§ 12 midnight.
§ Sir B. Rhys Williams
I beg to move Amendment No. 13 in page 15, line 40, after 'retirement', insert:'or on the termination of his service'.
§ This Amendment stands in the names of over 50 of my right hon. and hon. Friends.
§ At midnight we are embarking on a discuission of a highly technical matter. I think that it would have been better and more in the interests of the House if we had deferred our debate on this subject until tomorrow. However, I will soldier on.
§ It will be well known that for a number of years all parties have been committed to take steps to ensure that pension rights in occupational pension schemes are protected when the beneficiary changes his job. The reason why nothing is done about this matter is that, unfortunately, it is highly technical. There are also reasons 1287 which arise, naturally enough, from the opposition of those who would be likely to be adversely affected if protection of pension rights were made statutory.
The Conservative Party's commitment is quite plain. It is in writing in our manifesto, which says:
we will ensure that everyone can take their pension rights with them when they change their job.
§ I think it is well known that in recent years I have put forward a number of suggestions which have seemed to me to get round the peculiar difficulties of this subject. The thanks of hon. Members in all parts of the House are due to my hon. Friend the Member for Petersfield (Miss Quennell) for the work which she did in producing a Bill on this subject in the last Session, in which she bravely tackled the whole problem of valuation and thereby produced a workmanlike and acceptable solution to the whole problem of transferability. It is unfortunate that that Bill did not reach the Committee stage, because we could have held a highly constructive debate on the recommendations which my hon. Friend incorporated in her Bill.
§ In this Session I was allowed, under the provisions of the Ten Minutes Rule, to introduce a Bill in which I was not so ambitious. My object in that Bill was to introduce what I might call preservation with a human face; that is, not transferability, but merely preservation with a provision that, with the passage of time, the preserved pension rights would be allowed to grow at something approximating to market rates. Unfortunately, for reasons which I need not go into this morning, that Bill has not been discussed by a Committee and the ideas in it, which I think were useful and constructive, are available only to hon. Members who seek it out in print.
§ The Amendment is drawn to implement the smallest degree of preservation which might be considered to be worth further discussion; namely, that employers should have the option to introduce a scheme the effect of which would be to give preservation; though without any guarantee that the preserved pension would be protected from erosion by the decline in the value of money which might be expected to take place with the passage of time.1288
§ There are a number of objections to any scheme of transferability or preservation. It is worth going quickly through them, although I shall not develop any of these arguments at the length which they deserve.
§ First, there is the question of the sanctity of contract. Many people take the view that if an employee enters the service of an employer who has an occupational pension scheme, it is up to him to inform himself about the terms of that scheme. If one of those terms is that if he leaves before a stated age of retirement he loses his rights, so much the worse for him. This argument is unacceptable, because the occupational pensions schemes receive very valuable tax concessions and these concessions are not part of the contract between employer and employee. They are given because the schemes are recognised to fulfil a valuable social purpose.
§ If the schemes do not fulfil that purpose by giving protection of pension rights on change of employment, the community has the right to withdraw those tax concessions, and, in my opinion, should do so. Whether the employer would wish to continue the scheme in those circumstances is up to him, but the community would have made its feelings known. Why should it not, when year after year all parties have committed themselves to taking action on this point? So I do not accept this argument. The taxpayer should not have to subsidise a contract of which he does not approve. But since the Amendment would merely make it optional for employers to afford some degree of preservation, no exception can be taken to it under this heading, even by people who do not accept my other argument.
§ The next argument is that preservation would mean too much work for the actuaries. This is advanced seriously by those who have studied the subject, so it must be taken seriously. It is possibly fundamental at a moment when we are expecting major changes in legislation affecting occupational pension schemes. However, the amount of work involved in calculating the amount of benefit conferred under this Amendment would be negligible. A consequential Amendment to the rules of the scheme would be immaterial—using that word in the sense in which it is used in the Bill—in schemes 1289 which already allow a lump sum payment as well as an annuity. In those which do not, some reconstruction is necessary anyway and it would be to the advantage of the trustees that they should know that the benefit of this Amendment was available to them so that they could redesign their schemes accordingly.
§ It is also argued that preservation at this time would be too expensive for employers, many of whom are going through a difficult time. I understand this. At any moment we may hear that a big occupational pension scheme has failed. I am not thinking of any particular one, but I dread opening my newspaper and reading that a scheme is unable to meet its commitments.
§ I do not want to force into insolvency any scheme which is finding it difficult to meet its outgoings. But for contributory schemes, the additional benefit to the members which might be obtainable as a result of this Amendment would only be equivalent—more or less—to the entitlement which they almost invariably have already; namely, to withdraw their own contributions if they choose to do so.
