§ 8.0 p.m.
§ Mr. Patrick Jenkin
I beg to move Amendment No. 1, in page 3, line 23 at end insert:'(8) On or before 1st January 1978 the Secretary of State shall lay before Parliament a report estimating the number of employed earners whose employment will be contracted out employment within the meaning of section 30(1) of the Pensions Act at 6th April 1978 and setting out the level of primary and secondary contributions which, in the light of such estimate, will have to be specified in an order made under subsection 6 above'.In one sense this amendment is consequential on the amendment that the Government moved in Committee to give effect to the original intention that they should have complete flexibility over the fixing of contribution rates when the new two-tier pension starts in April next 122 year. The purpose of the amendment is to oblige the Government to lay before Parliament what I may call an interim report on the progress of contracting out and on the consequences for the level of contributions.
The purpose of this debate is to give the House an opportunity to find out from the Government what is happening now about contracting out and to enable us to express some of the very real anxieties that are now being felt in the occupational pensions world about the developments that have taken place since the Social Security Pensions Act was put on the statute book. It is no secret that there are now very great uncertainties about the progress of contracting out and that the cause of this uncertainty is the impact of pay policy on pensions.
If there is not a relaxation of pay policy in order to allow an improvement in pension schemes beyond the minimum level necessary for contracting out the result can only be that the numbers of employees who will be contracted out from the State scheme will have to be scaled down drastically from what was assumed on all sides when the Social Security Pensions Bill was going through the House. If the numbers have to be dramatically scaled down the consequences will be far-reaching, because the arithmetic on which the Government Actuary based his calculations—as set out in the White Paper that accompanied the Bill—assumed that certain numbers would be contracted out.
Figures of 4 million or 8 million were given. It was made clear, as one might expect, that the more people who were contracted out the more the burden of paying existing pensions would fall on those who remained contracted in, with a consequence for contributions in the early years, and that, conversely, the more people who were left contracted in the higher the burden of pensions would be as the scheme matured. Therefore, the level of contracting out will have a material effect on the levels of contribution both at the start of the scheme and as it develops. It is for those reasons that we think it right that the House should have an opportunity to discuss progress.
In the amendment I have suggested the date of 1st January 1978, but I would be prepared to listen to arguments why it 123 should be an earlier date than that. A more immediate problem that faces the Government was put in stark terms by the Chairman of the Occupational Pensions Board, Lord Allen of Abbeydale, who, in December, spoke of the possibility of complete chaos if firms did not get a move on with the procedure for contracting out. The noble Lord's warning was referred to in a letter to The Times by Sir Donald Sargent, Chairman of The Society of Pension Consultants, on 22nd December. The other signatories to the letter included Mr. Max Lander, Chairman of The National Association of Pension Funds, Mr. Kenneth Allen, Chairman of the Life Offices Association, and Mr. Denis F. Gilley, Chairman of the Association of Consulting Actuaries. Sir Donald and his colleagues wrote:Our primary purpose in writing this letter is to draw attention to a particular difficulty which we are sure is, to say the least, a major contributory cause of the delay which is rightly causing so much concern. This is that under the present pay policy any improvement of pension benefits above the absolute minimum required to match the state pension is not permitted, unless the cost is set against the pay limit.They went on:We strongly endorse the view expressed by a prominent trade union leader that, unless urgent Government action is taken to remove uncertainty, then many people will be caught in the time net and be forced to contract in without any option.That is the warning that Sir Donald Sargent and other members of the joint working party gave. Two weeks later it was reinforced in another letter to The Times, written by Lord Byers, Chairman of the Company Pensions Information Centre. After referring to the unified approach that both sides of this House had achieved on the Social Security Pensions Bill, Lord Byers said:this unified approach is being undermined by the determination of the Government to continue its policy of restricting the improvements of occupational pension benefits above the absolute minimum required to contract out, unless the cost is set against the pay limits, and its insistence that no new policy for pensions can be announced until the next stage of the pay policy is upon us in July of this year.Companies find it virtually impossible to carry out meaningful consultations and negotiation when they do not know whether or not they will be able to implement the policy thus agreed. Above all, the time factor in 124 bringing the new Act into operation is now crucial. The date for this is April 1978 in theory but in practice decision will have to be made well before the end of 1977–this year.He went on:All that is required from the Government is an announcement now to the effect that any improvements in benefits agreed in the coming months will be able to be implemented from an agreed date onwards. This does not constitute a breach of the pay code but it would allow consultations and negotiations to proceed to a positive conclusion.Lord Byers was adding his considerable authority to the plea that had been made earlier by Sir Donald Sargent and his colleagues.
