HC Deb 11 June 1975 vol 893 cc569-75
Mr. Gwilym Roberts (Cannock)

I beg to move Amendment No. 7, in page 13, line 4, leave out 'and' and insert 'to'.

Mr. Deputy Speaker (Mr. Oscar Murton)

With this we may discuss Amendment No. 8, in page 13, line 6, leave out from 'beneficiaries' to end of line 8.

Mr. Roberts

In moving the amendment, perhaps I should declare an interest. It affects part of our pension scheme as Members of this House. But that is not why I have moved the amendment. I do so on behalf of many hundreds of thousands of public service pensioners.

I shall be brief, and perhaps very simple compared with the sort of debates we have had at earlier stages. The aim of these amendments is to produce a simplification. It seems completely anomalous that we should have a system under which one part of the pension is affected by one set of criteria and another part of the same pension is subject to a different set of criteria.

The Minister may well argue that public service pensioners are well treated compared with many in the private sector. But the House should not forget that in many areas of the public service the pension is regarded as part of the additional benefit of the job, and that there is frequently some sacrifice in other areas because of the particular pension provisions.

The Minister may perhaps dazzle the Committee with figures showing how costly this process will be. In that case I hope that we shall not be given mere crystal-ball-type figures. We have already heard many such figures in the debate. I hope that the figures relating to the cost of this proposal will be supported by some real statistical arguments showing how they were derived.

I believe that these logical amendments make sense of the scheme.

Mr. R. C. Mitchell (Southampton, Itchen)

I support the plea to the Minister made by my hon. Friend the Member for Cannock (Mr. Roberts). Al- though we do not expect to be successful at this late hour, we feel that the case should be put.

For many years the position of public service pensioners has deteriorated because of the increases in the cost of living. At intervals those pensioners have been desperately trying to catch up. There have been many complaints from retired teachers that their pensions were worth less every day because of inflation. They are frantically trying to catch up.

There is heavy inflation in this country. That is a regrettable situation. There are now average wage increases of 30 per cent. or 30 per cent. plus, while the cost of living has increased by about 20 per cent. I do not think that that situation can go on for ever. We must control it. The pensioners, especially public service pensioners, are being held back because their pension increases are related not to average earnings but to the cost of living. When the rise in average earnings is substantially ahead of that of the cost of living it means that the pensioners are not sharing in the increased prosperity of the country.

I hope that the Government will soon find some way of controlling pay increases, which have sometimes amounted to 30 per cent. If 30 per cent. wage inflation continues each year, we shall be faced with a serious situation and possibly a threat to the democratic process.

We believe that pensions increases should be based on or related to the increases in average earnings rather than the rise in the cost of living, so that pensioners may share in the temporarily increased prosperity.

There may come a time when there must be some form of a rigid incomes policy, although not necessarily a statutory incomes policy. I hope that in the next few months we shall draw up a workable voluntary policy. No one pretends that the social contract is now working. We must design a modified, though stricter, social contract. In the meantime it is important that public service pensions should not fall behind in the race. Therefore, we have put forward these simple amendments. I expect that we shall be told that from an actuarial point of view the proposals will cost a large sum of money. I remember when we were told that we would have to increase the teachers' pension fund contributions to meet the predicted future actuarial deficiencies. They all turned out to be phoney. I have become increasingly suspicious of actuarial calculations of that kind.

The Minister will probably say that this proposal will cost several hundred million pounds. If so, I press him to back that up with concrete statistical evidence. Unless he does, we shall be very suspicious of him.

It is not sufficient to throw out figures. We had enough thrown at us during the recent referendum. There were references to 500,000 unemployed for one reason and 750,000 unemployed for another. It was a case of thinking of a number and doubling it. It is not sufficient to throw out figures from nowhere. I hope that my right hon. Friend will back up any figures he may quote with statistics to show that they are correct.

I do not want to detain the House at this late hour. The Minister must justfiy why he is asking the public service pensioner, as such, not to share in the general increase in prosperity that is coming during a period of inflation.

Mr. O'Malley

I will confine myself to the amendment. I will not attempt to give my hon. Friend the Member for Southampton, Itchen (Mr. Mitchell) evidence, statistical or otherwise, regarding the "500,000 unemployed" discussion which took place in the country recently—for all I know, my hon. Friend and I may have had the same or dissimilar views on that matter; that argument is over.

Since this Government came into power there have been substantial and significant changes and improvements embodied in legislation which move in the general direction of the kind of protection that the amendment is seeking. For the first time we have put into legislative form the guarantee that retirement pensioners would in future receive increases in their basic pensions based on either earnings or prices—prices if they proved to give a higher increase than earnings. At a time of peculiarly difficult economic circumstances, the Government gave that pledge and are keeping it in respect of the basic pension, which becomes translated, in the terminology of this Bill, into the basic component.

