, to the cost-of-living index, but revalue the younger workers' earnings and link them to the index of national earnings? In effect, the Government have deliberately chosen to treat the pensions of the old of today and of those who will be retiring in 10 years' time less generously than they are to treat the young people. Quite simply, why have the Government chosen to do this?
My last and general question is this: what is the Government's message, in their plan, for the elderly and the vulnerable of today? Is it not that the Government 1017 are building up commitments on higher benefits for the higher income groups to be paid for by our children, but are doing nothing for the over-80s. of today, and virtually nothing for the civilian disabled who are not in the National Insurance scheme? Would it not be much better to encourage our younger generation to save for better benefits themselves in occupational pension schemes and use the resources of the State to concentrate on the vulnerable and unfortunate of today rather than in 20 years' time?
§ Mr. Crossman
I thank the hon. Member for Hertford (Lord Balniel) for his comprehensive expression of his views. Perhaps I can detect from his speech what I think were the questions. I thought that I detected three or four of them. I will start at the end and work backwards.
What message have I for the old of today? It is that their pensions are going up this week and that the pensions they will be receiving this week are worth one-fifth more than the pensions the Tories were giving them when they were in power.
Secondly—still working backwards—the hon. Gentleman asked about the young and the old. It was a surprising question, because I have heard it suggested that we are penalising the young for the sake of the middle-aged and the old, but never that we are helping the young at the expense of the old. The system under which we have a 20-year maturity—so that a person, in 20 years from the age of 45, can earn the same as a young person of 19 can in 40 years—does not seem to me to be against the old. On the contrary, we are looking here particularly for the middle-aged and the elderly, although I must point out that neither question asked by the hon. Gentleman on this point had any relation to the statement I made about abatement of public pensions.
When the hon. Gentleman did relate himself to public pensions, he asked whether I had in mind a loss of savings in the first five years of the scheme. There will be no loss of savings in the first five years, but there will be a reduction in the curve of increase of savings, which is not the same thing. I expect there to be a slowing-down of savings 1018 in that period. We shall be cutting down on a certain amount of the future, but none of the existing savings will go in any way.
The hon. Gentleman asked about the cut-back. He asked whether it was not the case that the pension experts, such as the brokers and actuaries, urged 1.5. It is true that they did urge 1.5, but I did not agree. We went to the Government Actuary and asked him, as an objective person who advises us and many other pension schemes, what he thought would be a fair ratio. He said that it should be 1.25. However, we chose 1.3, because I was persuaded that some of the smaller schemes which will be marginally affected will be able to contract-out. To go further would be against the Government's Actuary's advice, but also would be to take money from the contributors and pay it out to people outside the scheme, which would not be justified.
The hon. Gentleman asked me whether I do not think the scheme complicated. The answer is: yes, I do. But perhaps he has not read the many private pension schemes. Pension schemes tend to be difficult to read. If the hon. Gentleman reads the scheme of the local government workers, for example, he will find that ours is no more complicated. This happens to be an abstruse and difficult subject which he and I, as amateurs, have to cope with as best we may.
The hon. Gentleman complained about what he called the long delay inpresenting the scheme. I delayed my statement so that I could have a long period of discussion with the pension interests and I am surprised that he should have felt that I ought to have cut them short. I certainly had no intention of doing so.
§ Mr. Barnes
Does not my right hon. Friend agree that it is hard to understand why the scheme cannot be given a warmer welcome by the Opposition in view of aspects like the generous benefits for widows and the very important inflation-proofing, which are rarely found in occupational schemes and from which everyone will benefit?
§ Mr. Crossman
If my hon. Friend is asking me to suggest why that should be so, then I think that right hon. and hon. Members opposite are reluctant to feel that they completely failed to tackle the pensions problem when they grafted an absurd small graduated scheme on to the flat rate and called it a solution. We have had to make good very late in the day for Britain by doing what has been done in virtually every other modern country in Europe.
§ Mr. Boyd-Carpenter
Can the right hon. Gentleman say whether, in respect of the Civil Service and Armed Forces, whose occupational pensions are noncontributory, there is any question of cutting back those pension rights to replace them with contributory pensions under his scheme?
Before we come to the Bill, may we have an assurance that the House will be informed in full of the cut-backs on the public service schemes for which his colleagues are responsible, so that, when we come to vote, we shall know exactly what we are doing for our constituents?
§ Mr. Crossman
I am grateful to the right hon. Gentleman. I can give him the assurance that the Government have no intention of cutting back on these schemes or substituting a contributory scheme for the present Civil Service or Armed Forces schemes.
I am sure that the right hon. Gentleman appreciates that a review of Civil Service pensions is being made. That review will now take account of the new scheme as well. The Government would not dream of making an announcement without full consultation with the unions, which is still taking place. It is only after these consultations that we shall inform the House. In some cases, legislation is needed and in others Orders in Council.
The House will have plenty of opportunity to consider the matter. I shall ensure that these things get the fullest ventilation so that everyone will understand that this is not being done behind the scenes, but in full discussion with those concerned.
§ Mr. Houghton
Would my right hon. Friend say whether his proposals this afternoon involve any revision of the estimates of income and outgo which were published in the original White 1020 Paper? In particular. will it be necessary to increase contributions earlier than was originally expected to cover the loss of contribution revenue involved in the increase in the remission to 1.3 per cent.?
§ Mr. Crossman
As my right hon. Friend will remember, in the White Paper we estimated a 15-year period of surplus because we had no contracting-out and we knew that we budgeted there for contracting-out. Assuming that the amount of contracting-out done under these provisions is the same as now—I do not mean the same people, but the same total—the period is reduced from 15 years to five plus. If what the insurance industry demanded. 1.5 per cent., had been agreed, we would have come perilously near to having to increase contributions before we started.
