§ Order for Second Reading read.
§ 3.42 p.m.
§ The Parliamentary Secretary to the Civil Service Department (Mr. David Howell)
I beg to move, That the Bill be now read a Second time.
The Bill provides for a far-reaching and overdue reform. It sets out to put on an equitable footing the arrangements for adjusting, after retirement, the occupational pensions of people for whom the Government, central and local, have a particular responsibility: their own ex-employees. This new footing is, in a phrase, the regular restoration of original purchasing power.
Hon. Members on both sides have advocated radical reform, and hon. Members on both sides have seen Pensions (Increase) Bills come and go without that reform being carried out. I do not mean to belittle the achievements of any of our predecessors when I say that the treatment meted out to many public service pensioners after they have retired has been inadequate and has verged on the shabby. The practice whereby this naturally unvocal section of the community should in effect be compelled to lobby Parliament into producing a Bill every few years is a thoroughly unsatisfactory one. We should stop it. This Bill does just that.
Before I come on to remind the House how this state of affairs arose and to explain the new principles in the Bill which will sweep it away and replace it by a new and fitting system, I should like to define some of the main areas which the Bill does not attempt to cover and to which indeed it is, intentionally, wholly irrelevant. The need for this is all the greater at the present time because there is undoubtedly an unprecedented spate of activity in pensions of one kind and another.
First, the pensions which are the subject of today's Bill are of course entirely separate and quite different from those which are the subject of the National Insurance Bill now before a Committee of this House. That Bill is 240 concerned, admittedly, with increasing pensions after retirement, but those pensions are social security benefits for which virtually all citizens, including retired public servants, are eligible. There have been misleading comparisons made outside this House between these two Bills. I think it is right to establish here and now that these are quite separate Bills. If further points are raised on these aspects, my hon. Friend the Financial Secretary will deal with them.
Second, today's Bill does not affect in any way the terms of the pension schemes of the public services—for example, preservation and transferability, the proportion of a husband's pension at which a widow's pension should be fixed, and so on—matters in which many hon. Members have, I know, a close and active interest.
As the House may recall, the schemes themselves are at the moment under separate review jointly between management and staff representatives. The Government have already undertaken, when Parliamentary time is available, to introduce a Bill to alter and simplify the legislative basis of the public service pension schemes and so, among other things, to facilitate such changes as may be agreed in the course of these reviews.
Third, today's Bill applies, as I have said, to the pensioners of what we call the public services. In the main, this means the Civil Service, local government employees, teachers, the National Health Service, the police and fire services, and, in a rather special way to which I shall return, certain overseas services. A glance at Schedule 2 will show that there are many smaller groups ranging from past Prime Ministers to certain London tram-waymen who are also covered by the Bill's provisions. Except in one or two instances where the rights of ex-public servants who are now regarded as the pensioners of the nationalised industries have had to be preserved, the Bill is in no way concerned with the pensions awarded by nationalised industries. These industries already have the power to pay and, when necessary, to increase pensions, and thus, following their own commercial and managerial judgment, either to follow Government practice or not, as the case may be. This is precisely the variety of practice that we find.
241 Then there are the pensioners of the Armed Forces. They are not covered by the Bill, though, as my statement of 17th November last undertook, comparable provision will be made for the Armed Forces by the appropriate Instruments under the Royal Prerogative. As my noble Friend the Minister of State for Defence further explained in answer to a Question on 10th May, the same principles will apply, although necessarily there have to be certain differences in their practical application arising from the special characteristics of Service pensions. So it is correct to say—and I know this is always a matter of particular interest to many hon. Members—that, in discussing the principles of the Bill, we are in fact also discussing the principles that will apply to the Armed Forces.
I now return to those principles and the reform which is founded upon them. I start with the background and the situation in the pensions increase field as we find it.
The Explanatory Memorandum goes into this at some length, and I will not detain the House by repeating it all, very relevant though it is. The point is that Governments in the past have never accepted any precisely defined obligation towards their existing pensioners.
Over 50 years ago the first Pensions (Increase) Act was passed for the purpose of relieving extreme hardship. At the same time it provided a scale of percentage increases, varying according to the size of pension and whether the pensioner was married or single. It gave nothing on pensions over £200. Its increases were further limited so as not to raise the total annual income of any married pensioner above £200 or of any single pensioner above £150. In other words, as well as a stringent criterion of hardship, there was also a means test and a test of family circumstances.
As the White Paper explains, this principle of the relief of hardship remained the common strand through the subsequent 10 Acts up to and including that of 1969. Although hardship has been interpreted with progressively less severity, there has been no objective standard by which increases have been determined and no certainty about the frequency of reviews and thus of increases. So pensioners have never really 242 known when their next increase would be and on what basis it would be assessed and, therefore, roughly how large it would be likely to be. The defect of the present system lies in some ways almost as much in this total uncertainty as in the scale of increases hitherto provided. There have also been other consequences of this piecemeal and ad hoc approach to the business of increasing pensions which have affected both the pensioners themselves, and the efficiency of administration of the system.
The earlier Acts were heavily biased in favour of the smallest pensions, though without much consistency in the degree and manner of the bias. The last four Acts substituted a bias in favour of the pensions of longest standing. The cumulative effect of all this has been one of some confusion. In particular, those who retired on the larger pensions up to about 1961—though very few would be regarded as large by the standard of present-day incomes—and those who retired in the middle of the 1960s have in general been least compensated for inflation and have thus seen the real value of their pensions drop the furthest.
Into this situation of anomaly and inequity, we now plan to introduce simple principles. Even so, I concede, it remains a complex subject. Indeed, it is a subject which is far more amenable to visual aids than to the type of presentation that is traditional at this Dispatch Box. I am not proposing to seek permission to introduce a blackboard into the Standing Committee, but I am exploring the possibility of producing one or two diagrams which may illustrate some of the more elusive details of the Bill. What makes it an even more formidable-looking task is that we are determined in this, the last Pensions Bill—we hope—to repeal and consolidate the past 11 Acts. This clears up the Statute Book and will simplify administration, but at the price now of a rather more complicated Bill. We therefore decided to offer the House a very full Explanatory Memorandum as well as the Bill.
I should also tell the House that in this whole operation we have been able to consult the representatives of the local authorities and secure their agreement. This is extremely important because they are the other main employer and, as the 243 Financial Memorandum shows, they bear a significant proportion of the relevant cost.
Many hon. Members will see in this reform features which their parties or they as individuals have advocated from one side of the House or the other in years past. The Conservative Party, in its Election Manifesto, promised two-yearly reviews to maintain purchasing power, but perhaps our particular contribution has been the undertaking to reduce the qualifying age for increases during the lifetime of this Parliament, about which I will say a little more later on. Overdue the House may agree the reform to be, but I believe it to have benefited from the debates over the years in this Chamber and in particular from the public debate which followed my statement of intention to the House on 17th November last year.
My right hon. and noble Friend the Lord Privy Seal and I have had the benefit of two meetings with the Public Service Pensioners' Council, and another with the T.U.C., speaking for pensioners of local authorities; and of course as Ministers concerned with the Civil Service, we have taken into account the views expressed to us by our own National Staff Side. We have also paid careful heed to the dozens of letters which hon. Members on both sides of the House have written to us, often as a result of some approach to them by pensioners in their constituencies acting singly or in groups, and also to letters the Department has received direct from the public. I can fairly claim that we have changed our original plans in one very significant respect as well as one or two lesser ones as a result of all these exchanges of views as I shall explain.
That is the background. Now I come to the detailed provisions of the Bill. The Bill has five main features, summarised in paragraph 5 of the White Paper. I will follow this division without repeating all that is said in that document.
The first objective is to make good the deficiencies of the past. I have already described the legacy of the eleven Pensions (Increase) Acts. It would be quite inadequate merely to undertake from now on to pay increases in step with any increases in the cost of living, 244 since that would ossify present relativities and perpetuate the inequities. All pensioners need to be placed on an even footing first, and, since the system of regular reviews really starts from 1st April, 1969, we begin by providing that as at that date all pensions then in payment shall first be restored to their original purchasing power—in all cases, that is, in which the previous Acts had left them below that level.
In the case of the oldest pensions beginning before 1946, we shall adopt the nearest approximation to this approach which is compatible with our objectives of over all fairness and reasonable simplicity of approach. This is a once-for-all operation and the once-for-all increases that will be payable from 1st September are likely in general to range from 1 per cent. to 17 per cent. It is impossible to say exactly how many pensioners will benefit, but the total cost will be about £21 million in a full year, when account is taken of the Armed Forces. There will be quite a number of increases larger than this range and a few which will be much larger in percentage terms.
It follows as a matter of simple mathematics that those who will benefit most in percentage terms from these increases must be those who have suffered most in relation to inflation under the existing Acts. Since, as I have already explained, some of those who suffered most were those who retired on the then larger pensions at the earliest dates, it follows that they will now collect some of the largest increases both proportionately and in absolute terms. To that extent—and I make no apology for it—the Bill is a measure of the degree to which public service pensioners have fallen behind. The restoration of original purchasing power is a completely fair criterion which puts everyone back to their original position in real terms and to their original realativity.
The second main feature brings me on to the system of two-yearly reviews, with the arrangements for this year's review. This is being held following the undertaking subscribed to by both main parties during the passage of the 1969 Act. The promise was to announce the rise in the cost of living between the operative date of the last Act, 1st April, 1969, and 1st April, 1971, and then to say what action would in consequence be taken.
245 In the event, we did not wait for April but announced our plans last November. We had, of course, to wait for April to learn that the cost of living over this two years had risen by 14.4 per cent. It would accord with my statement of 17th November last if pensions were accordingly increased by that percentage on 1st September. But it is on this point in particular that our proposals have benefited from the representations of the Public Service Pensioners' Council and the other representative bodies I mentioned earlier, as well as the views conveyed to us by hon. Members.
In present circumstances, the Government accept that if no more than this were done the new rates of pension might already be excessively out-of-date when they came into force on 1st September, and on that date we might not be able to claim that we had fully maintained original purchasing power. The Government has accordingly decided that the increase to be payable on 1st September on all pensions which began on or before 1st April, 1969—that is, which have been in payment and thus exposed to inflation throughout the first review period—should be 18 per cent. This is not a forecast and it is not a product of mathematics. It is a judgment based on all the relevant factors of what we believe will be a fair increase, having regard to the objectives of the Bill. If it turns out in the end to be too much or too little, it will be automatically evened out over subsequent years.
§ Mr. Arthur Palmer (Bristol, Central)
I am obliged to the hon. Gentleman for giving way, because I must shortly leave to take the chair at a meeting of a Select Committee. The Bill does not apply to the nationalised industries but in fact many of them have always followed the terms of Pensions (Increase) Acts. If an application comes from nationalised industries to make comparable increases consistent with the provisions of the Bill, will such applications be favourably considered by the Government?