In the light of that letter I tabled a Question to the Secretary of State on 12th January askinghow many inquiries have so far been received by the Occupational Pensions Board from companies wishing to contract out under the Pensions Act 1975.I got an answer that I must say shocked me. Here we are, just a few months to when all the companies will have to go through the complicated procedure of contracting out, and this is all that the right hon. Gentleman could tell me:The Occupational Pensions Board informs me that since 1st July 1976 its officials have received on this subject some 200 letters about particular occupational pensions schemes and 150 general inquiries from life offices and others acting as consultants to more than one scheme, from whom there have also been telephone calls at a current rate of about 100 a month. Many inquiries have also been answered in the course of other business."—[Official Report, 12th January 1977; Vol. 923, c. 520.]I asked the right hon. Gentleman how many inquiries had been received from companies wishing to contract out. So far, all that we have got, if his answer is anything to go on, is a remarkably small number of letters and telephone calls merely making inquiries. So far there seems to be no sign at all of serious applications to contract out.
Earlier, I had written to the Chancellor of the Exchequer, because it seemed to me that the pay policy was more a matter for him than for the Secretary of State for Social Services. I hope that the Under-Secretary of State will not take refuge behind that, because this is a matter of the utmost concern to his Department. I asked the Chancellor in 125 December for an early announcement of the date. He replied on 13th January:I am very much aware of the views held by pension scheme managers on this subject, and naturally regret the uncertainties caused for them by the lack of any announcement. However, it is essential for this matter to be seen in its proper pay policy context. It would be inappropriate to enter into any firm commitment about relaxation of the present restrictions in advance of the general negotiations for the third round of pay policy. As you know, these talks will be commencing before long, and as I said to the House on 15 December, the Government hope that the outlines of the next round of pay policy will be clear in time for the Budget.We do not know when the Budget is to be, but rumour has it that it will not be until towards the end of March—the Press talks of 29th March. The Chancellor went on:In the meantime, I have warned the main pensions organisations that no statement can be expected in the immediate future. As soon as there is anything which can be announced, you may be assured that the Government will not fail to report it to the House.I am sure that that was very good of him.
I also tabled a Question to the Secretary of State for Social Services asking for a statement, because the question of contracting out is his responsibility. That Question was also referred to the Chancellor of the Exchequer, who replied on 17th January,I have been asked to reply.It is part of the current understanding between the Government and the TUC that improvements in occupational schemes, or the introduction of new schemes, must count against the pay limit unless they are restricted to the minimum level necessary to contract out of the new State scheme to be introduced from April 1978. I have received representations from pensions interests requesting that a date be named for the relaxation of this restriction. I have replied that this will be discussed with the TUC in the course of the negotiations for the third round of pay policy. These talks will be starting shortly and the Government will report to the House as soon as there is anything further to announce on this subject."—[Official Report, 17th January 1977; Vol. 924, c. 14.]That appeared to be rather final—we were all going to have to wait, just as we did for our tax reduction last year, on the TUC. But even before that reply, events were moving. We had the settlement of the miners' claim for substantial improvements in their pension scheme. I then wrote to the Chancellor:I understand that the only reason why the agreement (if approved by the Union) has to 126 run from next August is to avoid conflict with the current phase of pay policy. However, presumably both sides are assuming that improvements in pension schemes will conform with the next phase of pay policy. Indeed, you hinted as much yourself in your letter, yet how far can anyone know how far a pension scheme may be improved until the guidelines are available? How do you know that the Mineworkers' settlement is going to accord with those guidelines?I had an interesting reply. I wonder how many members of the NUM were aware of the terms on which they were balloting on their pension scheme improvements. The Chancellor replied:Thank you for your letter of 14th January about the agreement between the National Coal Board and National Union of Mineworkers on early retirement for underground mineworkers. I think you have misunderstood the terms of the agreement. The Coal Board have indicated to the NUM that they will operate the early retirement scheme from August this year pay policy permitting"—I note that the Chancellor underlined the words "pay policy permitting"—and Tony Benn made this clear in the House on 17th January when he answered a supplementary from Mr. Skeet.The Chancellor repeated what he had said earlier about further relaxations being negotiated with the TUC.