Understandably, my hon. Friends are suggesting that we should dynamise the upper tier component by relating it to earnings in the same way as we intend to dynamise, and are already dynamising, the basic component. That would mean that both the additional component in the State scheme and the pension entitlement of those who are contracted out of the State scheme would have to be dynamised post-award according to earnings.

I understand that my hon. Friends are discussing the interests of the public service pensioner, but, quite properly, the amendment goes much wider than the public service pensioner and deals with the whole of the working population.

As I have said, the Government have made substantial improvements by giving a guarantee of earnings-related dynamism on the basic component and of price protection—that is, complete inflation-proofing—in respect of the upper tier. This is a major and significant step forward. In public sector schemes there is currently post-award inflation-proofing, but it is rare to find permanent arrangements of that kind in privately funded schemes. To say that is in no way to attack those privately-funded schemes.

11.30 p.m.

Of course, some privately-funded schemes have been able on an ad hoc basis to provide inflation-proofing for their pensioners after award. But one simply cannot insure for that kind of thing. What can be done in terms of post-award proofing or partial inflation-proofing depends on the ability of the funds to meet those needs.

What the Bill does by the contracting-out conditions and by the meshed arrangements as between the National Insurance Scheme on the one hand and occupational schemes on the other hand is to say that for the first time in the history of pension provision in this country the whole of the working population will have a basic component which is protected and keeps pace with earnings and an additional component which keeps pace with prices—that is to say, it gives complete inflation-proofing post-award. This in itself is a historic step forward.

Mr. Gwilym Roberts

I accept fully what my right hon. Friend is saying about the importance of the inflation link. This is a major step forward. Does he not accept, however, that there might also be the question of pensions of this type sharing in what might be called the national dividend, in the growth factor which might take place in people's standards of living? Does he not feel that if there were a considerable step forward in this direction they could well fall behind although they were keeping pace with a purely inflationary situation?

Mr. R. C. Mitchell

Is not one of the difficulties—I hope that my right hon Friend will be sympathetic on this—that some of the public service pension schemes we are talking about are not funded—for example, in the case of teachers? Some of us have argued for a long time that they should at least be partially, if not wholly, funded. Is not that one of the difficulties?

Mr. O'Malley

No. I am familiar with the position as an ex-teacher whose contributions—my contributions as an employee—were taken back from me, some would say—but not in this place—stolen from me by my ex-employers. My deferred pay was taken back from me when I came to the House. I do not think that that is the difficulty. The only schemes which could guarantee that kind of inflation-proofing are public sector schemes because ultimately they have the backing of the State, although I recognise that with local authority schemes which are funded different considerations arise.

The central question is that raised by my hon. Friend the Member for Cannock (Mr. Roberts). Of course it is right that one should do everything possible to ensure that there is a switch of resources to pensioners. That happens in this Bill. Secondly—I use my hon. Friend's expression—there should be a share for the pensioner from the national income. As regards the basic component, there is that share in full. In the case of the additional component, there certainly is a share through complete inflation-proofing because this is coming from the resources produced by the working population.

It is true that there is a significant advance in the Bill, and there has been a significant advance during the last 18 months. My hon. Friends are asking whether we can go further. I am referring not only to public service pensioners but to the whole of the population, because it is right that we should consider them. My hon. Friends will have seen some of the letters in the Press—I am not commenting on them but am merely noting their existence—in recent months drawing attention to the price protection which is so valuable in public service pension schemes and the fact that private occupational schemes cannot match that kind of post-award payment. That is the reason why, within the parameters of this scheme, occupational pension schemes which are contracted out have no obligation for post-award dynamism, simply because it is an uninsurable risk.

So, recognising that we have gone a long way, should we go further for the whole population? Anything that we do in a Bill like this clearly has an immediate impact. It also means the pre-emption of resources in significant quantities far into the future. Are we justified at this stage in our economic life in taking the step proposed?

The estimated joint contribution rates required would be the percentage rates shown in Table 2 of the Government Actuary's Report increased by, in the tenth year of the scheme, 0.2 per cent., in the 20th year 0.6 per cent. and in the 30th year 1.4 per cent. That is because, on the assumption that I will give, the approximate emergent costs in these years are £100 million, £300 million and £750 million. The assumption on which that is based is that real earnings increase by 3 per cent. per annum; and the extra contribution depends on that historic assumption.

Of course I should like us to be able to do this. We have made significant, indeed historic, improvements in provision for retirement in the Bill, but I cannot, in present circumstances and looking forward, recommend that we should pre-empt resources on this scale. No pension scheme lasts for ever, and we have a continuing history of improvement, but my hon. Friends have been right to bring this matter forward so that it can be put in context. I hope that they will feel that I have dealt with it as comprehensively as possible at this time of night and will bear in mind the significant costs in the future.

Mr. Gwilym Roberts

I accept my right hon. Friend's assurances and his hopes for the future. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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