§ Mr. Howell
The Government will not disapprove of any applications to develop pension schemes up to the levels proposed here. But in terms of policy these are matters entirely for the boards of the nationalised industries.
§ Mr. Palmer
The hon. Gentleman must appreciate that the schemes of the nationalised industries are statutory schemes and are subject to Ministerial approval.
§ Mr. Howell
I appreciate that, and if the level and the scope of these schemes do not exceed the levels proposed here there would be no disapproval by the Government.
All those who retired within the review period 1st April, 1969, to 31st March, 1971, will also receive increases. There has been some confusion about this. These increases will be smaller than the 18 per cent. for bringing earlier pensions up to the 1971 levels, through inflation proofing, and will be graded according to the date of retirement and the rise in the cost of living between retirement and the end of the review period. They will include the same kind of uplift as the 18 per cent. to make them appropriate increases to pay on 1st September.
Many pensioners are now writing to hon. Members and to the Department complaining that those who retire just before the review period starts get 18 per cent. and those who retire just after it has begun get nothing. This is quite mistaken. May I emphasise again that in this first review all those who retire within the review period do get increases. They are spelled out in Clause 1 of the Bill. Those retiring in the six months beginning on 1st April, 1969, get 16 per cent., those retiring in the six months beginning 1st October, 1969, get 14 per cent., those retiring in the six months beginning 1st April, 1970, get 10 per cent., and those retiring in the six months beginning 1st October, 1970, get 6 per cent. So, for all those pensions which began on or before 1st April, 1971, the five-month gap between 1st April and the payment date on 1st September can fairly be claimed to be closed.
Future reviews constitute the third main feature. They will be held every other year, starting in April, 1973, and they will lead to increases in the ensuing September, provided that a cost of living increase of at least 4 per cent. has been registered in the two-year review period before that.
Should the cost of living in a review period not have risen by 4 per cent., there will be a further review one year later.
247 But as soon as a 4 per cent. increase has accumulated and justified increases, the reviews would again become two-yearly. The objective here is to give to pensioners a certainty to which we believe they are entitled, and in the process to provide a more orderly system. The increases this year will, I am sure, be very welcome. But, taking the longer perspective, the heart of the matter is the new assurance, which has been so conspicuously lacking in the past, of when the next review will be, and how the increase will be assessed.
In future, pensioners will be able to watch the movements in the cost of living and to form an accurate view themselves of what they are likely to qualify for at the next review. The essence of the method is simplicity and automaticity. We are asking Parliament to dispense with the need for primary legislation every time there is to be a review. We are asking, instead, for the power to prescribe increases by Order on very clearly defined principles.
Fourthly, I come to the change which is one of those to which my own party has attached particular importance, and for which we can claim special credit for bringing to the forefront. This is the promise we made in our Manifesto—our programme for the whole term of office for which we were elected—to reduce the qualifying age at which increases may first be paid on pensions, from 60 to 55. This step is designed to benefit pensioners who already retire on pension before 60. In other words, for the most part, policemen, firemen, prison officers, as well as, of course, though not directly under the Bill, members of the Armed Forces. The Government fully accept the principle that this change should be made and only regret that they cannot afford to make it immediately. It has been solely a matter of priorities and cost within the overall budget.
§ Mr. Arthur Lewis (West Ham, North)
It is a good thins that local government, Civil Service and Armed Forces pensioners are to be covered by these provisions, but can the hon. Gentleman say why it is proposed to exclude Members of Parliament, who have given perhaps 40 or 50 years service? Why should they not 248 be treated, not better than, but in the say way as these other people?
§ Mr. Howell
My hon. Friend the Financial Secretary will deal with that matter. The short answer is that Members of Parliament' are not covered because they have their own pension scheme.
Perhaps this would be the moment to talk about cost generally. The cost of £79 million is a very substantial sum for the Government to have put aside so promptly, even for so worthy a cause as this, at a time when reductions in Government activity and savings in public expenditure have been sought hard. We do not feel that we could raise it to the £90 million that would be involved by reducing the qualifying age immediately. It is an important change, but we regard the firm establishment of inflation-proofing as priority number one.
The fifth and final feature of the Bill is its element of repeal and consolidation. I shall not occupy the House for long at this stage on this somewhat technical aspect. Its background and implications and the method that we are adopting are explained at some length in the White Paper. But briefly, we are offering the House a measure that will be self-contained when taken with its associated subordinate legislation.
We are aiming to tidy up the Statute Book a great deal, as Schedules 7 and 8 reveal, and we shall simplify administration. A way has been found of repealing all the Acts and saving their many unspent provisions, including particularly those authorising increases, which are still today the legal basis of a large element in the pensions of many existing pensioners, and under which many future pensioners will have contingent rights. This is being done in such a way that the task of paying authorities will be simplified, and administration will become much more efficient.
So much for the main principles of the Bill. There is not time now, in this short debate, to look separately at all the various groups of pensions affected. But there is one group which has always occupied a rather special position, namely, the overseas pensioners, as they have come to be known, covered by Part II of the Bill. First, the India, Pakistan and Burma civil pensioners, and, second, 249 broadly speaking, the former officers of Her Majesty's Overseas Civil Service and British pensioners of the Sudan and Egypt Governments and their dependants.
This is one of the groups to which the Bill cannot be applied direct, because their circumstances and needs are complex. Special regulations under the Bill, as under previous Acts, will be required. The categories of overseas pensioners eligible to benefit under the Regulations, which will be made by my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs, have been widely enough drawn to embrace all those whose pensions fall within the Government's policy of reimbursing to overseas Governments the cost of expatriate pensions arising from pre-independence service.
We have therefore ensured that, for the first time, every overseas pensioner in respect of whom the British Government have a special obligation is covered by pensions (increase) legislation. Subject to the normal qualifying conditions only, all such pensioners will have their pensions brought up to the same level as they would have reached had they been British Government pensioners.
§ Mr. John Tilney (Liverpool, Wavertree)
I, too, have to leave to attend a Select Committee. Is my hon. Friend aware that former overseas service pensioners are grateful for and welcome the Bill, but that a number of those who served in quasi-Government institutions, such as the Nigerian Coal Corporation, were told at the time that they would not suffer by changing over from Her Majesty's Overseas Civil Service to that corporation? Will my hon. Friend assure them that they will not be precluded from consideration should they subsequently be able to make their case?
§ Mr. Howell
I am grateful to my hon. Friend for the first part of what he said. My hon. Friend the Financial Secretary will deal with the second part of my hon. Friend's intervention, but the assurance can be given that all Crown service is pensionable and will be treated as such under the Bill. The terms of the Bill have been drawn in such a way that things can be considered, but I shall ask my hon. Friend the Financial Secretary to deal with this in detail later on.
§ Mr. R. T. Paget (Northampton)
It is the case that, broadly speaking, these are the people who at the request of Her Majesty's Government transferred to successor Governments who, almost without exception, have let them down. They are now landed, for various reasons, and one hopes that Her Majesty's Government, having induced them to make the change, will stand by them.
§ Mr. Howell
I appreciate the hon. and learned Member's concern. This is a slightly different point. We were talking just now of those who were public sector employees in former colonial territories but were not in the Crown service. I was able to say that all who had done Crown service of any kind would be fully pensionable and covered by the Bill. Subject only to the normal qualifying conditions, all these pensioners will have their pension brought up to the same level as they would have reached had they been British Government pensioners.
The arrangements by which this will be achieved will be set out in the Regulations. They will take account of the different overseas currencies in which these pensions were awarded and the fluctuations in the rates of exchange between these currencies and sterling which occur from time to time. The proposed method of calculation has been fully explained to the President of the Overseas Service Pensioners' Association by my right hon. Friend the Minister for Overseas Development whose Administration is responsible to Parliament.
Now may I spend a little time on some possible reactions to the Bill. There may be those who think that we are doing too much for retired public servants and there will be those who still think we are doing too little; to those whose first reaction is that we are doing too much, I would at this stage say that the Government believes in being a good employer. In superannuation the Government have perhaps been a pioneer, when one looks back over the more distant past; and it has always been very well up in the league table of good employer practice in this particular field. A good pension system is one of the compensations of public service.
Again, in some quarters the misleading impression has been given that what is being proposed is somehow putting the 251 civil servant in front of the old-age pensioner in the queue for fair treatment. Nothing could be further from the truth. Viewed across the perspective of the postwar years, this Bill raises public service pensions—in most cases for the first time—up to the standard of inflation-proofing. But over the same period the original national insurance or "old-age" pension has already been raised well above this standard. The same relationship is to be found in this year's increases. This is surely as it should be. Any share in growing national prosperity that is available accrues first to all the retired through the national insurance system.
Finally, I hope that I have made it clear that we could not go on on the basis of the previous Acts. I believe that it was inevitable that we should find some objective and defensible criterion on which pensions should be increased, given the cumulative effect of a somewhat ad hoc approach over the last 50 years. The protection of purchasing power seemed to us to be the only serious candidate that would be fair to all concerned, including the community at large who foot the bill. It is incumbent on anyone who feels that we are doing too much to explain what we should have done instead, and how we should have defended it.
As to those who may say we are doing too little, I suppose that they would agree with what I have just said about a defensible criterion, but would presumably argue for parity or perhaps some halfway house to parity, such as matching increases to a hybrid of cost and wage indices. With such a tremendous advance on offer to pensioners I would rather hope that we shall hear rather less about parity in the forthcoming weeks than my predecessors on both sides of the House heard during the passage of recent Pensions (Increase) Acts. In any event, the House will recall that even in 1969, when inflation-proofing was not on offer, spokesmen on both sides of the House acknowledged the difficulties over parity.
It is not only its much greater cost, it is the highly questionable nature of its inherent assumption that when a man retires you should guarantee him, indirectly through adjustment to his pension, the full benefit that his successors in office have achieved in pay for a great 252 variety of reasons. I would come back to outside practice. If we were to adopt parity we would be setting the pace in this country and at a hot rate. I believe there are one or two employers here and there who may do something like moving towards parity, but they really are the exception. I do not see how we could defend such preferential treatment for one sector of the community at the expense of the other, which would be precluded almost entirely from comparable treatment.
We must, of course, be philosophic about this. However proud and satisfied a Government may be of a reform of this kind, it will always be asked by some to do better. Nevertheless, this reform is the product of extensive experience and of thought and discussion, in general over the years, and in particular over recent months. We have weighed the views of leading organisations which can claim to be representative for this purpose, and we believe that we have met the only criticism that they have made that could fairly have been claimed to point up a permanent weakness in the scheme, that is the five months' gap between the end of the review period and the date of payment, 1st September.
The Bill that emerges is a major development in the field of public pensions legislation. I hope it will, if passed, spare hon. Members on both sides the burden of constant pensions (increase) legislation and public pensioners the crueller burden of the need for constant lobbying to preserve their living standards. What has been so heartbreaking, as many hon. Members know full well, is to see public service pensioners, having adjusted to more modest standards in retirement, then have to adjust again, and even a third time, downwards into old age. This is the downward escalator we are determined to halt. I believe that this Bill achieves our aim.