§ Sir B. Rhys Williams
Would the right hon. Gentleman tell the House what steps he has in mind to protect the existing rights of the beneficiaries of private schemes which were obliged to wind up as a result of these terms?
§ Mr. Crossman
I made a statement about the public schemes which was laughed at by the Opposition Front Bench—I appreciate why, because it seems absurd to have to say that no existing rights will be jeopardised. Such a statement seemed unnecessary, except that public servants had been anxiously writing about it.
The same applies to private schemes. Private schemes which are funded have rights and provisions to pay out. There could be no conceivable justification for those rights being jeopardised by the introduction of the new State scheme. Private schemes, however, may reconstitute or reorganise themselves in some way, but that reorganisation cannot jeopardise existing rights.
§ Mr. Molloy
Is my right hon. Friend aware that many existing occupational pension schemes are wholly out of date and poverty-stricken? Is he further aware that nearly 12 million working people for the first time will be able to look forward to a State pension which is commensurate with conditions when they retire and that the real "long last" is that at long last Britain is being brought up to date in this respect by my right hon. Friend?
§ Mr. Crossman
I thank my hon. Friend. He is right to remind the House that when we talk of occupational schemes we have to remember that there are 65,000 of them—very good, good, indifferent and very bad. He is right to remind us that half of those now in receipt of an occupational pension are receiving less than £3 a week. So it is no good thinking of occupational schemes as a wonderful alternative to the State scheme.
However, occupational schemes have pioneered earnings-related pensions, especially those in Government service and nationalised industries. I pay tribute to the good schemes while reminding the House how many are ineffective. Roughly speaking, today we are half and half between those in and those out and we must make sure that those outside occupational schemes and likely to remain so have a chance of an earnings-related pension. That is all that the Bill will provide.
§ Mr. Pardoe
Is the right hon. Gentleman aware that we on the Liberal bench have not had our suspicions removed—that this is the Tory swindle Mk II? Will he say which of the organisations he mentioned in his statement, if any, advised him that it would be better to stick to flat-rate benefits for the State? Will he answer the question he was asked by the hon. Member for Hertford (Lord Balniel) about the net effect on total private savings in the next five years?
I am grateful to the hon. Member for asking that, because that was a part of the speech which I forgot was a question. I thought that I had made it clear that the effect on savings could be only estimated. I said that there would be no effect of cutting savings, but that there would be a slowing down in the rate of increase. What the degree of slowing down is will depend on the degree of contracting-out on the one side and, secondly, on the number of schemes which wind up or decide to reduce their activities.
This is something at which it is difficult to do more than guess. I will give my own guess for what it is worth. I think that, under our scheme, to begin with we shall get rather more people contracting-out than at present. If this is so, I hazard a repeition of my affirmative statement about the effect on savings.
§ Mr. Carol Johnson
Can my right hon. Friend say when he hopes to present the Bill? He made several references to discussions with representatives of occupational schemes. We have not seen the White Paper, but do I understand that these discussions will be on the terms of the White Paper, or do these represent conclusions so that the only discussions will be about their implementation?
§ Mr. Crossman
We hope to present the Bill in a few weeks. May I make it clear that my discussions were limited to the narrow issue of fixing the abatement ratio, the ratio between how much pension entitlement could be taken over by an occupational scheme and what contribution abatement that would attract? That is the only thing which has been fixed. I fixed the figures for this on the earnest request of the occupational pension schemes, which said that they could not start their discussions about the scheme until these figures had been written into the Bill. Serious discussions can start only when those figures are known.
§ Mr. Jennings
On retrospection, can the Secretary of State make it clear how the new schemes will affect existing vocational pensioners and what will happen to the lump sum?
§ Mr. Crossman
There will be no effect on existing vocational pensioners. The lump sum is a difficult matter. Each pension scheme has the right to revise itself. We have carefully made our scheme of a sort which does not compete with the lump-sum provisions of the occupational schemes. For instance, we are giving full widow's rights. For the first time, a widow will get the full pension of her husband. We are giving no lump sum. The result is that the two together will give the best of both worlds—a lump sum and for the first time a full guarantee for the widow. There is no reason why lump sums should be affected or reduced by our scheme.
§ Mr. Bidwell
Does not my right hon. Friend agree that savings should be appreciated and not depreciated, as most individuals save to ensure security in old age, while his scheme will mean that employers will make a heavier contribution?
§ Mr. Crossman
That is a fair point. It is undoubtedly an increased burden, but if we want better old-age provisions we have to pay for them. We have tried to make a fair distribution of the burden.
§ Mr. Dean
The right hon. Gentleman said that there would be a cut-back in the rate of the increase of savings. Does he not realise that in our view this is the worst possible thing that could happen for the build-up of both the State scheme and occupational schemes? Can he answer one simple question: have the organisations with which he has been negotiating agreed his proposals or not?
§ Mr. Crossman
I thought that I had made it clear that the proposals strongly urged on me by the pension interests were for a contribution abatement of 1.5 per cent. I made the movement from 1.25 to 1.3 per cent. This is already a large concession, but we felt that to go an inch beyond that point would be to concede to those outside the scheme many millions at the cost of those in the scheme. The pension interests wanted 1.5 per cent. and we decided on 1.3 per cent. The discussions did not take the form of formal negotiation. Before deciding what to do, I decided to discuss it with various interests. Having taken their point of view and noting that they wanted 1.5 per cent., I did not feel able to meet them in that regard.