RESERVE SCHEME PREMIUM ON TERMINATION OF RECOGNISED PENSIONABLE EMPLOYMENT. (Hansard, 9 May 1973)

§ Mr. Dell
I beg to move Amendment No. 87, in page 98, line 13, at end insert: 'and (c) if the Reserve Scheme Premium is payable in respect of a period of two years or more, it must be supplemented by an amount specified by the Reserve Pension Board as adequate to compensate both for the pension which would have been payable under Schedule 18 and the bonuses which would have been earned had the relevant employment not been recognised'. The Government have just blackmailed their back benchers into the Lobby in support of an amendment which cannot be in accordance with their judgment or their conscience. The Government have done this because of a fear that additional millions of people will go into the reserve pension scheme, a miserable fall back scheme which the Government have done everything to denigrate. Apparently merely giving tax rebates on the reserve pension scheme would lead the employers of 7 million persons to opt for it or to exercise their pressure in that way.
Throughout the debates in Committee and on Report I have urged the principle that people should not do worse in occupational schemes than they would do in the reserve scheme. The Secretary of 681 State said that if the tax rebate was granted it would deprive millions of people of the benefit of being in occupational pension schemes, schemes so poor that the reserve pension scheme will often be better.
This amendment embodies the same sort of principle in a slightly different form. It is that people who are paid back into the reserve scheme should not do worse, through having been forced to be in an occupational scheme, than they would if they had been in the reserve scheme. That they will do worse is evident from the answers given to me in reply to Parliamentary Questions. I have quoted one such answer given in Committee. One of the oddities of the Bill is that if a person is paid back into the reserve scheme because he had not been in an occupational pension scheme long enough to have his pension preserved he will lose from being so paid back even though the reserve pension scheme is already so poor. A person in this position loses pension and bonuses for the period for which he has paid back. He can be significantly worse off, especially if it happens to him several times.
In Committee I proposed various ways to deal with this problem. I suggested an option so that people who saw that probably they would be frequently moving from job to job should be able to decide whether they should be in the reserve pension scheme or in the employer's occupational pension scheme. I was told that that was not satisfactory to the Government. I suggested an option which would have assisted this narrow point. I suggested that when employees or ex-employees were paid back into the reserve scheme, provision should be made out of the funds available to employers to bring the benefits which the employees would earn up to the level which would have been earned in the reserve pension scheme. The Under-Secretary said that that was too difficult and that too many people moved too rapidly within two years. He said that about three-quarters of the movement of people occurred within two years of their beginning their employment.
I have accepted that argument, saying "Let us do it at least for people who have been in that employment for more 682 than two years. When they are paid into the reserve pension scheme, let them have the benefit of such additional employer's contribution to the reserve scheme as will raise their entitlement to what they would have earned had they been in the reserve scheme all the time". The Under-Secretary agreed to consider this point when it was put to him in Committee. Nothing has happened. We have not heard any response from him about the result of his consideration.
I move the amendment both for its own merits and to give the Undersecretary an opportunity to tell us whether he again proposes to insist on people doing even worse than they would have needed to do had they been in the reserve scheme all the time.

§ Mr. Dean
As the right hon. Member for Birkenhead (Mr. Dell) said, this matter was discussed in Committee and I agreed to consider the point which he had put. I do not agree with his disparaging remarks, made today and on many other occasions, about the reserve scheme. It is a modest scheme, and has always been designed as a modest scheme, to meet the needs of the small employer and of the employee who will be contributing in many cases to an occupational scheme for the first time. Therefore, we must have regard to the sort of contribution which these people can be reasonably expected to afford over and above the contribution they will make to the basic scheme.
Although in the situation to which the amendment is addressed a reserve scheme premium will buy slightly less pension than would contributions paid instead, the difference in the two amounts will vary according to individual circumstances—the length of the period covered, how that period falls in relation to tax years, and the person's age. Concerning pension rights, to make good the pension amounts, including bonuses, which would otherwise be lost to the pensioner, it would be necessary to allocate to each year the parts of the premium representing contribution which would have been due in that year and to treat them as though paid in the year concerned.
There would, however, be no reliable basis for arriving at the amount which should be charged as an addition to the premium to justify that treatment. 683 Strictly, the surcharge should represent the difference between the yield of the reserve scheme premium and what the yield on the contribution would have been, which would depend a great deal on the interest rates ruling at the time. In any event, it must be remembered that the last year covered by a premium payment is at no disadvantage as that year's payment is no more in arrears than contributions for that year would be. Therefore, a maximum period of live years is, from the point of view of the pension loss, effectively four years. Similarly, the two years which the amendment proposes to ignore is effectively one year. Difficulty would arise also because, although the premium is chargeable to the employer, the employer is empowered under Clause 75 to recover from moneys due to the employee the employee's share of premium payment, but the employee would not think it reasonable that he should have to bear the extra cost compared with what he would have had to pay if he had been in the reserve scheme all along.
Perhaps the real nub of the argument is whether the extent of the loss of pension is sufficiently great to warrant introducing the considerable complications of a surcharge. I have mentioned the very considerable complications which would be involved. As I explained in Committee, the largest amount of movement between jobs takes place in the earlier years of employment and at the youngest ages. These are factors we had very much in mind in settling on the period of five years as the maximum length of time to be covered by the reserve scheme premium. It is a matter of judgment what period should be allowed to go by before loss of pension by reason of retrospection becomes too great to be acceptable. The amendment would go as far as two years. In our view, five years is not unduly long.
No one is likely to gain, in the interests or precision, by any device of rules so elaborate that they cannot be complied with except at the cost of quite disproportionate effort and expense. I therefore put it to the right hon. Gentleman that, were we to adopt his amendment, there would be real danger of our getting into that position, and that, therefore, the objective he outlined in his amendment would be defeated.

§ Mr. Dell
The hon. Gentleman accused me of making disparaging remarks about the reserve pension scheme. All I have said in Committee and in the House again and again is that, bad as the reserve pension scheme is, it is often better than occupational schemes at minimal levels. Indeed, that is what the Government are scared about. That was what the last debate was about. The Government are scared that the reserve scheme will be too attractive to many people. If the tax rebate scheme were to have taken effect it would have been slightly more attractive. I can tell the Government that, in my judgment, their strategy will fail anyhow, tax or no tax. Their strategy was wrongly conceived, and the effect of the reserve pension scheme, poor as it is, will be very much larger than they suspect. All I am saying is that the reserve pension scheme, pathetically low though it is, is sometimes better than the minimum benefits of other schemes. People, therefore, will wish to be members of the reserve pension scheme. It has been hon. Members on the Government's side who have poured scorn on it. I referred yesterday to the hon. Member for Melton (Miss Pike)—I think it was—who talked about people being relegated to it. That is the attitude to it of the Government's supporters.
However, the Minister is not prepared to do justice even by the pathetically low levels of benefit which he provides through this Bill. I cannot now do anything to change his mind. I suppose. I merely note that the Government are introducing a pathetically bad second pension system, and are resisting every attempt by hon. Members of the Labour Party to improve it.

§ Mr. Dean
I beg to move Amendment No. 88, in page 98, line 26, after 'Act'. insert 'with full entitlement also in respect of any recognition credits allowed him under the rules of that scheme'. It might be for the convenience of the House if I were to explain Amendment No. 89 as well.
These are technical amendments which are designed to bring the provisions fully 685 into line with the requirements of the Bill, as amended in Committee, in relation to recognition credits.