Occupational Pension Schemes (Hansard, 9 November 1983)

§ Mr. Roger Freeman (Kettering)

I beg to move, That leave be given to bring in a Bill to require trustees of occupational pension schemes to treat deferred pension rights on an equal basis with pensions in payment whenever increases are made. The purpose of the Bill is to provide some justice to those members of private sector occupational pension schemes who leave prior to retirement and who have earned a pension under that scheme. If they leave prior to retirement, that pension entitlement — a deferred or frozen pension—is not normally increased and is paid only on retirement.

Only about half of those employed in the private sector are fortunate enough to belong to a private sector pension scheme. However, if a member of that pension scheme leaves employment before retirement age, his pension is calculated on the basis of the number of years that he has been a member of that scheme, normally divided by 60 and multiplied by the salary when he leaves employment. Normally, in the private sector, that pension entitlement is frozen.

If employees change jobs and have perhaps two or three jobs in a working life, a man or woman can easily reach retirement age and be entitled only to about half of the pension of someone who has worked all his life in a particular company and within one pension scheme. Pensions in payments on retirement are often increased by the trustees in the private sector.

This Bill will provide equality of treatment between the long stayer, who can look forward to regular increases in his pension, and the early leaver, the man who leaves employment and has his pension entitlement frozen. In the public sector, those who transfer from ore job to another normally carry their full pension entitlement with them and when they retire their pensions are indexed. Neither of those features applies in the private sector.

Two objections are raised to the Bill. I believe that both are fallacious. The first is that the Government have no right to interfere with the terms and conditions of private sector pension schemes. The taxpayer provides a substantial subsidy to pension schemes because the contributions from employees and employers are tax deductible and the investments made by the trustees of a private sector occupational pension scheme are themselves free of tax, both income tax and capital gains tax. Therefore, the taxpayer, through this House, has every right to interfere with the terms and conditions of private sector pension schemes in order to provide justice.

306 The second objection that is sometimes raised is that the Bill would impose additional costs on companies That is not the case because my Bill is financially neutral It is up to the specific pension scheme, and the trustees of that scheme, to decide whether there will be a shift in benefits from the stayer to the leaver, whether the employees will be asked to contribute voluntarily more to the pension scheme or whether the employer will provide more to the pension scheme.

I do not agree with the recommendations of the Occupational Pensions Board that the Minister is now considering. It specified as a target for pensions in payment an annual increase up to a ceiling of 5 per cent., but specified precisely how much should be awarded to the deferred pensioner as a matter of law. It was too precise and involved costs for the private sector.

The Bill would bring two advantages to the many hundreds of thousands of people who suffer from having their deferred pensions frozen. First, it would pave the way for greater transferability of pensions. In order to have something to transfer, we must first give the early leaver some actuarial value. The Bill will ensure that when his pension entitlement is calculated — which he may or may not transfer—the early leaver has something more than the present frozen sum.

Secondly, the Bill will enhance job mobility. More and more people are paying close attention to their future pension entitlements when they consider changing their jobs. I am sure that the House will appreciate that any proposal that enhances job mobility, through shifting the balance of advantage from the long stayer to the early leaver, will be welcomed.

In September my right hon. Friend the Secretary of State for Social Services asked for practical solutions to the problem of early leavers. This Bill is a practical and simple solution. More importantly, if passed. the House would see justice done.