§ Very briefly, three-eightieths multiplied by the number of years service, multiplied by final salary, works out at 3.75 per cent. of final salary per annum; if a man withdraws his own contributions, they would most commonly have been made at about 5 per cent. of career earnings. Thus, even taking interest into account, we reach sums which in the majority of cases are not too different from each other.
§ The question might then be raised: what about non-contributory schemes? This Amendment is not aimed at them, because the problem of the mixed benefit rule, which the Amendment is designed to circumvent, would not apply in any event. In my own experience in personnel selection and assessment of salary schemes, the great majority of firms which operate non-contributory pension schemes take account of the fact in their salary structure, so one could say that, in effect, there are no truly non-contributory schemes.
§ The argument may be raised that to extend the option I am recommending would allow for tax evasion through job-hopping. This argument can be overdone, 1290 but, as I argued in Committee, taxation on refunds need not be as little as 10 per cent.; and for this purpose I would consider that the lump sum, if the beneficiary chose to exercise his option to take it early, could well be treated for tax purposes in the same way as a refund of contributions up to the last years before the normal age of retirement. Between 60 and 65 years, if 65 is the normal age of retirement, it would be appropriate to phase out liability for taxation so that when a person reaches normal retirement age, he can withdraw the lump sum in the usual way without being liable to tax.
§ Some may argue that it is not the right time to do this and that it would be better to await the Government White Paper which is expected imminently; that when managers of occupational pension funds have had an opportunity to digest the White Paper and the Government have introduced legislation to implement it, that would be the proper time for pension rights to become statutory.
§ Even as long ago as the Morgan Report in 1966 it was estimated that loss of pension rights through preservation not being available to beneficiaries was running at £50 million a year. Other estimates have been given officially from as little as £25 million to well over £100 million a year. It is extremely difficult to arrive at a precise figure of what pension fund members are losing because the Government do not act to give protection on change of employment; but a slogan figure of £100,000 a working day would be a reasonable minimum.
§ When we ask, therefore, whether it is the right time to act or whether it would be better to wait until later, we should reflect that people changing jobs are losing £100,000 of their savings every day that Parliament delays dealing with this problem.
§ My hon. Friend the Financial Secretary takes his stand on the ground that pension schemes are for providing pensions; but it is easy to point to ways in which that principle has already been eroded for occupational pension funds. There is the case I mentioned under the previous Amendment I moved where a person declares himself no longer available for work through sickness. There are also the special pension schemes where, because of the structure of the industry, the pension can be offered and 1291 a lump sum taken well below normal retirement age. I am thinking of police, firemen, and so on, who can normally retire before they are 60.
§ I am informed too, that there are a number of schemes in existence—with tax approval—where benefits are obtained partly under the old Section 379 and partly under Section 388, under which lump sums are payable where the entitlement under Section 388 was secured in an insured scheme.
§ My hon. Friend will agree, therefore, that the principle that pension schemes are only for providing pensions at the normal age of retirement has already been spectacularly eroded.
§ Possibly we should ask ourselves whether a man should be deprived of the use of his savings when he needs to make the most of his career. What the man puts into the pension fund is not part of the trust in the same way as the contribution which his employer puts in. The employer's contributions are intended to provide a pension on the employee's retirement; but if the man is himself putting money into the hands of the trustees, then he invariably considers that that money is part of his personal capital, and, in my opinion, he is right to think that.
§ 12.15 a.m.
§ It would be a false move on the part of the Government if they took their stand on the theory that all the money flowing into the hands of the trustees was capital available only for the ultimate provision of a pension and was not available to the beneficiary in time of need or to advance his career.
§ I realise that it is highly convenient for pension fund managers, the life offices and others concerned with the provision of pensions under occupational pension schemes to secure the Government's acceptance of the principle that a man may not take a refund of his own contributions or any lump sum during his working life. The financial advantage to such managers and the offices is so overwhelming that the Government should regard their arguments, if not as suspect, then at any rate as naturally highly biased. They would be wise to take into account the point of view of the beneficiaries who, after all, are also voters.1292
§ At a time when we are trying to achieve a property democracy, we should accept that for many people the savings they hold in their occupational pension schemes are far and away their largest asset. By the time a man is 40, the savings he holds in his scheme, if it is at all satisfactory, are likely to be substantially more valuable than his house. We should not expect him to leave an asset of that sort locked up when he needs money for the exploitation of his capacities and earning power.