I shall not weary the House by discussing what the Secretary of State for Energy did or did not say on 17th January, but I doubt whether it was clear to anyone in the House or, let me hazard a guess, to many of the underground workers who are looking forward to pension scheme improvements that the whole thing depends on changes in the pay rules as far as they affect pension scheme improvements.
I asked the Secretary of State for Social Serviceshow many firms will need to contract-out of the State pension arrangements by the end of 1977, if the 8 million workers envisaged are to be contracted out.Throughout the debates on the Social Security Pensions Bill, there was a general understanding, although, I accept, no firm commitment, that about 8 million workers ought to be contracted out. The Secretary of State replied, on 18th January:It is not yet possible to estimate how many employers, or employees, are likely to be involved in the contracting-out arrangements".—[Official Report, 18th January 1977; Vol. 924. c. 174.]127 Apart from the fact that that was no answer to my question, it is clear that the Government have not the slightest idea of how far and how successful they will be with the policy of partnership. But time is running out, and the Minister must realise it. Firms have to formulate their proposals; they have to consult their staffs—that is statutory; they have to make their decisions; then they have to approach the Occupational Pensions Board, which, in turn, ought to have time to examine the proposals put to it by firms before it issues a contracting-out certificate. All this has to be done in time to enable the necessary formalities subsequently to be completed in time for the new scheme to start in April 1978. That will not be possible unless firms can now start negotiating with their unions and their staffs.
What firm can possibly formulate proposals to put to its staff unless it has some idea how far those proposals will be allowed under the next phase of pay policy? That is the key to the matter. It is not just a question of the firms needing to know where they stand; the complicated procedures that have been laid down by the House and that were put into the Bill at the insistence of the Government simply cannot be carried through unless there is sufficient time to do it and unless the firms know before they start that there is a reasonable prospect of carrying them through to success. No one is going to go through the immensely time-consuming procedures for improving their workers' pensions scheme and getting the approval of the board if, at the end of the day, that scheme can offer nothing better than the State scheme. It simply will not be worthwhile.
I remind the Under-Secretary of State that the right hon. Member for Blackburn (Mrs. Castle), in her White Paper "Better Pensions"—Cmnd. 5713—spoke ofa partnership between the State and the good occupational schemes.The House will remember that the concept of partnership coloured all the debates that took place on the Social Security Pensions Bill. It was on the basis of a partnership that my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and, subsequently, my hon. Friend the Member for Sutton Coldfield (Mr. 128 Fowler) were able to say—and I have since repeated on many occasions—that the partnership scheme embodied in that Act can stand and will not suffer the fate of earlier schemes put on the statute book by Governments of either party. In order to further the partnership proposal, many important amendments were accepted during the passage of the Bill and in the regulations made subsequently. All were accepted by the Government in the interest of ensuring that good occupational pension schemes could co-exist with the State scheme.
I said earlier that it was envisaged at the time of the Bill that up to 8 million workers might be contracted out—one has always understood this to be perhaps half in the public and half in the private sector. That assumption was based on the Government Actuary's tables in the appendix to the White Paper "Better Pensions".
I have to tell the Government that unless there is a speedy announcement, perhaps along the lines suggested by Lord Byers in the letter that I read out, there is not a cat's hope in hell of getting anything like 8 million people contracted out of the State scheme. Instead, people in perfectly good occupational schemes will find themselves left automatically inside the State scheme. That means that not only in many cases will they be paying twice for the same benefits; there will be the Gilbertian result that automatic inclusion in the State scheme will of itself constitute a breach of the self-same pay policy that has prevented firms from contracting out.
There will be additional pension benefits that will take them above the minimum level necessary to contract out. The Government cannot go on waiting, but must tell the industry that in the next round improvements will be allowed in pension schemes. If there is to be any reality in the professions of partnership on which successive Ministers at the Department have laid such stress, there must be an early announcement.