§ 4.16 p.m.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
This is the first Bill introduced into this House by the hon. Gentleman, and it will be welcomed on that account alone; furthermore, it is doubly welcome because this is a Bill which will obviously receive wholehearted approval in principle. I would like to give that unqualified approval. It is important also because this is the last Bill of this 253 kind and it follows a fairly dreary pattern to which we have become used over the years. As such, it ends the requirements for parliamentary approval for pension changes.
In moving the Bill and in accepting the need to hive off this kind of activity, the hon. Gentleman made his case quite strongly. It is, by and large, one which those on this side of the House would also wish to accept. Clearly, the whole method by which Civil Service pensioners had to come to this House in order to get what was obviously a justified increase because of the decline in the value of money is a matter of purely managerial concern which really had no place in the day to day work and operations of this House. These are modest Regulations and they should be seen as something for management and not something over which this House should or ought to have direct administrative control.
The whole principle here was outlined quite well in appendix H of the Fulton Report, at paragraph 30, where it said:The details of Civil Service superannuation are embodied in Acts of Parliament and in statutory regulations made under the Acts. This means that all changes in the scheme require legislation and that many quite small changes involve not subordinate legislation but a separate Bill. As a result, these changes have to wait for parliamentary time. In consequence, it may be several years before an agreed change can be introduced. We think this to be an unnecessary complication, besides wasting parliamentary time. We do not dispute that Parliament should exercise a proper control over this large element of staff expenditure. But it seems to us that ways could be found of ensuring this that would yet enable changes in the pension scheme to be made more promptly and with less fuss. We recommend that they should be looked for.It is the achievement of the hon. Gentleman—and nobody would like to detract from it—that he has found a way to meet this recommendation. The Bill is non-partisan and, as the hon. Gentleman has said, it is an example of good employment practice which we hope will be copied by many in private industry, just as Government legislation in this field has so often been copied in the past. To echo what has been said by my hon. Friend the Member for Bristol, Central (Mr. Palmer), I hope it will be copied by the nationalised industries and, in particular, by the Ministers concerned with the nationalised industries as an 254 example of the way in which public service pensions might be run by those industries themselves. Of course, there will have to be an end to the nuisance of having to produce the Bill each time when we are regularly adjusting to inflation.
Schedule 1 is the crucial part of the Bill, where figures are put on the levels of inflation. This is one of the most interesting aspects of the way in which Governments will in future have to adjust for an inflationary situation to which we are just beginning to become accustomed and will have to fit into in many other ways, particularly if the situation is to be stabilised——
§ Mr. Sheldon
One must remember that to the receiver of one of these pensions that third decimal place can be a pound or two. Someone in that situation would not welcome being docked by only a second decimal place.
So we are now committed to the principle of biennial reviews to take account of inflation.
I hope that the hon. Gentleman is not getting too embarrassed by my congratulations, but I found the Explanatory Memorandum most useful. I hope that we shall see just such a Memorandum on all these technical Bills when they can be produced for the benefit of those concerned. Paragraph 8 shows that the cost of living increased by 14.4 per cent. from 1st April, 1969, to 31st March, 1971—an average increase of 06 per cent. per month. The general index of retail prices just published shows an increase on April over March—that is the latest figure—of 2.1 per cent. So we are seeing a graphic escalation of inflation.
Under Clause 1, the pensions are being increased by 18 per cent. from 1st April, 1969, to 1st September, 1971. Since the 14.4 per cent. is for 24 months, allowance is made for an increase in the cost of living of 18 less 14.4–3.6 per cent. That is the level of inflation expected over these five months. Out of that 3.6 per cent., 2.1 per cent. is already spoken for.
§ Mr. David Howell
The hon. Gentleman said that this is an estimate of the 255 amount of inflation over the five months. That is not so. This is simply an allowance which may be too little or too much. At the next review, in April, 1973, which will cover the 24 months back to April, 1971, this will be corrected for and taken into account.
§ Mr. Sheldon
Yes, I understand that it will be taken into account at the next review, but obviously an estimate was made to produce what was thought to be a reasonable level of inflation. I am not making too much of this. Clearly, in a delicate political and economic situation one would hardly expect the Government to make a precise forecast for this five months; and they would tend to produce a rather lower figure.
But out of that 3.6 per cent., 2.1 per cent. is already spoken for in one of the five months, with four months still to go. This shows how much greater the level of inflation is than the figure allowed for in that five months. But we have only 1½ per cent. allowed for over the remaining four months. Because of this inflation, what might have been regarded as a reasonable figure—in certain circumstances almost a generous figure—now becomes rather less than that.
Clause 2 provides that if the rise in the cost of living is less than 4 per cent. over the 2 years the actual review will be postponed for a year. This is unlikely for some considerable time. Inflation seems to be permanently with industrialised countries. Although one hopes for a new Keynes to find some solution to this, that solution will not come very soon.
As a result, so far from the problem being one of having to postpone the biennial review because the cost of living happens to be less than 4 per cent., it is rather more likely that the variations in inflation might impose severe hardships on those pensioners waiting for their biennial review. At present the rate is 9½ per cent., and who knows what it will be next year if the Government's policies are not successful?
To have to wait for increases of nearly 20 per cent. at one go is a substantial jump, and annual reviews might be necessary. How difficult might this be to provide for, if inflation is more akin to the recent past rather than a number of years 256 ago? This matter might need further consideration in the light of the success or otherwise of the Government's economic policies.
I said that this reform is one of the consequences of Fulton. Another is transferability. Under the heading "The Civil Service as a Career", Fulton said something which has not received much attention in the House:We have recommended a greater flexibility of movement between the Civil Service and other employments. We think, however, it should remain a career service, in the sense that most civil servants should enter at young ages with the expectation, but not the guarantee, of a lifetime's employment.This is of course perfectly in accord with the situation over large sections of industry and other forms of public service.
Prospects are more open. The possibilities of achievement are greater, but the necessary corollary of that is that security, marginally—I hope not much more than marginally—is bound to be a little less. With movement into and out of the Civil Service, cross-fertilising many of its methods of operation, we shall also see, not large numbers but rather important kinds, of people bringing a breath of fresh air to the Civil Service. I hope that people entering the Civil Service will take back into private industry some useful knowledge of the working of Government service.
The consequence of any reorganisation, however beneficial, and however efficient and humane, is bound to be individual problems, which will be the responsibility of the Civil Service Department. As a result, there will be difficulties concerning the necessity for premature retirement and a question of amending what has been called the "old divorce laws—the great difficulties in dismissing civil servants who, through no fault of their own, have frequently become worn out in the public service, possibly by over-application of their energies or because not everyone is fitted for the severe testing which is frequently part of the work of the Civil Service. There should be no stigma to this, but fair treatment is necessary in carrying out the reorganisation if human and social problems are not to occupy too prominent a position and so affect the morale and work of civil servants.
I was pleased to see the paper produced this month on premature retirement by the Department. I think the hon. 257 Gentleman has seized this point and that action is being taken to provide humane and reasonable conditions for those who retire at an early age. I am also pleased to see that the Government have accepted so many of the arguments for transferability. I am not sure to what extent they accept that certain provisions of the pension scheme restrict movement in and out of the Civil Service. Changes are necessary to allow greater flexibility of movement.
Paragraph 138 of Volume 1 of the Fulton Report points out that the Service needs:… to offer improved pension arrangements where these are needed to attract into the Service individual late entrants with special ability, qualifications or experience, who are unable because of the shortness of their prospective period of service to earn a good pension by the time they reach the retiring age.This will become increasingly important as individuals in the public service and industry recognise the necessity for acquiring pension rights over a term of service less than the whole of their working life span in any one organisation.
I draw attention to the advantages of the contributory scheme which in 1931 was advocated by the Tomlin Commission. A contributory scheme would get away from the paternalistic attitude which is an inevitable accompaniment of a non-contributory scheme. For the employer to be seen giving money, with no contribution coming from the employees, mitigates against the right kind of relationship in discussions about the rules and method of operation of the scheme. When employees are discussing a scheme to which they contribute, they get away from this paternalistic attitude and become more personally involved in discussions. It is also easier to have a pension scheme that fits in with those in outside industry.
I refer to one aspect of the qualifying period which is referred to in paragraph 10 of Appendix H of the Fulton Report:We think that in a number of cases the optimum length of a man's employment in the Civil Service may well fall between five and ten years, and that if periods of this length remain unpensionable they will not be attractive. We recommend accordingly that five years should be substituted as the qualifying period both for a frozen pension and (because they are inseparable) for a pension on final retirement.258 This will become of increasing concern to specialists moving in and out of the Civil Service. What provision will be made for such people?
We are approaching the stage when more people working in industry and in the Civil Service will require a contribution from each of their employers for that part of the eventual pension which is attributable to service with each employer. For example, if an employee works for 20 years with each of two employers each employer should contribute towards half of his eventual pension, so that at the end of his working life he is no worse off than if he had worked for a single employer. What is the attitude of the Civil Service Department on this?
Section 2 of the Pensions (Increase) Act, 1965 introduced for the first time necessarily complicated provisions for pensions for people who had been employed in the Civil Service at different levels of responsibility, and for those who stepped from higher responsibilities down to lower ones. This operation, which was rare some years ago, will obviously increase. There will be greater need to employ people over 60. These people are often suitable for service in a different capacity. People must be made to feel that they are not held in any less esteem because they accept less responsible jobs when they have passed the peak of their abilities. Stepping down is not now readily acceptable. This is a pity, since many people retain their energies into their 60s and 70s, and for them to go from the extremely busy life of the Civil Service into complete retirement is a waste of their energies and abilities. We need to give increasing attention to providing opportunities for people who wish to do something less strenuous and less time-consuming. I know civil servants of over 60 who have a lot of energy—far more than is frequently to be found among employees in industry. Society must find better ways of utilising the energies of these people who are often willing and anxious to do a less responsible job.
I wish to draw attention to the provisions for certain categories of pensions, particularly the overseas pensioners, who are dealt with in Clause 10. We welcome this long-overdue reform and we wish the idea well. There are difficulties in 259 providing exact comparisons, but we can discuss these matters in Committee. We also welcome the principle of the reduction in qualifying age from which pension increases may be paid. We look forward to seeing the Order that will one day be laid before the House.
I turn to the concept of establishment, which has not received a great deal of attention in the House since it was first put forward in the Fulton Report. I quote from paragraph 142 which, dealing with the concept of establishment, says:.it should be abolished. The term 'establishment' has acquired overtones of comfort and complacency, and damages the reputation of the Service More important, the concept of established status has engendered an atmosphere within the Service that in practice, though not in theory, offers too much protection. It is not true that a civil servant once established, is completely secure in his job. however lazy or inefficient he may be. But establishment has come to imply a presumption of security until retirement, which goes beyond what is genuinely needed and, we believe, hampers the elimination of the small minority who do not earn their keep.The language there might be a little over-strong, but the point about establishment and the need to replace it by a contract of indefinite period of employment after a probationary period and consequent pensionability is obviously a step in the right direction.