§ We need to bring it about that a larger and larger proportion of our population should be free to make their own way because they have the self-respect which the ownership of a sum in capital gives to a man. It does not behove a Conservative Government to stand in their way and to make it difficult for men to withdraw their contributions when they need them.
§ Why, in any event, is a lump sum allowed in occupational pension schemes'? The Government have endorsed this lump sum principle in this year's Finance Bill in that they have allowed all occupational pension schemes to provide a lump sum based on the three-eightieths formula. I do not quarrel with that. Indeed, I think it should be somewhat larger. However, this formula is now available for all such funds when the man reaches the normal age of retirement. Why should that option not be made available before he reaches the normal age of retirement?
§ I mentioned the mixed benefits rule and said that the Amendment was designed to circumvent it. It should not be necessary to circumvent this rule which is purely discretionary and in my opinion, should never have been applied. It should now be withdrawn. But if the Chancellor of the Exchequer is not able to eliminate the evil effects of the mixed benefits rule, let him seriously consider extending this alternative option of a lump sum of approximately equal value instead of contributions.
§ When a man is leaving a firm which runs an occupational pension scheme, the personnel manager—or the last person who interviews him—should say "Do not make a fool of yourself and insist on taking your contributions back. Instead, let us give you an advance in the form of a lump sum, and then we can preserve for you the whole of the rest of 1293 your entitlement." This would open the door a tiny crack towards the establishment of general preservation and eventually of transferability.
§ There are many other points I would have liked to raise on this subject, but I will leave them to another occasion though I do not know when that is likely to occur. In the meantime, I will listen with great interest to my hon. Friend's reply and I hope that even at this late hour he will deal with my arguments seriatim.
§ Mr. Patrick Jenkin
I have listened to my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) with very great interest and, like him, having heard him, I wish that he had been in a position to address his remarks to a rather fuller House. I share his regret that we are dealing with these very important matters as late as we are. I assure him that I have taken the most careful note of what he has said. I also want to take this opportunity to thank my hon. Friend the Under-Secretary of State for Health and Social Security, who has sat through all these debates on pension provisions—both self-employed and occupational pension schemes—and who has also listened, perhaps more relevantly than I, to what my hon. Friend has had to say.
My hon. Friend asked me to deal with all his arguments seriatim and this is a pretty tall order. I feel that I would see some glances of dismay from other hon. Members were I to attempt to do so. If I do not deal at length with the points he has made, I assure him that it is out of no discourtesy to the importance of his arguments and is certainly no indication of any lack of importance that I attach to what he has said. But perhaps I might take up one of the major points which seems to emerge from his argument. Here I must say how grateful my right hon. Friend the Chancellor of the Exchequer was that my hon. Friend took some trouble to set out his arguments in a letter which he wrote to my right hon. Friend last March.
My hon. Friend makes two main pleas in relation to pension schemes. One is a plea for preservation, and this evening he has advanced powerful arguments for this to be introduced as early as possible. The second plea is for entitlement to 1294 withdraw in advance some part of the capital sum to which a man is prospectively entitled if he remains a member of the scheme until his retirement.
I am sure the whole House shares my hon. Friend's anxiety to see full preservation come into effect as soon as possible. I do myself. I have in earlier debates referred to the fact that the Private Member's Bill which in 1964 I pledged myself to my constituents to introduce should I be lucky in the Ballot was introduced in 1965. It was effectively blocked, and I shall not raise the temperature by saying by whom it was blocked. The Bill subsequently introduced by my hon. Friend the Member for Petersfield (Miss Quennell) was, as it were, a grandchild of my Bill, as was the Bill which my hon. Friend introduced some year or two ago. I claim no parentage for the Bill which he sought leave to introduce earlier this year.
I accept the case my hon. Friend has made for preservation, and I only say that this is clearly one of the matters which fall to be dealt with by my right hon. Friend the Secretary of State for Social Services in his reconstruction of the National Insurance Scheme. As my hon. Friend knows, we are pledged to reconstruct the scheme on the basis that the substantial earnings-related pension benefits which people will increasingly enjoy should be enjoyed through occupational schemes, with the State scheme being, as it were, a fall-back scheme. It is inherent in any such proposals that a wide measure of preservation should be insisted on, and I must ask my hon. Friend and the House to await the proposals to be published by my right hon. Friend the Secretary of State for Social Services. They will cover the subject of preservation.