The purpose of my proposals is to oblige the Government to make a report by 1st January next on the estimated numbers to be contracted out and the consequent level of contributions that will have to be paid by those who remain within the State scheme. The object is to know, in good time before the new 129 scheme starts, what is happening. If the Government, on 1st January, are to be able to produce a report that will gladden the hearts of those who have placed such faith in their professions of partnership, they must act now, otherwise they will cause nothing but gloom and despondency and will make a mockery of all the efforts made by the late Brian O'Malley to ensure a genuine partnership between public and State schemes and good occupational schemes. I cannot over-stress to the Government the importance of this matter, and I hope that they will take my warning seriously.
§ Mr. R. A. McCrindle (Brentwood and Ongar)
I wish strongly to support the words of my right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin). I hope that the Minister will have taken account of the sense of urgency expressed by my right hon. Friend, an urgency which I can confirm from my experience of the occupational pensions world.
This short debate gives the Government the opportunity to turn their attention to the subject of contracting out and to report to the House on exactly what is happening. I put the matter in that form because there are a number of uncertainties. I hope that the Minister will set out the Government's thinking on this vital point and will tell us where the Government stand.
I wish to endorse what was said by my right hon. Friend about the effect of pay policy in the past year on the development of occupational pension schemes and therefore on the ultimate number of those who are likely to contract out. The Minister will be aware of the fact that pay policy restrictions have acted as a halter to the achievement of the number of people who wish to contract out, as envisaged by the late Brian O'Malley when the Social Security Bill was going through the House in 1975. I do not see why we should now be told that we must wait until the last dot and comma of the forthcoming stage 3 of pay policy is settled.
We have been regaled in the Press in the last few days by indications of how difficult the Government are finding it to introduce stage 3 at all. The uncertainty felt by many people engaged in pensions schemes as we approach stage 3 may well 130 lead to the encouragement of arrangements for contracting out.
I see no reason why, in advance of stage 3, pensions interests should not be given an opportunity to know what is in the Government's mind on pension provisions. I expect that I shall be told that whatever is to be allowed will depend on income tax reductions, on the one hand, and the wages bargain, on the other. However, I hope that the Minister will try to find a way to let pensions interests know a little in advance what is in the Government's mind in seeking to improve pension schemes.
The number of people likely to be contracted out, if we were to take a guess in the light of what we now know, would be substantially fewer than the 8 million figure to which Brian O'Malley referred during passage of the Social Security Bill 1975. Anything that falls substantially below that, and is allowed to fall below it without some act of visible concern on the part of the Government, is to some extent a violation of the promise of partnership made by Brian O'Malley, and accepted by the shadow Ministers of the day.
I hope that the Minister will take this as a serious point because we want to continue the partnership between the two sides of the House on the subject of a second pension provision. The Government have it in their power to take account of the points made on Amendment No. 1 partially to achieve that aim, or at least to restore the faith of those who in the past few months have doubted the Government's sincerity.
I am aware that the date of 1st April 1978 was suggested in the first place because it was not intended to rush matters. It was thought that a leisurely pace would be more suitable and that there would be wide-ranging consultations to give employers maximum opportunity before the required date arrived.
On occasions the Government have been bewitched by the fact that 1st April 1978 seemed to be so far distant that they did not feel they had to take action of the type I suggest. However, 1st April 1978 is now under 14 months away. If we are to consider a reasonable number of contracted-out persons, which I still believe to be Government policy, the Government must show, through the words of the Minister today, 131 that they understand the difficulties experienced by employers and occupational pensions' interests and seek to allay our fears.
It was suggested by Lord Byers that chaos would result if something along the lines of the amendment were not enacted shortly. I suggest that chaos is a strong word, but certainly there will be disillusionment and disarray unless some positive reaction is forthcoming from the Minister.
§ Mr. Patrick Jenkin
I would remind my hon. Friend that the word "chaos" was used not by Lord Byers but by Lord Allen, the Chairman of the Occupational Pensions Board. Lord Allen warned that unless a compromise came forward quickly, the Occupational Pensions Board would not be able to cope with the situation that would come later.
§ Mr. McCrindle
I stand corrected, but chaos is being predicted by responsible people in the occupational pensions' sphere, and it is something the Government cannot afford to ignore if they still intend to go forward with the partnership with State provision.
