HC Deb 10 July 1973 vol 859 cc1485-94

1.29 a.m.

Mr. Eric Cockeram (Bebington)

I am pleased to have this opportunity of raising an important matter concerning the pensions of all pensioners in this country, albeit at an hour at which all good pensioners will be tucked up safely in their beds.

The matter was brought to my attention by Mr. T. V. Lawrence of 11 Dodd Avenue, Greasby, Wirral. He retired on Friday 4th September 1970. This fact is confirmed in a letter from the Department of Health and Social Security to me dated 15th January 1971. All people who retire on a Friday receive from their employer, in addition to the wages due to them, a bonus of some sort.

I seek to establish that whatever Mr. Lawrence may have received on the day of his retirement was due to him for all the loyal service he gave his employer over the best part of the previous half century. Any salary plus bonus that he received on that date related solely to past service and was not in any way payment, wages, salary or otherwise for the week after his retirement.

It is important to establish that when a person works he offers his service to an employer; he performs that service for a week and at the end of the week he is reimbursed by wages. Wages are paid in arrears. On the other hand, the State pension scheme operates a week in advance, and the National Insurance stamp is due on a Monday and in the hypothetical case of a person who works merely for one day in the week, namely, the Monday, the stamp is due because the contribution week starts at midnight between Sunday night and Monday morning. By the same argument, the State pension is due on a Monday for the ensuing week because the State works on a week commencing on a Monday, for both contributions and benefits, and a pension is paid in advance.

Mr. Lawrence retired on a Friday and was somewhat taken aback to discover that he did not receive a pension until the following Thursday. He was further taken aback when he discovered that the pension he received on the following Thursday was in respect of a week com- mencing on that day. Mr. Lawrence felt that the gap between retiring on Friday and commencing to draw his pension on the Thursday was a void of five days, for which his employer was not expected to pay him. He had ceased employment on the Friday and in his view he was entitled to a pension from the date of retirement. This is a principle that applies to all pensions. Although I am raising the matter because it has been brought to my attention by Mr. Lawrence, it is nevertheless a matter that applies to all pensioners.

Mr. Lawrence has been in work for many years, as is the case with anyone retiring, and he was in work in 1926 when the national pension scheme commenced. At that time it was a voluntary scheme and he opted to join it. He opted to pay contributions each week on a contribution week starting on Monday, fully expecting that when he retired at the end of a particular week he would draw a pension from the following Monday morning onwards. He contributed regularly. He had good health. He had the minimum of absence for one reason or another. His contributions were kept up in full. In short, he considers himself to be the kind of contributor that any pension scheme would like to have.

Mr. Lawrence was therefore most surprised, on drawing his first pension, to find that he had not been allocated any pension for the days between leaving his employment and the following Thursday. The matter is even more an anomaly than merely the pension, because he did not receive any graduated pension for that period. He was upset about this and wrote to the Department of Health and Social Security. Indeed, he conducted correspondence with the Department over a period of 12 to 18 months. He was informed that up till 1968 the pension was paid on a Monday. That seemed to him to be the correct procedure and what he would expect to be the case, namely, a pension paid on a Monday for the following seven days. However, by a measure passed by the last Labour Government, the pension date was altered in 1968 to the Thursday, and pensions from then on have been paid weekly in advance, commencing on a Thursday.

When Mr. Lawrence inquired why this change had been made he was informed that the Post Office was inundated with callers and payments of one sort and another on a Monday and it had sought to spread the load of its work, and the last Government had acceded to its request by altering the pension payment day to the Thursday. If the pension date is altered for the convenience of the Post Office, that is one factor, but it should not be at the expense of the contributors.

One of the arguments advanced by the Department during the correspondence with Mr. Lawrence was that its procedure of paying pensions on a Thursday weekly in advance may work to the advantage of the pensioner. It gave as an example the case of a pensioner who goes into hospital and, having been in hospital for eight weeks, has a reduction in his pension in accordance with the terms of the contract. If a pensioner has drawn his pension on a particular Thursday a week in advance, and the eight weeks, happen to elapse a few days afterwards, he nevertheless keeps his pension at the full rate for that week for which he has already received it.

But, just as it works to the pensioner's advantage on that occasion, on the terminal date the reverse is true. These things have a habit of sorting themselves out over a period of time, and it is a purely temporary advantage, which is cancelled out at the end of the period in hospital.

Therefore, the argument that it may work to the benefit of the pensioner is ill founded. And even if it worked in that way on the odd occasion, so what? Even if some pensioner at some time may have an advantage because the pension is paid weekly in advance on a Thursday, what about the general mass of pensioners to whom that advantage does not apply?

Lest it be thought that I am seeking to reverse the provision in the 1968 Act and have all pensions paid on a Monday, to the inconvenience of the Post Office—incidentally, I see no reason why the Post Office should not be inconvenienced; it is our servant, not our master, even though it is a monopoly—I say at once that it is not necessary to go back on the change made in 1968 and revert to the Monday payment date. It is quite possible to continue paying on a Thursday but to make the first coupon in a pensioner's book worth more than the normal weekly face value, that is, worth the equivalent of 12 days' pension, taking into account the five days between leaving employment at the end of the preceding week and the Thursday of payment.