I am in a greater difficulty about my hon. Friend's other proposal about a lump sum on leaving employment. My difficulty stems from what seems to me to be a basic contradiction in what my hon. Friend is suggesting. In one breath he asks that we embrace the principle of preservation—namely, that a man should not squander his pension benefits as he now may, by withdrawing his contributions, and under the mixed benefits rule he is entitled to no share of his employer's contribution because it is plainly 1295 desirable that the pressures on him should be to maintain his pension entitlement so that he retires with the maximum available pension which he can earn from his and his employers' contributions through his working life. In the next breath my hon. Friend says that a man is entitled to withdraw sums perhaps not once but on a number of occasions during his working life, so that he subtracts progressively from the benefit of the pension entitlement which he has built up, which would contravene the principle of pension provision which is the object of the whole scheme.
§ Sir B. Rhys Williams
If I do not misinterpret the Clause, is it not true to say that at the end of a career in which a man has exercised the rights which I have suggested he should have on one or even more than one occasion the benefit to which he would be entitled would still be of the same order as the benefit to which he would be entitled if he remained with one firm all his career and drew a lump sum on pension at the age of retirement?
§ Mr. Jenkin
But the lump sum drawn on pension is not intended primarily as a means of going on a world cruise, or something of that sort; it is part of the retirement benefit. It is in the form of a lump sum only because it may help a man to purchase a house if he moves away from where his job has been, or to provide himself with an additional purchased annuity, or something of the sort; it is part of the retirement benefit. If he is entitled to withdraw it on occasions during his working life as a sort of redundancy pay, that would be straining the object of a pension scheme beyond what should be the object of a pension scheme.
§ Sir B. Rhys Williams
Is my hon. Friend suggesting that a man should not be entitled to withdraw his own contributions?
§ Mr. Jenkin
As I understand it, my hon. Friend's wish is that a man should not withdraw his own contributions, because that way he would effectively destroy the value of any pension benefits which he might have built up. Merely to call it a lump sum and dress it up as 1296 though it were an advance payment of the lump sum to which he would be entitled on retirement seems to conflict with the principle of preservation which my hon. Friend mentioned and which is warmly supported.
§ Mr. Jenkin
No, I have given way enough. My hon. Friend addressed the House at some length and I am entitled to reply to his speech. I hope that I have not misinterpreted what he said. There is relatively little in the Amendment except to allow sums to be withdrawn from a pension scheme during its currency. My hon. Friend has made the position very clear.
My right hon. Friend is prepared to consider this in the light particularly of the proposals which are produced by my right hon. Friend the Secretary of State for the Social Services when the White Paper on the reconstruction of National Insurance is published later this year.
My hon. Friend the Member for Kensington, South, has made a notable contribution to the debate inside and outside the House over a number of years, and his speech tonight will be studied in the Treasury and the Inland Revenue and, I am sure, in the Department of Social Security. But I ask him to accept that it is unrealistic to expect any Government to adopt the whole of his proposals in their totality and it would be wrong to chide a Government, which have already gone a considerable distance in the direction in which my hon. Friend would wish them to go and which may well go further, for being unable to go the whole way and adopt the totality of his proposals.
I appreciate the enthusiasm and expertise which my hon. Friend brings to the subject, but it is unrealistic to imagine that it is the only possible course to adopt the totality of what he proposes. I have listened with interest to what he has said and I have sympathy with much of it. I will bear it in mind in the course of the coming year when further steps will be taken in occupational schemes, and my hon. Friend cannot ask fairer than that.
§ 12.30 a.m.
§ Sir B. Rhys Williams
My hon. Friend is evidently under a misapprehension as 1297 to the meaning of my Amendment. It was not my intention that a man should be entitled to take back both his contributions and an advance on his lump sum. I was offering this as an alternative. My hon. Friend's remarks were not apposite unless what he has in mind is that in future a man should be entitled to take back neither a lump sum nor his contributions.
If the intention of the Amendment is accepted, that it should offer an alternative, one or the other, my hon. Friend's arguments about, for instance, accepting the totality of my recommendations are rather wide of the mark. However, this is not the time to discuss a matter as technical as this. I recognise the force of my hon. Friend's argument that a White Paper on this subject is about to be produced; but the right way to deal with the problem of protection of pension rights is through the tax system rather than by fresh legislation affecting occupational pension schemes in the future. We have missed an opportunity to do something about this scandalous problem. It remains unsolved, and nothing has been done about it in this year's Budget, which I deeply regret. But so much has been done in the Budget which is first class that perhaps one must not complain too bitterly about that.
When we see the White Paper, I hope that some solution to the problem will be found and that it will be implemented at a very early date. As I believe that this is what is in the minds of my right hon. and hon Friends, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.