I note that it is said in paragraph 104 of the document "The Reshaping of the Civil Service":The Official Side have accepted the Staff Side's claim that unestablished staff with ten years' service or more should automatically be established at 60 and so qualify for pension.It is a pity that this was never carried out before,
I regret that the wider question of pensionability of temporary staff is still only under consideration. This is something which is so obviously needed, and I am sure that, given the great need for pensionability of these temporary staff, any problem lying in the way of its solution could be overcome. Why are there still so many temporary staff? Very few industries employ so many thousands of temporaries. If the need for them exists, why can they not be put on a proper pensionable footing? There is a need for a proper review of the situation to examine why temporaries seem to be temporary year after year after year. Perhaps 260 it is due to the problems of establishment, and that what is required is a simple contract of service with a pension.
In the last few years we have seen many reforms and some people were rather sceptical of the ability and will in the Civil Service to undertake its own reforms. We seem to have been very fortunate with the personalities involved, who have included Sir William Armstrong, a dedicated reformer, to whom I wish to pay a particular tribute. There are difficulties, but even the strongest sceptic would have difficulty in proving that the will does not exist. I hope that this attitude will continue, and I look forward to seeing in future the kind of Civil Service which the country needs and upon which it can depend.
§ 4.46 p.m.
§ Mr. J. C. Jennings (Burton)
It is with great pleasure that I support the Bill. I give it the warmest welcome I could ever give to a public service pensions Bill; I regard it as the best Bill we have ever had in this sphere. Public service pension increases have had a long and dismal history in this House. As I look around the House today, I see right hon. and hon. Gentlemen—fewer in number now than they were—who over the years, irrespective of the side of the House on which they sat, have fought for a group of people who were forced to provide a lobby for themselves, inadequate as it was. The Bill puts right certain matters which were neglected in the past.
I remember that the immediate predecessor of the present Mr. Speaker, with others, including myself and the right hon. Member for Sowerby (Mr. Houghton), played a great part in this sphere of activity. In the old days we sought parity as the ideal, but we realised many years ago that we would never achieve it. When I first started talking about this type of pension in 1956 the figure then given to achieve parity was £11 million, which seemed to be within the compass of Treasury thinking at that time. However, within a few months the estimate had risen to £22 million, and over the years whenever we dared mention parity the figure became at the time of the last pensions increase Bill over £120 million. We realise that the matter had become impossible.
261 We tried to achieve some semblance of parity in whatever we could squeeze from the Government concerned and we did not get much out of it. We had "estimated clauses", compensatory benefits and all sorts of other things. However, in this Bill we at least put right one grave injustice. This is the once-and-for-all payment which brings the basic pension of those who retired in years gone by up to the 1969 standard.
I would draw attention to Schedule 1 of the Bill, which is a remarkable document and contains the "crunch" of the provisions. Since it deals with the effect of inflation, it marks a tremendous step forward. One of the prime principles embodied in the Schedule is the fact that before any calculation of any increases under the Bill take place there shall be a multiplier to compensate for the inflationary processes of past years. For example, someone who retired in 1950 would have his or her pension doubled before the 18 per cent. increase is added The 18 per cent. increase is based on the new pension. Am I wrong?
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
I would not wish my hon. Friend to be misled. One has to take into account any increases which that pensioner may have had under previous Bills. Applying the multiplier provides the target or the ceiling. If any increases awarded in the past take that pensioner part of the way towards the ceiling, it is only the balance which is made up by the operation of the Bill. That takes one to 1969. The 18 per cent. is added afterwards.
§ Mr. Jennings
I am glad of the correction. I was taking it at its face value, which is not as handsome as I thought. I admit to mistakes in this House—and even when I am in the Chair in Committee. The hon. Member for Ashton-under-Lyne was probably quite correct to shake his head. Nevertheless, it is a tremendous step forward. The multiplier is one of the cardinal principles of the Bill.
We then come to the second basic principle—the increase of 18 per cent. in all pensions before 1st April, 1969, and thereafter—I will not go into the details; they are all in the Bill—a kind of sliding scale downwards. It is a kind of escalator 262 in reverse. Nevertheless, the basic increase is 18 per cent. and it compensates up to next September for the rise in the cost of living.
In Committee my hon. Friend will probably have to face one or two important Amendments. I think that one will be based on the view that the Government have taken in basing the increase on the cost of living index. We must remember that other factors have to be taken into account. One is the rise in wages. Rises in wages and in the cost of living are parallel movements. In assessing compensatory payments for inflation no Government can afford to take notice of one of the ingredients without looking at the other. Therefore, I suggest that one way of approaching the problem—this is an excellent Bill which does more than any other Bill has done in this regard—is to look at the cost of living index and the wages index rise, to take a mean or average of the two and apply that to the consideration of the rise. I do not know what the extra cost would be, but it would not be all that much. I gather that, broadly speaking, it would mean an increase of 24 per cent. instead of 18 per cent. If the cost is £65 million, as the Financial Memorandum states, then it would be reasonably easy to work out what the extra cost would be. As I said, I think that the Government will probably have to face an Amendment or Amendments along these lines in Committee.
§ Mr. Kenneth Marks (Manchester, Gorton)
Do I take it that if such Amendments are moved the hon. Gentleman will support them?
§ Mr. Jennings
That is a straight question deserving a straight answer. The hon. Gentleman knows me quite well from long experience. Whenever I have advocated anything in this House I have not hesitated to go into whichever Lobby I wished. In order to nail the point, what gives me so much pleasure this afternoon in welcoming the Bill is that compared with events of the past few days it is a change for me. I welcome it as such. I shall not go into that subject further, because I should be out of order. I merely wish the hon. Gentleman to know that if I put down an Amendment or put my name to one my vote will follow my voice, as it always 263 has in this House. Therefore, there is no need to question anything like that.
My last point concerns the biennial review. This is a tremendous step forward. We had to lobby and lobby, pressurise and pressurise, table question after question year after year, month in, month out, until finally a Minister of either Government would say, "Yes, we will produce something." Now we know something definite. The biennial review is a great step forward. But some of us will probably be putting down Amendments to reduce the two years period. As so many industries automatically now get annual wage increases—some even at shorter periods—it is unfair that pensioners should be placed at a disadvantage compared with the rest of the community.
§ Mr. Edwin Wainwright (Dearne Valley)
Does the hon. Gentleman agree that if the Government argue against having an annual increase they ought at least to make sure that they project the increases for the first twelve months and try to estimate at the end of that period that the cost of living is about equal to the allowance to be made?
§ Mr. Jennings
That would mean looking into the crystal ball and, depending on which side of the House one is, how clear or how muddy the crystal ball is. Therefore, I shall not attempt to do that or even to answer the intervention. Nevertheless, in fairness to pensioners, it would be a good thing if the Government would consider reducing the biennial review to an annual review.
I am grateful to the Government for producing the Bill. It is a landmark in public service pensions history and will be appreciated by many people who in the past have lobbied us to support them. I commend the Bill to the House.
§ 4.57 p.m.
§ Mr. R. T. Paget (Northampton)
I join with the hon. Member for Burton (Mr. Jennings) in thanking the Government for introducing the Bill. From this Government it is a Bill for which we should be grateful.
I remain a believer in the principle of parity. Armed Services pensioners are in some degree in a special case because they retire so much earlier on 264 average than most other pensioners. Concerning the Armed Services, parity was the official policy of my party when last in Opposition. I had the unhappy job of giving that pledge on their behalf from that Dispatch Box during that period. It was one of the unhappiest things I ever did in view of the result.
The same pension for the same work is a principle of justice. It is also, from a Government, a principle of honesty. Pensions, after all, are part of wages, and to pay those pensions in money which has been made bad by one's own policy is not something which, Governments apart, could be regarded as honest behaviour. Yet that is what we have done. At present pensions for men who served in the 1914–18 war are, in the case of officers, about one-quarter and, in the case of other ranks, about one-third of the pensions being paid today. When we compare the terrible conditions and dangers in which First World War pensions were earned with the conditions of comfort and relative safety in which the later ones were earned, we find a terrible injustice in the difference.
The Bill goes some way to closing that gap, and I congratulate the Government upon it. But why do the inflation figures in Schedule 1 stop at 1944? We are dealing with many pensioners, particularly widows, whose pensions go back a good deal further than that. I appreciate that the multiplier is a multiplication of the basic figure, and not of subsequent increases. If the multiplier of the old pensions is more than three, that brings them up to something over one-half of the pensions paid to their contemporaries today. It is not awfully good, but it is a good deal better.
My only other point is concerned with the Colonial Service. Here is a position which ought to be very much on our conscience. We have wound up an empire. We have given independence to one country after another, and at the independence ceremonies the new Governments have expressed their intense gratitude to the civil servants that worked for them. Those same civil servants have been urged to continue in service, and promises have been made to them. I do not think that there is a single instance in which these new Governments have not ratted on the promises they gave to expatriates. Yet, we urged 265 those men to carry on. It is very important, in decency and self-respect as well as humanity, that we should stand by the promises to those people which were broken by our successors. The Bill goes some way in some instances to fulfil those obligations. It could go a great deal further, and I hope that it will be in order in Committee to move Amendments to that effect.
I am most grateful, Mr. Deputy Speaker, for your having enabled me to take part in the debate. I explained to Mr. Speaker that I have another urgent appointment, and I hope that the Minister who is to reply will not consider it discourteous of me if I cannot be here when he replies. I have almost never spoken in a debate without being present for the reply in the years I have been in the House, and I am extremely sorry to find myself in this position today.
§ 5.4 p.m.
§ Mr. Rafton Pounder (Belfast, South)
I am particularly pleased to follow the hon. and learned Member for Northampton (Mr. Paget), because in his concluding remarks he referred to a case parallel to one which was brought to my notice at lunchtime today. I have not had an opportunity to check the facts, but I accept without question the integrity and accuracy of my informant. The hon. and learned Gentleman referred to those colonial Governments which since independence have not wholly honoured their obligations. I wish to raise just one case which falls within that category, and which, if my facts are correct, strikes me as appalling.
I understand that the pensions of those accredited civil servants who have served abroad are drawn from the territories in which they served, and depend on the integrity of the local government. In many cases these obligations have been honoured, but at a rate that does not take account of inflation. The case about which I was told today mystified me. The person concerned is dead. He originally ran away from school, joined the Royal Navy in World War I, served thereafter in the Royal Irish Constabulary until 1921—though so far as I know he was not an Irishman but a Scot, then returned to Scotland, where he joined the local police, subsequently he went to Malaya as a senior police officer, was captured during World War II and spent 266 two or three years in Changi Gaol. He then went on to Hong Kong, and was subsequently nominated by the Foreign Office to advise two overseas Governments in police matters. At the end of the day, he received a pension. Since he died his widow receives a pension of £500 a year, which seems to me a fairly poor reward for a lifetime of service abroad by a senior officer, albeit in various territories.