If that be thought too complicated for the Department or the Post Office, it should not be beyond the ability of man to post to each pensioner beginning to draw his pension for the first time an additional voucher to the value of the entitlement which he should receive, namely, the five days' pension in question.

Neither Mr. Lawrence nor I is seeking to revert to a Monday payment date. What we seek to do is to ensure that the State honours its contract and pays pensioners for the missing five days. Any private pension scheme or insurance company which sold a contract on the basis that on 1st January in the relevant year a pension would be paid, and which then, if that 1st January happened to fall on a Friday, said, "We are sorry, but it is inconvenient for us to make payments on Friday, so you will have to wait till the following Thursday, 5th January", and on that date commenced to pay the pension weekly in advance would quickly be taken to court and rightly accused of not honouring its contract.

Similarly, any employer who offered a job that commenced on Monday and told the new employee on the following Thursday that wages were paid weekly in advance on a Thursday would soon be exposed, and rightly so. This is a bad law, and bad law should not be condoned by good government. Good government should rectify bad law. It may be argued that everything ultimately comes out in the wash and that in the end everything is balanced up, but that is not so. We must assume that when pensioners eventually die one-seventh of them will die on a Saturday, one-seventh on a Sunday and so on throughout the week. Only if a pensioner dies on a Friday, as we must assume one in seven do, does he gain anything from the present method of payment. If he dies on a Saturday he is on level pegging. If he dies at any time from Monday to Wednesday the following week he loses.

If he dies on a Thursday he is a borderline case. The majority of pensioners lose to the tune of three days' pension on that assumption. That may not be considered a significant point, but in view of the millions of pensioners and in view of their entitlement to receive a pension—they have contributed for the best part of half a century—we are here considering a substantial sum.

I am not seeking to raise this matter because it involves DC million, whatever X may be—and it would represent a formidable figure over the course of a year. I am seeking to raise it on a point of principle. People are now compelled to join a pension scheme, but in the past it was voluntary. Those retiring today joined the scheme voluntarily in most cases. They joined because they felt that they were taking part in a social contract which the State would honour in due course. They felt that when they came to retire at the end of a week, as 99 per cent. of people do, they would receive from their employer a substantial bonus, which was their entitlement for long years of service to the employer. But they felt, and rightly so, that when that day arrived it was their entitlement to benefit from the pension scheme to which they had contributed all their working lives.

It comes as a shock to pensioners to discover that because they are in a State scheme there is a void between the day of retirement and the day on which they are paid a pension. They realise that had they insured with a private scheme they would have received what they expected—a pension from the first day of retirement. It comes as a further shock to know that this is because of a measure passed by the previous Labour Government for the convenience of the Post Office, for the convenience of administration.

I submit that this is not a procedure which a Conservative Government would seek to condone or endorse.

1.45 a.m.

The Under-Secretary of State for Health and Social Security (Mr. Paul Dean)

I am grateful to my hon. Friend for raising this matter and particularly the case of Mr. Lawrence, which he has pursued with great zeal and on which there has been a good deal of correspondence with the Department. I am also glad, in spite of the hour, to have the opportunity of discussing the method by which payment of pension is made, because very often in this House in discussing the pension we are discussing its level and whether or not it is adequate. It is useful to be able to deal with the method of payment.

Understandably, my hon. Friend has looked at this matter from the point of view of the individual pensioner. I do not complain of that. It is proper to do so. But I also want to put to him that an equally important consideration is to have a method which will ensure that the pension is put into payment as speedily at possible, and in order to do this we have to have some simple general rules. In saying that, I do not want to sound bureaucratic but to remind my hon. Friend that no fewer than 15,000 new awards are put into payment each week. In view of this very large number, it really is in the interest of the individual pensioner that the rules should be as simple as they can possibly be.

The retirement pension is a weekly benefit normally paid weekly in advance on a fixed pay day. The first payment is due on the pay day coinciding with or next following the accepted date of retirement. The retirement pension is designed for the time when earnings cease on retirement. Since generally it follows after employment, for which wages or salary are paid at regular intervals, it is appropriate that the pension too should take the form of regular weekly payments. Thus, a person gives up work, receives the last payment of wages or salary, and then, on the appropriate pay day within the seven ensuing days, is able to draw the first payment of the full week's pension. In the majority of cases the general pattern is that there is no break between the wages or salary and the pension.

My hon. Friend suggested that when entitlement to retirement pension first arises provision should be made for days intervening before the first pay day is reached. This, in effect, would change the nature of the pension from weekly to daily benefit. I want to put to my hon. Friend some of the disadvantages that would flow from that.

One disadvantage would be that the first payment following retirement would in many cases be for less than a week. There is no dispute that subsequent payments would be for a full week but they would have to be made in arrear.

The present arrangements, apart from ensuring a full week's payment within one week of retirement, often work to a pensioner's advantage because any change of circumstances resulting in a reduction in rate of pension does not take effect until the following pension pay day. If the pension were to be paid in respect of each day for which conditions were satisfied—as is the case with sickness benefit, for example—then any change in the rate of pension would have to take effect forthwith from the next day.