To concentrate on a particular date is sometimes a good thing for Governments of all political complexions. The amendment requires the Government to report to the House as to the state of play at a particular date. I would have thought that having that date in mind, and knowing that they will have to face the House then, the Government would bestir themselves rather more than they have so far. I hope for that reason, and for many other reasons, that the Under-Secretary will be able to accept the amendment.
§ 8.30 p.m.
§ Mr. Deakins
I recognise the concern that has been expressed and I shall come to the principal subject of that concern in a moment, but first I want to deal with the principal object and vehicle of the debate and that is Amendment No. 1.
The effect of the proposed amendment is self-evident but its purpose, in spite of what has been said, is not so clear. It may be simply to provide information at that stage about the progress of contracting out or it might be thought that the amendment would give scope for dis- 132 cussion between the date that the report is made and the date that the order giving contribution levels for new pensions is laid. But the order, as required by Sections 120 and 121 of the Social Security Act 1975, will be subject to affirmative resolutions of both Houses and the draft order must be accompanied by a report of the Government Actuary giving his opinion on the likely effect of the order on the National Insurance Fund.
The amendment is superfluous and it does not meet the case that has been made for urgency. The report, as suggested in the amendment, would not need to be laid before Parliament before 1st January 1978. That is hardly in accordance with the urgency that has been expressed, because the normal expectation, based on previous experience of the time needed to make the necessary administrative arrangements after approval of the order, is that the order containing the proposed rates of contributions for the tax year 1978–79 would be laid before the House before the end of 1977, possibly in November but probably in December.
In formulating his report the Government Actuary will need to take account of a variety of factors that will have an influence on the contribution rates and these will necessarily include an assumption about the number of employed earners whose employment will be contracted out employment.
Here I come to the main burden of the remarks made by the right hon. Member for Wanstead and Woodford (Mr. Jenkin). He and the hon. Member for Brentwood and Ongar (Mr. McCrindle) said that the latest date for applications to contract out was a subject that was causing much concern and some misunderstanding. Perhaps it would be helpful if I set the record clear. In order to contract out from 6th April 1978 and to be entitled to a reduction in national insurance contributions, an employer must be in receipt of a contracting-out certificate issued by the Occupational Pensions Board. The employer must have first amended his pension scheme to meet contracting-out requirements and to have consulted his employees and relevant trade unions on this. Three months must be allowed for that consultation. If an application has not been made before April 1978 the 133 employer runs a risk that the Board may be unable to process his application in order to issue a certificate by 6th April 1978.
If an employer has an occupational pension scheme but does not intend to contract out he must issue a notice to this effect to his employees and relevant trade unions before the end of this year. This date has widely been misquoted as the final date for applying to the Occupational Pensions Board for a contracting out certificate. That is not correct. The OPB issued the main guidance required by employers and the scheme in March 1976. It has issued further up-to-date guidance in Memorandum No. 39, and other memoranda will be issued as necessary. An example of such a point was referred to by the hon. Member for Braintree (Mr. Newton) in Committee. It will be found in Hansard of Standing Committee A of the afternoon sitting of 27th January, column 493.
The OPB have been doing what they can to urge employers and schemes to make early decisions on contracting out. For instance, the Chairman of the OPB met the pension correspondents of The Times, The Economist and Financial Times on 1st December. Among the points he made was that time was running out: were employees aware that if their employer had not obtained a contracting-out certificate by 6th April 1978, they would have to pay full-rate national insurance contributions in addition to their occupational scheme contributions? The same message was given in a radio programme on pension schemes on 8th February and in a letter to The Accountant in December. The Chairman of the Board also wrote to Mr. Methven of the CBI asking the Confederation's co-operation in getting the message across to employers. I know that hon. Members will say that the Board may be doing its job to the best of its ability, but there is the problem of the pay policy.
In fact, there are two problems. The Bill creates a problem. Even if there were no difficulty about the pay policy, there would be problems in the timing of many firms considering whether to contract out because it will not be known before the Bill becomes law, by, I hope, 31st March, what alterations we shall make which might affect whether firms contract out.
134 I do not rest my case on the Bill alone, because once it becomes law, even though it may hold up a number of schemes in the meantime, it will then be out of the way. The pay policy is a much more important issue, and I take on board what has been said about current pay policy restrictions on the improvement in pensions schemes beyond the minimum contracting-out requirements contributing to employers' delays in consultations and preparation for elections to contract out. Ministers in my Department understand this point and we should have been failing in our duty if we had not brought these difficulties to the attention of other members of the Government.