It was put to me at lunchtime that there cannot be all that many persons in that category, so what is the argument against the United Kingdom's accepting responsibility for such persons? The note I made on the back of my aeroplane ticket was, "Why not take under our wing?" I do not know the answer, nor how many people are involved in that kind of category, but I should very much like to know the answer.
I make no pretensions to having been in the House as long as my hon. Friend the Member for Burton (Mr. Jennings) or to have been involved in the subject for as long. When he talks about 1956, it makes me feel rather junior. But I, too, give an unreserved welcome to the Bill, not out of a sense of loyalty to the Government but as a statement of genuine pleasure at its contents.
Like the hon. and learned Member for Northampton, I still have hankerings after the concept of parity. I am not prepared to go to the wall for it, but I feel that the Bill goes such a long way that it is only one relatively short further step to the attainment of parity. I accept the arguments about the cost that would be involved, which are obviously somewhat daunting.
§ Mr. Pounder
I was coming on to this point, that those who receive a pension as a result of contributions during their working life are in a somewhat different category from those whose pension is a form of deferred salary, as in non-contributory schemes and Civil Service schemes. That is why I fall back on the parity concept, because in a sense we have not overpaid our civil servants, but we expect them to do a difficult job. At the same time, we have tended to quibble 267 about the concept of parity. I cannot understand why a person who holds a job at a given rank after a certain length of service should either benefit if he retires now or be penalised if he retired 20 years ago, merely because circumstances have changed, because inflation has resulted in higher salaries and therefore a higher pension when the person has retired.
Unfortunately, pensions legislation by its nature, whether in the public service sector or any other, is absolutely riddled with anomalies. I do not say that by way of criticism. The Bill goes a long way towards eliminating anomalies. But when I was reading the Explanatory Memorandum—one of the finest documents of its kind that I have ever read—I was nevertheless a little confused by the actuarial complexities which I thought were inherent in the implementation of the Bill. I hope that we can avoid the creation of a further set of anomalies, because it seems unfortunate that, try as one does, pensions legislation seems to be bedevilled with unfortunate examples of people who seem to be left out for no good reason, and this can only be described as an anomalous situation.
I particularly welcome the fact that a two-yearly review is now written into the Bill and that we shall move from this ghastly situation which we have had for so long that public service pensioners, and pensioners generally, are to a large extent dependent on the whim of the Administration of the day for any increase they may receive.
On the subject of widows, if I may be personal about it, I think inevitably of my mother-in-law, who is the widow of a civil servant. I notice that under Clause 3(4) there is a reference to the… services of the pensioner's deceased husband …and the pension payable will not be increased unless the pensioner meets certain requirements. Do I assume that any increase in pension for the widow is related to the original pension which the husband would have received and thus to the widow's pension she is currently receiving as a widow? There must be considerable difference between the pension rate which was originally granted and the pension rate at the date of death 268 of the husband. I am assuming that in this case the widow receives an increase on the original pension rather than at the rate appertaining at the date of her husband's death. I hope I am wrong in this assumption, because it seems unfair, but nevertheless I should be glad if my assumption were correct.
Following up the intervention of my hon. Friend the Member for Liverpool Wavertree (Mr. Tilney), who referred to quasi Government civil servants, or, as a document produced by the Overseas Service Pensioners Asociation refers to them, the "forgotten men", though that is a somewhat emotive description of those persons, I am inclined to agree that it is manifestly unfair that those persons who are engaged through the Crown Agents or some similar organisation should go to overseas territories to all intents and purposes on the same basis, with the same rank, doing the same kind of jobs and bound by the same rules as colonial civil servants were and are, and be in this separated category.
Judging again by the document sent to me, there do not appear to be all that many persons involved in this case. I am open to correction but, as I understand it, it is those who, once upon a time, worked for the Achimota College, Ghana, the Nigerian Coal Corporation and the Lagos Town Council—all in West Africa. There cannot be that many. Therefore, I should have thought that in the interests of equity and justice, there is a strong case for bringing those people in under the umbrella of the Bill. Indeed, they should have been brought in a very long time ago. It seems that even if one uses the economic and not the moral argument, it cannot cost all that much to bring these people under the net.
Arising out of the comments of my hon. Friend the Minister when he introduced the Bill and when he said that those who have done Crown service at any time will be covered—I hope that I wrote down his words correctly—do I assume that if a person has done Crown service at any time and has subsequently been involved in other things, his pension will merely relate to that very small portion of the time he spent on Crown service and that presumably the factor calculation will take into account that figure? What happens to the person who did Crown service at one stage and 269 then moved into this quasi field? Does he just get the benefit for the period of Crown service or is the quasi period taken into account where at some stage he has been a fully accredited Crown servant?
I conclude by expressing my wholehearted delight, pleasure and agreement with the Bill. I hope that my observations and questions are not deemed to be highly critical. They are really seeking information. I wish the Bill a very speedy passage to the Statute Book.
§ 5.16 p.m.
§ Mr. Kenneth Marks (Manchester, Gorton)
Perhaps I ought to declare an interest in the Bill. Before I came to the House I paid contributions to the teachers' superannuation fund. Whilst I did not pay enough to qualify for pension, the vicissitudes of political life being what they are, I may well qualify at some time in the future.
The Bill is very important and the Minister has rightly stressed that. It is because of its importance that we ought to get it right this time. It is a complicated Bill. Any Bill which sets out to get rid of anomalies arising from a number of Bills in the past must be complicated.
I noticed that when the Minister referred to visual aids he regretted that he could not take a blackboard into the Committee room. I, too, regret that. At present, borough and district councils are putting into their committee rooms not only blackboards but screens so that they can put to members of committees the details and features of what is to be done. It is a pity that we are so out of date.
The Bill is wrong in principle on two points. One is on basing increases in pensions on increases in the cost of living. I criticised my Government for making this part of its national superannuation Bill on national insurance pensions, and I make the same criticism of this Bill. I have no doubt that I shall be making the criticism of the Pensions Bill which will be introduced by the Government in the next Session.
I do not think that there is a case for basing increases on the cost of living. Inflation-proofing pensions, as it is called, is not enough. Whichever Government 270 has been in power, we have had a steadily rising standard of living for the people who are employed, and the same rise in standard of living ought to apply to those on pension. Indeed, in the debate on the Crossman Bill I moved an Amendment on those lines, and one of the points made by the Minister then was that the national insurance pension had, under both Governments, risen not only at a greater rate than the cost of living but at a greater rate than the rise in wages. But that is not true for public service pensions, which have lagged a great deal behind. After a fashion they have kept pace with the cost of living, but usually after considerable delays and a great deal of lobbying.
If we are to have an increasing standard of living, pensioners ought to share it, and public service pensioners, especially—who are not the highest paid people in the world—ought to have their share. I heard the Minister's objection that this would be hotting up the pace too much for the other occupational pensions. The Government ought to hot up the pace for occupational pensions, some of which are inadequate. It is no use the Minister taking credit for the leadership which Governments have been given in the past on superannuation schemes and not taking that lead in the future.
Another reason why it should be tied to incomes is that it has been said that there is no fund and that the payments are made from the contributions of those working at the time. There will be an increase in pension over two years if the cost of living is over 4 per cent. in that time. No doubt over the next six years the rise in the cost of living will be more than 2 per cent. a year. Without going into the subject which the hon. Member for Burton (Mr. Jennings) did not want to mention, there is no doubt that it could happen that there was a steady but small increase in the cost of living without these pensioners getting an increase.
My other criticism is of the two-year period for review. This is another matter about which I moved an Amendment to my Government's National Insurance Bill. The last year of inflation should have taught us that two years is too 271 long a period for pensioners to wait before having their pensions reviewed. In emergencies, trade unions do not wait for two years before putting in a claim. The teachers, one of the groups affected, did not wait two years when there was inflation; they put in for an interim award and got it. The same thing ought to apply to pensioners.
Manufacturers and shopkeepers do not wait for two years before putting up prices. Local authorities do not raise their rates every two years—they do it every year. The Chancellor does not have a Budget every two years—he has one every year, sometimes even more than one a year if there has been an election in the summer. Why pick on the pensioners for the two-year wait?
I urge the Government to consider this seriously. An annual review is not administratively impossible. With the machinery and methods that we now have, the work entailed is nothing like the work that would have been involved a few years ago. While I welcome the increase in pensions which will result from the Bill, and the rationalisation of the system, I urge the Government to consider these points carefully.
§ 5.22 p.m.
§ Captain Walter Elliot (Carshalton)
This Bill brings such manifest benefits that I am certain it is welcomed on all sides regardless of party. My hon. Friend the Member for Burton (Mr. Jennings) mentioned some back-benchers—of whom he is certainly one—including the right hon. Member for Sowerby (Mr. Houghton) and the hon. and learned Member for Northampton (Mr. Paget), who over the years have taken part in these debates. While I congratulate my hon. Friend upon bringing this Bill forward I believe that it is a triumph for back-benchers. We sometimes wonder whether what we say has much effect on Government, whichever party is in power. I believe that the driving force for this Bill has come from the back benches of both sides of this House.
One word which my hon. Friend the Member for Burton did not mention in his speech and which we have now demolished is the word which I know the right hon. Member for Sowerby will remember—he may well have used it at 272 the Dispatch Box—and that is the word "immutability". We were told that pensions were immutable, nothing could be done about them. That has gone, the word has been buried by the Bill.
Having praised the introduction of the Bill, it may seem churlish to criticise. I want to make one point and hope that such criticisms as I make are constructive. There is a body of opinion—we have heard it today—which advocates parity of pensions—so that a person's retirement pension is kept up-to-date. I have never advocated that and I do not think that my party has. I appreciate the difficulties about recruitment, the change in character of the jobs and so on. Although as the hon. and learned Member said, his party at one stage seemed committed to this when it was in office, it did not bring it in, for good reasons, I think.
One feature of these public service pensions which has worried both sides of the House and provided the driving force resulting in the Bill is the fact that those who have retired in earlier years fall further and further behind those who retire today. That is partly due to rising prices eroding the value of their pensions but it is also due to the fact that, having got rid of the expression "immutability of pensions", the pension provisions for those still working have greatly improved. I presume that that process will continue.
The proposals for a percentage increase to compensate for the rise in the cost of living are excellent. If the cost of living goes up 10 per cent. then the pension goes up 10 per cent. That is fair enough but it means that of two persons who have retired, while both will get an increase in pension, the person who has retired most recently will in all probability get the biggest increase, in some cases very much greater than someone who retired a few years earlier.