Examples of such changes in circumstances, which can affect the rate of pension, are admission to hospital or ceasing to be entitled to an increase of pension for a dependant. So I put it to my hon. Friend that there are genuine advantages in the majority of cases in the concept of a weekly pension rather than a daily rate of pension, which is the logic of what he has suggested.

Mr. Cockeram

I never sought to suggest that there were no advantages in weekly payment in advance, but does my hon. Friend accept that Mr. Lawrence is correct in saying that he has not received a pension between the date of retirement—the Friday—and the following Thursday? Although he receives a weekly pension, he has not received any pension for those five days.

Mr. Dean

I am not disputing what my hon. Friend says on that. What I am saying is that that is not the basis of the contract on which the pension is paid. The pension is a weekly pension which is payable within a week of the person's ceasing work, and therefore takes over from the final earnings or the final salary, although that means that in some cases there is a gap of some days before the first payment is due. It means equally that in other cases, when the pensioner goes into hospital or his wife dies or he himself dies, the pension does not suddenly cease in the middle of the relevant week, but carries on to the end of the week. It is a swings and round- abouts effect. Our judgment is that on balance the arrangement is both simple to administer, which is an important consideration when dealing with large numbers of pensioners, and to the advantage of pensioners as a whole.

I come to the days of payment and the reason for them. They are governed by regulations made by the Secretary of State under Section 52 of the National Insurance Act 1965. My hon. Friend referred to the arrangements which are now in operation whereby some of the payments are made on a Thursday and some on a Monday. I shall remind my hon. Friend of the precise arrangements and the reasons for them. Thursday was the pay day for retirement pensions prior to January 1958, but, in order to spread the load on the Department and the Post Office, Monday was laid down as the pay day for persons becoming entitled to pension during the period from January 1958 until January 1968. With the passage of time the number of retirement pensioners with a Monday pay day increased and the number of pre-1958 pensioners with a Thursday pay day declined. Although there is no necessity for pensioners to cash their pensions on the day on which they are due, there is in practice a tendency for them to do so on that day or the following day. The number paid on Mondays had nearly trebled, whereas the number paid on Thursdays had declined by nearly one-third.

To assist the Post Office to achieve a more even balance in the interests of staff and public, including pensioners, and also to help the Department's own plans for paying retirement pensions by computer, it was necessary to change the pension pay day to counter the imbalance. Consultation with the Post Office led to Thursday being chosen as best meeting the situation.

It must, of course, be acknowledged that the Post Office has other heavy demands on its services which, of themselves, rule out consideration of certain days for such a massive task as the payment of retirement pensions. The stage has now been reached where payments on Thursday have slightly overtaken the number paid on Mondays. We have no proposals for change, but the situation will obviously be kept under review in consultation with the Post Office.

My hon. Friend has said that this has been done for the convenience of the Post Office, but that it is the Post Office's job to see that pensions are paid, and that that should be the prime consideration. I accept his point, but if we are to have the services to pensioners concentrated on one day the ultimate cost to the Post Office, and therefore to pensioners, will increase. Therefore, it is in the interests of everyone to try to spread the load throughout the week. That is why there are two pay days. Before regulations providing for the Thursday pay day were made the National Insurance Advisory Committee reported in 1967 that after considering representations made to them, it was satisfied that the proposal would be the most suitable in all the circumstances. There is one other point about which I should remind my hon. Friend—namely, that people retire at different times during the week. There is nothing universal about the day of the week on which they retire. Sometimes retirement takes place on a man's 65th birthday or a woman's 60th birthday.. In other words, retirement takes place on the first day on which a person can retire. Persons who defer retirement are deemed to have retired, even though they are still working, when they reach the age of 70, in the case of a man, or 65 for a woman.

Other people retire on the last day of a month. Administrative action is taken to ensure that persons in receipt of daily benefits, such as sickness and invalidity benefit, or unemployment benefit, appreciate that their technical first day of retirement needs to be a Thursday to correspond with the pension pay day. It is open to anyone approaching retirement, if he is able to do so, to arrange for his retirement to take effect from a day that will minimise the interval between ceasing work and drawing pension. An approach is made to all prospective pensioners about four months before they reach pensionable age and they are provided with a leaflet that explains the provisions concerning retirement pensions.

My hon. Friend has referred to cost. He fairly agreed that the proposal that he has made would increase the cost of pensions. Again, we are inevitably up against the harsh reality of priorities. If we spend more in this direction there will be less for other areas of need. My hon. Friend will probably agree, looking at the matter in that light, that it is perhaps the older pensioners or those who are disabled who demand higher priority for additional expenditure rather than those in the early days of retirement when, in the majority of cases, the last wage or the last salary is available.

I believe that the provisions have been properly applied in Mr. Lawrence's case. Further, I believe that the provisions that have been followed by successive Governments are both fair and reasonable in all the circumstances.

Question put and agreed to.

Adjourned accordingly at two minutes to Two o'clock.