We share the concern, and I shall see that its renewed expression in the debate is drawn to the attention of my right hon. Friends. I hope that the hon. Member for Brentwood and Ongar will forgive me if I have not shown the strength which he considers a junior Minister should have, but basically this is a matter for the Chancellor of the Exchequer. I know that he is fully conscious of this issue and is taking it into account in his review of policy and in the discussions that will take place about stage 3.
I cannot say any more in the present circumstances. I realise that this may be a little disappointing to the House, but I can assure hon. Members that my Department and the Government are well aware of the concern. We appreciate that it is in our interests as well. The sooner we can give the vital information on what is permissible under the pay policy for firms which are considering contracting out, the sooner they can finalise the arrangements.
§ Mr. McCrindle
I recognise the limitations on an Under-Secretary making pronouncements which are really matters for the Chancellor of the Exchequer, but will the hon. Gentleman pass on to the appropriate quarters my suggestion that if, in the formulation of stage 3, it is possible for us to be given the Government's intention on pension policy before the details on wages are finalised, we shall not have to wait until the last moment, when the tax and salary provisions are settled, before getting a pronouncement on pensions?
§ Mr. Deakins
I can assure the hon. Gentleman that the Chancellor of the 135 Exchequer is well aware of that point and that it has been put to him by Ministers. Of course my right hon. Friend has to take into account the millions of workers who are associated with the pay policy, and only about half the working population is in occupational pension schemes.
I do not want to go beyond what I said. I think that the right hon. Member for Wanstead and Woodford will be able to read between the lines of my speech. I realise this concern and share it. I recognise that it is not merely in the interests of people outside waiting to contract out, but also in the interests of the Government, because when the Government Actuary makes his assessment in the autumn on the numbers contracting out, he will have to try to get it as nearly right as possible because his assessment will affect the final level of contributions, income and outgoings involved in the National Insurance Fund. It is in the interests of both the Government and of the schemes that we sort this matter out as quickly as possible. In view of the report that we shall lay before Parliament, I hope that the right hon. Member for Wanstead and Woodford will regard his amendment as superfluous and withdraw it.
§ Mr. Patrick Jenkin
The Under-Secretary of State recognised that the amendment was more a vehicle to enable me to make a case for the need to achieve early clarification of the impact of the pay policy on pension schemes than it was designed to achieve on report. The debate has served a useful purpose and the Under-Secretary of State has been engagingly frank with the House. He conjured up a vision of his right hon. Friend the Secretary of State and others in the Department hammering daily on the door of No. 11 Downing Street in an endeavour to catch the attention of the Chancellor of the Exchequer and persuade him that he must do something. I hope that they are successful.
The issue has had a chequered history. When a pay policy was first introduced by the present Leader of the House it became clear within about three minutes that the right hon. Gentleman knew nothing—and I hope that I am not being unkind—and cared less about the impact of a pay 136 policy on pensions. Only by the most vigorous propaganda by Ministers in the Department of Social Services were we able to achieve the modest relaxation to allow firms to improve their schemes up to the minimum level to enable them to contract out. My hon. Friend the Member for Braintree (Mr. Newton) is right to say that the confidence of the pensions world in the Government's commitment to partnership has been severely shaken by the series of events of which the Bill is the last chapter. I hope that it is the last chapter and that we shall have clarity.
§ Mr. Jenkin
I do not seek to defend all employers that do not act even when they can contract out. Firms will not go through the procedures of contracting out if all they can do is to produce a scheme which does not offer improved benefits over the State scheme. The whole purpose is that firms can offer added inducements and benefits to employees which the particular needs of the industry concerned require and which cannot be fitted into the rigid straitjacket of the State scheme. They will not do that unless they can improve on the minimum level. Many firms are hanging fire.
The one comfort that I can take is that the Under-Secretary of State recognised that fully and frankly and indicated that his Department was aware of the situation. He said that it was doing all it could within the Whitehall machine to try to get an early answer. I have succeeded as far as I could have hoped in initiating the debate and I know that Ministers will take the matter seriously. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.