I believe that the needs of the person who has been retired longest are probably greatest. Under the Bill that person will fall further behind in his pension. That is basically unfair. It is reasonable to say that such standards as we enjoy in this country are due at least as much to the efforts of those who retired in earlier years as to the efforts of those who are working or retiring today. While we may not accept parity in pensions within the meaning of the expression, we should aim at—and here I would like to 273 coin a phrase—parity in increases, at least for persons of similar status. That is the principle on which the national retirement pension is given. I hope that my hon. Friend will consider this, or else we shall be back to the old problem of the gap getting wider and wider. Methods could be devised and it would not be too expensive.
I welcome the Bill. It marks a great step forward and it will bring much-needed help to many devoted ex-public servants. They cannot, by the nature of their work, be vocal politically. That is all the more reason why we should protect their interests.
§ 5.30 p.m.
§ Mr. John Roper (Farnworth)
I got the impression from the opening remarks of the hon. and gallant Member for Carshalton (Captain W. Elliot) that, like certain pension schemes, there was a certain qualifying period during which one had to be a Member of this place before being allowed to speak on Measures of this kind. I therefore feel somewhat hesitant in speaking, in my first Parliament, on this subject.
Like other hon. Members, I welcome the Bill. It makes proper recompense to those who have served the community in many ways. As the Minister said, one need only read the Schedule to realise the wide range of public servants for whom we are making proper provision in the Bill.
I am more enthusiastic than the hon. and gallant Member for Carshalton about the idea of parity, and it seems that the Bill goes a long way towards introducing the principle of a dynamic pension relating to cost-of-living increases. However, I hope that it will be found possible to incorporate increases in the standard of living in our arrangements in this sphere so that higher standards are reflected in the pensions we pay to our retired public servants. We could then hope that that practice would spread to all occupational schemes.
I wish to direct most of my remarks to the powers which the Minister is taking in Clause 12(2), which gives him discretionary power to make regulations conferring on, for example, those whoare or were subject to a superannuation scheme operated under the Federated Superannuation System for Universities274 the benefits whichappear to the Minister to be appropriate having regard to the benefits providedunder earlier parts of the Bill.
Perhaps I should, at this point, declare an erstwhile interest as one who was superannuated under the F.S.S.U. until entering this House. I am at present not a member of that scheme, and as far as I can see I am unlikely ever to receive any benefit from the provisions of this Measure. I am sure that retired university teachers and other pensioners who have been members of the F.S.S.U. will welcome Clause 12 and the powers given under it to the Minister.
It is not always realised that the F.S.S.U. extends in scope beyond the universities. A number of people in Government research establishments as well as a significant number of civil servants in the Treasury, and perhaps in the Civil Service Department, enjoy both its benefits and its disadvantages.
In previous Pensions (Increase) Acts, Ministers have taken power to increase supplementation for retired members of the F.S.S.U. to ensure that they do not suffer from inflation any more than other public sector pensioners suffer. The F.S.S.U. scheme has many advantages, particularly because of its flexibility, and in the past the scheme has been found particularly appropriate for university life.
One of its disadvantages, and a particularly serious one until 1960, was that a bad selection of insurance policies taken up early in one's working career, or alternatively a rapid rate of inflation towards the end of a university teacher's life, could result in considerable hardship during retirement. Now, thanks to supplementation, the F.S.S.U. has certain attractive elements of a gamble, and one cannot lose too badly. University teachers have been grateful that since the Hale Report, supplementation has ensured that any pension under the F.S.S.U. is at a reasonable level and that, subject to the passage of Pensions (Increase) Acts, the increases in those Measures have subsequently taken account of inflation.
Clause 12 merely gives the Minister power to make further post-retirement increases to F.S.S.U. pensioners, unlike earlier Clauses which approve specific increases to other public sector pensioners. May we have an assurance that 275 the powers under Clause 12 will be exercised in such a way that F.S.S.U. pensioners receive increases comparable with those given elsewhere in the public service?
Many people feel that a variety of factors, including last year's and this year's Finance Bills, have substantially changed the reasons for the special situation of F.S.S.U. and have created a rather new situation for university teachers' superannuation. They have provided strong arguments for those who would advocate the setting up of a scheme more comparable to other schemes in the public sector. A change of this sort would ensure that it would be possible in future to assimilate increases given to other pensioners in the regular two-year review to those under the F.S.S.U., and a university superannuation scheme might make this possible.
May we have an assurance that it would be possible to introduce a university superannuation scheme that would technically qualify for the regular two-year review provided for in earlier parts of the Bill? Or would it be necessary to make a further amendment to the Bill to ensure that such a scheme would qualify for the regular two-year review?
As the Financial Secretary suggested to me on Second Reading of the Finance Bill, the present system of supplementation imposes a considerable burden on the Treasury. I am delighted to say that this Bill will, if the Minister exercises his powers, increase that burden of supplementation on the Treasury. However, there are in the long run strong arguments for a change in the form of university teachers' superannuation.
I understand that the F.S.S.U. Council has worked out detailed proposals for a university superannuation scheme and that they have been discussed with the Civil Service Department. May we have an assurance that a decision about this new scheme will be made in the very near future, in order to remove the uncertainty which has surrounded university superannuation in recent years? I hope that, elsewhere, it may be possible to persuade the Government to honour the assurances that were given last year about the position of existing members of the F.S.S.U.
276 How wide are the powers given under Schedule 6, part of which seems to refer back to Clause 12? We are told that people inany other employment specified for this purpose by regulations of the Minister for the Civil Servicemay have extended to them increases in superannuation by the Minister. It seems that that might even allow him to make regulations along the lines suggested by my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis) and to increase the pensions of Members of this House. However, I am not certain that Schedule 6 would permit him such discretion.
This is a generous Measure to the public sector and I hope that the Minister will assure us that present and former university teachers will benefit in the same way as members of other parts of the public sector.
§ 5.40 p.m.
§ Mr. John Golding (Newcastle-under-Lyme)
I ought to begin by apologising for my absence during part of the debate, which was due to the Government's insistence on pushing their Immigration Bill through Committee before the Whitsun Recess. However, I came into the Chamber in time to hear the Minister say that the nationalised industries would be free to act according to their commercial judgment, the implication being that this Measure did not cover the nationalised industries and that they were free to formulate schemes of their own. However, that is not so, as we have seen in recent weeks in the case of the Post Office.
I have to declare an interest at this point. I am an official of the Post Office Engineering Union, and I have followed that union's negotiations very carefully. In common with other nationalised industries, the superannuation schemes of the Post Office are controlled by the Government. The Post Office Act, 1970, makes it clear that the Minister of Posts and Telecommunications has to give his approval to any superannuation scheme negotiated between the unions and the Post Office.
A scheme was negotiated between the unions and the Post Office and submitted to the Minister in the autumn of 1970. Far from the Post Office and the unions 277 being free to adopt the scheme that they wanted, the Minister delayed approval of the scheme for several months and, although it had been agreed that it should come into operation on 1st April, it has not been possible yet to implement it. There are four points which the Minister does not accept. Unless he changes his mind, it will be impossible to implement the agreement.
The four points, one of which is of particular importance in this debate, were first that the Minister refused in the Post Office superannuation scheme to allow the provision which is in the Civil Service scheme whereby members retiring on grounds of ill health could have their pensions based on 20 years' service when they have served at least 10 years but not 20 years. Another point that the Minister could not approve was that where a Post Office pensioner who had drawn his gratuity and was drawing a pension was re-employed by the Post Office, he should not suffer any pension abatement. The Minister would not approve the agreement between the unions and the Post Office that there should be a five-year guaranteed pension Fourthly, what is probably most important from the point of view of the debate, the Minister could not approve the provision for yearly adjustments of pensions in line with increases in the index of retail prices. However, he has agreed to the biennial adjustments which are provided for in the Bill.
Far from the nationalised industries having freedom in their choice of superannuation schemes, they are closely supervised and controlled by Ministers. The content of the Bill has at least one important implication for the nationalised industries. It is that an agreement between the Post Office and the Post Office unions whereby pensions should be adjusted annually has been overridden by the Minister. I shall return to that point later.
I am very pleased to see my right hon. Friend the Member for Sowerby (Mr. Houghton) in his place, because I wish to refer to a claim that the Civil Service National Whitley Council has been making for many years for the reckoning in full for pension purposes any unestablished service followed by established service. My right hon. Friend has had a 278 long and distinguished connection with this claim, and civil servants of all ages and in all departments have cause to be grateful for the work put in by him.
This is a long-standing claim. When this Increase Bill was announced, I asked whether the reckoning in full for pension purposes of unestablished service would be included. I am disappointed that it has not been. I recall that, at the time of the 1949 Superannuation Act, the then Conservative Opposition carried against the Labour Government of the day an Amendment enabling all Civil Service unestablished service since 1919 to reckon in full for pension purposes. At the subsequent Report stage, the Labour Government succeeded in deleting the Amendment, but they allowed a concession to enable unestablished service to count in full from the date of the Act. There have been many distinguished Conservative exponents of this point of view, and, in 1953, the Conservative Government appointed a Royal Commission on the Civil Service and included in its terms of reference:Whether any changes are desirable within the framework of the existing superannuation scheme.The Royal Commission reported:It seems to us that there is no question of merit or principle outstanding. It is, in fact, now common ground that it is right that unestablished service should reckon in full: the 1946 decision certainly affords a precedent for retrospection of the kind claimed and supports the argument that if a certain treatment is right at one point in time it is also right at others. It is our view that the sole consideration is that of cost.I do not wish to enumerate all the people who had been drawing and will draw lower pensions because of the failure of successive Governments to implement the reckoning in full of unestablished service. They include ex-Service men of the 1914–18 war who entered as temporaries after that war. They include junior postmen who volunteered for service and became known as the "rebel" volunteers. They include civilians who entered the service as temporaries either during the 1939–45 war or between 1945 and 1949. They include ex-Service men and women of the 1939–45 war who entered the permanent Civil Service either direct or after a period of temporary service. They also include many members of the Post Office Engineering Union such as factory staff who until 1948 were 279 graded as unestablisihed although they were permanently employed. Successive Governments have examined the problem and, on ground of cost, have decided not to behave in a moral way.
We are waiting to hear what the present Government's attitude is towards the problem. The Civil Service unions have had a meeting with the noble Lord, Lord Jellicoe. They have been moderate in their claims They have not asked that this principle be applied at a stroke. They have accepted that implementation would be gradual. They have been told that the cost would be £180 million, but I make it clear that this gives a false impression. That would not be the cost in one year. It is the cost calculated over many years. It is believed that it would not be until the 1980s that the major part of the cost would arise. Those of us who have represented men and women in the Civil Service who have been receiving smaller pensions than they should are anxious to hear the Government's attitude towards reckonability of unestablished service.
I have said that, before the Minister of Posts and Telecommunications intervened, the Post Office and the Post Office unions had reached an agreement whereby pensions should be reassessed annually. That is very important at the present time, given the rate of inflation. An inflationary rate of between 10 per cent. and 20 per cent. is bad enough if one has a high salary, but if one is living on a small pension—and many ex-servants of the Post Office are living on a very small pension indeed—such a rate hits one very hard. Given the extent of the increase in prices, it is imperative that we abandon the two-yearly rule and have an annual review instead.
The pensioners are also right to ask that their pensions should be related not just to the cost of living but to the standard of living. Many of them did the spade work on which later increases in production and productivity have been built. Looking around them, they who have worked so hard think it unreasonable that they should be receiving pensions so much below those of people retiring in later years. It is time we accepted that pensioners are entitled to increases in their standard of living comparable 280 with those of industrial and professional workers.
I shall say no more about that now, Mr. Deputy Speaker, because I see that you are looking at the clock and I know that in Committee we shall have adequate time to discuss these aspects. My final point is that the ex-civil servants and ex-Post Office servants covered by the Bill think that they should have had an April increase. They are dissatisfied at having to wait for it. They thought that they were going to have an increase in April, and an increase in April is what they want. If it is not possible for administrative reasons to pay the increase until later in the year, the Government should adopt the same principles as for increased pay in the Civil Service—six months' back dating.
I welcome the Bill. It will mean an improvement in the situation of public service pensioners. But I have qualified my welcome with certain reservations and I am disappointed not to see in the Bill any provision for the reckonability of unestablished service.
§ 5.55 p.m.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
This has of necessity been a short debate and it may end by being even shorter than expected. My hon. Friend the Parliamentary Secretary to the Civil Service Department and I are immensely grateful for the wide measure of support which the Bill has gained on both sides of the House. We particularly appreciate the welcome given by those who have campaigned for so long and so honourably for the welfare of public service pensioners. Speaking as a Treasury Minister, and perhaps straying a little beyond the normal path, I express my appreciation of the work done in the Civil Service Department to enable the Bill to be brought forward in this form. It was I who, from the Opposition Front Bench two years ago, gave the Conservative Party's pledge which is fully, and indeed more than fully, honoured in the Bill, and I am very appreciative of the efforts made to carry out that pledge so thoroughly and so early in the new Parliament.
The hon. Member for Ashton-under-Lyne (Mr. Sheldon), in welcoming the Bill, raised a number of interesting and 281 in many ways relevant points, based on his distinguished membership of the Fulton Committee and the great knowledge which he derived from his participation. I hope that he will forgive me if I do not follow him down all the roads he travelled, because most of the matters arising out of Fulton which he raised are at present the subject of a major review by the Civil Service Department, which includes a review of the terms of the pension schemes of which various categories of public servant are members.
The Bill is concerned with up-rating—with inflation-proofing, as it has been described. We are not here concerned with the details of the individual pension schemes. These, as we have promised, are being reviewed, and, as my hon. Friend said, are being reviewed in consultation with the appropriate staff associations. No doubt, at the appropriate moment, it will be possible to announce the results. As I am sure the hon. Gentleman realises, many of the matters he raised, including the problems of establishment which were also referred to by the hon. Member for Newcastle-under-Lyme (Mr. Golding) are not within the purview of the Bill. I hope, therefore, that I will be forgiven if I do not deal with them.
I want to deal with points of principle and detail which have been raised. But first I want to describe two features of the Bill which are of interest and which my hon. Friend was not able to touch upon in his opening speech for want of time. The first is the problem of frozen lump sums. This has been a source of considerable irritation for many years, and I think that I can describe how the Bill deals with it. This problem arises where a man retires early with a pension preserved or frozen to come into payment on his ultimate retirement date. The pension awarded will consist partly of an annual payment, and partly of a lump sum. In the past, Pensions (Increase) Acts have always applied to the annual payment part of a pension, but not to a lump sum, the frozen lump sum as it is called.
We have accepted that that is wrong, and the Bill provides for all lump sums that were frozen before 1st April, 1971, but which came into payment after that date, and for all that are frozen on and and after that date, to receive increases 282 to compensate for any rise in the cost of living in the interval between freezing and payment. The Bill, however, adheres firmly to the principle that a pensioner can never expect any increase on a lump sum in respect of any period after it has been paid over to him. When it is paid it becomes his responsibility to spend or invest as he thinks appropriate.
The second feature that I should like to mention is the new arrangement for cut-off dates, and what are called graded increases. One of the sources of complaint under previous Acts has been the inflexible working of the cut-off date. Under recent Acts this has been set about 21 months before the operative date of the Act, and anyone who retired in what might be described as this "close season" received no increase under that Act. He has had to wait until the next Pensions (Increase) Act before getting any increase in his pension, which could be three, four or even five years later.
We have made a great improvement on that, but, as I am sure the House will recognise, there still must be some cutoff, otherwise we get to the ridiculous position when a pensioner who retires perhaps only a matter of months, or even weeks, before the operative date of an increase becomes entitled to receive some quite derisory increase. I get the impression that this causes more irritation that pleasure, and it would be hopelessly uneconomic to administer.
§ Mr. Jenkin
All I can say is that there is a sense of irritation that what has been a complex administrative matter ends up with a payment of what may be not more than a few new pence, or a shilling, a week.
We are talking about derisory increases, and it is right, in those circumstances, that there should be some sort of cut-off date. The test that we have written into the Bill is the same 4 per cent. test which applies for the purposes of increases generally. In other words, no increase will be made if it is less than 4 per cent., but the pensioner does not 283 lose because, if he has suffered some loss of purchasing power before the operative date of the order in one year, it is made up when he gets an increase under a subsequent order two years later.
That would be all right, were it not for the fact that about 75,000 people will retire in the course of any review period, and it will be impossible to work out the individual entitlement of each of those 75,000 pensioners for this broken period before the beginning of the subsequent review period. Therefore, what the Bill proposes is that we should divide the review period into four six-month periods, that an average level of the cost of living should be worked out for each of those periods, and that should be applicable to all those who retire within any six-month period. I recognise that that will be a little generous to some, and a little less generous to others but, overall, it is a fair and reasonably simple operation.
May I here emphasise again, because there has been widespread misunderstanding about it outside the House, the point made by my hon. Friend the Parliamentary Secretary. The provisions in the Bill mean that all those who retired within the review period—that is to say between April, 1969, and 31st March, 1971, and are otherwise qualified—will get some increase this September. It is right that they should know that. It may be asked what is to happen to the man who retires in the later part of a review period, who may be excluded from any increase by this 4 per cent. cut-off? The answer is that he does not lose in the long run. He picks it up later, and it is added to his pension.
I now come to the main issues of principle raised during the debate by hon. Members on both sides of the House. The first is the question of parity, which was mentioned by my hon. Friend the Member for Burton (Mr. Jennings)—who has perhaps done more than almost any other hon. Member to fight the cause of the public service pensioners—and by the hon. and learned Member for Northampton (Mr. Paget), and by others.
Parity means that a man who retired from the Home Civil Service 20 years ago, having earned the maximum pension possible in that grade, should now have his pension raised regularly to what is the 284 going rate of new pension for newly retiring civil servants in the same class and grade who have comparable records of service. I put it on record, and it is well known, that both parties when in Government have always rejected parity, whatever they may have said when in Opposition, and I must reject it again.
First, we are against it on its merits. Many factors, apart from changing prices, can account for the differences in the pay of a man who retired 20 years ago, and the man who is retiring to-day from the same grade. There is no obvious reason why the man who retired 20 years ago should have his pension tied to what might be the relatively happy, or could be the relatively unhappy, pay experience of his successors in office. Some categories of staff will inevitably do better than others over the years, for reasons related to the market demand for staff, the nature of a job, and so on. Civil Service pay is based on comparability with the nearest equivalent work outside the Service, and it follows, of necessity, that the pay of different grades will not move in step with each other, but will vary from time to time, and that argument of principle seems to me to be very powerful.
Some people have advanced arguments based on the practice of other countries. All I say is that one has to take the whole spectrum of employment policies in the public service together. Many of the other countries do not have the same relationship as we have between the National Insurance pension and the public service pension. The whole—or virtually the whole—of the National Insurance pension is paid on top of the public service pension.
Third, there is the administrative problem. It may sound a simple enough proposition to level pensions up regularly to the going rate for the same record of service, but I assure the House that it would be a highly complicated operation. Most public service pensions are settled by reference to length of service and average salary earned over the last three years. For every grade with its own salary scale there would be a huge number of parity rates, depending on the length of service and the salary experience over the final three years. Moreover, many grades change or disappear altogether, and to the extent that one 285 cut through all these complications by producing some average parity figure, one would create new and substantial anomalies. By comparison, although the Bill is complicated, once our inflation-proofing system gets under way, the straightforward addition of a standard percentage every two years is administratively about as simple as it could be.
Finally, as a number of my hon. Friends acknowledged, parity would be very expensive. It would raise by another £25 million the already large annual cost that we are incurring if we were to restrict it only to those who now qualify for increase, and by about another £50 million if, as its champions sometimes argue, it were to apply to all pensions without regard to the present qualifying conditions for increases. I hope the House will agree that the restoration and maintenance of purchasing power as embodied in the Bill is on the generous side of fairness, and that we should not give further serious thought to parity at this time.
Another hon. Member who had to depart to participate in the proceedings on the Immigration Bill, the hon. Member for Newcastle-under-Lyme raised a question why pensioners had to wait five months for payment; if April were to be the end of the review period, why could not the pensions be paid then? This has sometimes been called the five months' gap. We start from the position where we, like our predecessors, were committed to a two-year review in April this year. Since the purpose was to protect purchasing power, we had to wait until we had the latest cost-of-living figures up to 1st April, and we could not assess the increases until then. Thereafter—and I must make this perfectly clear to the House—1st September is the earliest practical date on which the actual payment can be made.
I have no doubt the House would be fascinated if I were to describe the complex administration that is necessary before increases can be paid but perhaps I can leave it by saying that I was convinced, as was my hon. Friend the Parliamentary Secretary, who knows a good deal more about this than I do, that they could not be paid earlier. An hon. Member asked why we cannot make the payment retrospective to 1st April when 286 we make it in September; and he gave the example of other fields of life where this happens. It may well be that there are some settlements which can properly be made retrospective. But it is a fact that governments of both parties have avoided retrospective adjustments of public service pensions.
Of course, retrospective payment is not technically impossible. It could be done, but here again it is mainly a matter of cost; and we believe that we have produced the best scheme within the cost limits. If we were to pay this year's increase backdated from September to April we should add another £27½ million to the Bill, so that on top of what we are spending already the total cost would be about £85 million to £86 million. I believe that that is too much, and I think that the House will recognise that that is the case.
What have we done? Instead of retrospection, we have dealt with the five months' gap, as my hon. Friend described it, in a different way. For existing pensioners we have taken account of the gap in fixing the standard increase payable in September at 18 per cent. rather than 14.4 per cent. which would exactly correspond with the rise in the cost of living in a review period. The hon. Member for Ashton-under-Lyne recognised that this was not a forecast. Obviously, it is not a projection. It is not arrived at by any arithmetical calculation. It is, by and large, the margin by which we feel it will be right to compensate for the five months' gap, and which I believe is acceptable as such.
More complicated measures are necessary to deal with future pensioners. They are prescribed in some detail in paragraphs 29 and 30 of the White Paper. I doubt my ability to try to describe them to the House this afternoon because those particular paragraphs have not been my most enlivened bedside reading. But I hope the House will agree that we have taken reasonable steps to deal with this, in a sense, on a once-for-all basis.
After this we have a situation where review periods and payment periods occur every two years—from April to April for the review periods and from September to September for the payment periods—so that each pensioner will get a cost 287 of living increase measured over a two-year period and he will get it at two-yearly intervals, in September. I believe that this will turn out to be a very convenient and acceptable administrative arrangement for meeting this longstanding grievance of pensions failing to keep pace with the cost of living.
The hon. Member for Ashton-under-Lyne made the particular point that most of the margin we have built into this 18 per cent. has already been used up, as he put it; that the cost of living in fact went up by 2.1 per cent. last month and that there is not, therefore, much left of the difference between 14.4 and 18 per cent. There was, therefore, some suggestion that 18 per cent. was too low. I am prepared, as I am almost always prepared, to accept the hon. Gentleman's mathematics, but I do not accept his conclusions, and for two reasons. First, none of us can confidently say how the cost of living will move in the next two or three months. I agree that the last monthly increase was a heavy one, but those who study the way the index moves through the months of the year over the last decade will have seen that it is not uncommon to have a sharp rise in the spring followed by a relatively stable period throughout the summer. We must wait and see—and here again I am not making a forecast but saying one is not entitled to assume the rate will continue at the April rate for the rest of the summer.
The second and perhaps more important point which I have already emphasised is that this is not a forecast or projection but a margin; and any difference will automatically be taken into account when the next review is made for the period April, 1971–April, 1973, for payment in September, 1973.
Another point of substance made by a number of hon. Members, again on both sides of the House—because just as the Bill has had a bipartisan welcome, so improvements which are suggested have had bipartisan support—is the problem of annual review. The hon. Member for Manchester, Gorton (Mr. Marks) raised this, as did my hon. Friend the Member for Burton. It is simply a question of where one stops. One has to draw a line somewhere, and I suppose it can be said that one year as opposed to two 288 has a certain seasonal logic—what one might describe as cyclical tidiness. It would be significantly more expensive if we were to upgrade these pensions every year, and it would also result in a significant increase in the staff necessary to administer them.
There was some suggestion that the development of mechanisation and computers should make all this very much easier. I can assure the House that, given the complications of the enormous variety of circumstances that affect pensioners and the problems of getting increased pensions actually into their hands, this should represent a very significant addition to administration. Our belief is that two years, which is also the interval at which social security pensions are reviewed, is reasonable, and that the demand for more frequent review is based on altogether too pessimistic an assumption about the course of inflation which, I would reiterate, the Government are determined to master.
Another point made on both sides of the House was the problem of overseas pensioners. These fell into two classes and, in the course of the debate, this was not always kept entirely clear. There are those who have been called the quasi public service pensioners, mentioned by my hon. Friend the Member for Belfast, South (Mr. Pounder), who described them as the "forgotten men"; and there are the expatriate civil servants, those who served in the overseas Civil Service and may have transferred and in many cases did transfer to the service of newly independent Governments.
The House will remember in relation to the latter group that in 1962 the former Conservative Government accepted the obligation to top up the pensions of those overseas civil servants to the extent that the overseas Governments failed to do so; and that position has continued until last year. We made up the pensions to the level they would have reached had they been United Kingdom pensions paid in the ordinary way under the Pensions (Increase) Acts.
Then in March of last year the right hon. Member for Lanark (Mrs. Hart) announced that the United Kingdom was prepared, if so requested by an overseas Government, to reimburse to the overseas Government that proportion of an expatriate's pension attributable to service 289 before independence. I can tell the House that negotiations on this are still taking place and it is envisaged that eventually the United Kingdom will assume the responsibility for the direct payment of that proportion of an expatriate's pension, including any increases attributed to that proportion, and if necessary topped up. This is all taken into account, of course, when the total aid programme to that overseas country is calculated—as is quite right—but when it takes effect legislation will be brought forward—it would not be appropriate to deal with it in this Bill; this should give much more assurance to these people about whom the hon. and learned Member for Northampton spoke so feelingly.
The more difficult question is that of the so-called quasi-public service pensioners. These are the employees of the Nigeria Coal Corporation, Achimota College, the Lagos Town Council and many others. We estimate that there are up to 5,000 or more. I must confirm that these people are excluded from the scope of the Bill. In Committee on the 1969 Bill I personally gave a pledge that we would once again review this cate gory of public service if we were returned to office.
But both parties have hitherto always maintained that the line should be drawn between those who remained in the service of the Crown and those who did not. Nevertheless my right hon. Friend the Minister of Overseas Development, who heard the first part of this debate and who also has a long standing interest in this problem, and whose Department is responsible for overseas pension matters, undertook a thorough review of the question, taking fully into account the views of the Overseas Pensioners Association and others who have made representations on this subject. But in the light of this review, the Government reluctantly came to the conclusion that our predecessors were right and that there was no justification for abandoning that clear dividing line between service under the Crown and other public sector employment overseas.
My hon. Friend the Member for Liverpool, Wavertree (Mr. Tilney) suggested that assurances had been given to these people when they transferred from the service of the Crown to public sector 290 service in these overseas countries. I am assured that any assurances given related to the current terms of service and had nothing whatever to do with possible increases of pension paid after they retired. The assurances did not cover that. However, I can assure the House that those quasi-Government pensioners who have served the Crown at some time during their careers continue to be entitled to pension increases in respect of that part of their pension which relates to their Crown service.
The hon. and learned Member for Northampton asked Why the multiplier stopped short at 1944. The answer is that a different system is used for pre-1946 uprating than for post-1946, because to apply a cost of living factor to the former would give wildly anomalous results. Therefore, for those pre-1946 pensions a survey was done both of salaries and pensions paid in that period—of people who were in work and those who had retired—and there was a broad general impression—I acknowledge that this is a broad brush approach—that to uprate the pensions of those who retired in 1944 and earlier by 30 per cent. and in 1945 by 10 per cent. would bring them up to the 1946 starting point, from which cost of living adjustments could subsequently be made.
Where I believe the hon. and learned Member was misled was that that separate exercise has been rolled into one and comprehended in those two figures for 1944 and 1945 which appear in Schedule 1. One then applies the multiplier to bring the pensions up to the 1969 level, after which the 18 per cent. is added on.
The hon. Member for Farnworth (Mr. Roper) mentioned the problem of the F.S.S.U. I have a suspicion that we shall be hearing more about this matter in the Standing Committee on the Finance Bill. Clause 12 of this Bill does not apply to the universities except to an extent which I shall mention in a moment, nor would it apply to a terminal salary scheme if the universities introduced one. The only people who are covered by the Bill are those public servants who transferred from the Civil Service or some other pensionable employment to which the Bill applies into the F.S.S.U. But we would accept, as with other autonomous corporations and bodies in 291 the public service that just as the nationalised industries are free so they would be free to uprate their pensions broadly in line with the Bill's proposals.
§ Mr. Jenkin
The universities have always done this in the past. Whether it is improved by supplementation or by an increase in the recurrent grant must be one of the things which is taken into account. Of course, the hope that some people have that supplementation might be increased in future as a means of preserving the benefits of F.S.S.U. is one which it would be wrong to encourage, but perhaps that is more a matter for Committee.
The references which have been made to Members of Parliament were quite right. We must be about the only class of public servant who are not comprehended within the Bill. When the Members contributory pension scheme was set up. Section 15 of the relevant Act provided for periodic reviews in the light of the Government Actuary's valuation of the operation. It was only on 8th April this year that the House approved an Order increasing the pension of retired Members by 20 per cent.—the first increase since the scheme was set up in 1965.
Clause 5(2) of this Bill enables additional categories of pension to be added to the Schedule of the Bill if this seems appropriate. It would obviously be a matter for the Top Salaries Review Body to consider whether Members' pensions should be restructured and transferred to this Bill.
The Bill has had a warm welcome, but neither my hon. Friend nor I were so naive as to believe that whatever we put forward no one would be tempted to ask for more. We did not expect the pensioners' organisations to go out of business upon the publication of the Bill. Some hon. Members may have seen the recent circular on this subject. I did not anticipate the wildly optimistic Amendments which apparently the Public Service 292 Pensioners Council would like to see made to the Bill.
They want a 2 per cent. minimum instead of a 4 per cent.—that is to say, paid up to a much more recent period. They want annual reviews rather than two-yearly reviews. They want a once-for-all exercise to restore pensions—not to their original purchasing power but to some much higher figure based on something between the prices index and the wages index. They want to see the pensions regularly maintained at these annual reviews by reference to this hybrid index.
Although they say that they welcome the Bill, the impression given by all this is that the Government have produced the least generous of the Pensions Increase Bills instead of by far the most generous.
§ Mr. Jennings
I would not like my hon. Friend to give the impression that bodies like the Public Service Pensioners Council are ungrateful to the Government for the Bill. They are very grateful and have acknowledged this. I have had a lot to do with the Council and I have expressed its feelings today as well as my own. Of course, the Council ask us to put down Amendments, and we try to get away with it, but we know what the result will be.
§ Mr. Jenkin
I am grateful to my hon. Friend for putting me right on this. In a sense "gratitude" is the wrong word. This is justice which has been long delayed. If one were to add up all the proposals for improvements, they would cost another £30 million or thereabouts. If costs continue to rise, while the retail price index continues to rise, the annual cost will be much greater than we expect. It is not only a matter of cost. We are told that parity still remains the council's long-term aim, as my hon. Friend made clear. If we accepted the suggested amendments, the pensions would be increased wildly in excess of parity. For example, a clerical officer, depending on the date of his retirement, would get between £100 and £330 a year more than the current pension paid to a clerical officer. An assistant secretary would receive more than £1,000 above parity. I cannot believe that it is seriously suggested by the Public Service Pensioners Council that increases of that order could conceivably be justified. If I may respectfully say so to my hon. Friend, they are utterly ridiculous.
293 I hope that perhaps more moderate counsels will prevail, and that there will be greater recognition that these suggestions imply that the Bill gives pensioners a fair deal. Indeed, it is more than fair; it is generous; generous by the standards of past Bills, generous by the standards of private industry, and certainly no less generous than the proposals put forward by the Labour Party before the election, indeed in one or two respects a little more so. Our citizens will gladly shoulder the cost of meeting this obligation to those whose lives have been given to the public service. Justice, long delayed, is now round the corner. The Bill represents a major milestone in the long and chequered history of public service pensions, and I ask the House to give it a Second Reading.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).