§ Order for Second Reading read.
§ Mr. Speaker
I have selected the amendment in the names of the Leader of the Opposition and his right hon. and hon. Friends.
§ The Secretary of State for Social Services (Mr. Norman Fowler)
I beg to move, That the Bill be now read a Second time.
Although this Bill contains provisions on statutory sick pay and on invalidity pension, its heart is concerned with the reform of occupational pension schemes—the biggest reform for a decade. I shall put these proposals into context. There are currently around 90,000 occupational schemes with about 11 million members. Their funds are estimated to be worth well in excess of £100 billion, so we are talking about assets on an enormous scale, held and managed on behalf of half the working population and their families.
Four main principles underlie these reforms. First, my aim is to ensure fairness of treatment for everyone. That means members and ex-members, employers and employees. At the moment the balance is tipped against the employee who changes his job and who leaves a scheme before pension age. The Bill redresses that balance. Secondly, I believe that freedom to choose is an essential right. People are entitled to, and should be given, more say in decisions that vitally affect their own and their families' future. This Bill extends that freedom. Thirdly, I want to ensure that people have enough information to be able to make the right choices and to know that assets invested on their behalf are being properly handled and properly safeguarded. This Bill gives them access to full information.
Fourthly — this is an essential pre-condition of economic growth—I believe that people should be free to move employment to where their skills are most needed and best rewarded. Artificial barriers to job mobility which can arise from the operation of occupational pension schemes must therefore be eliminated. The Bill removes those barriers. These principles are fundamental to my proposals. We have consulted very widely and I have carefully considered all the comments received in reply. There is now a high measure of agreement on what needs to be done.
The central feature of the proposals is the fulfilling of the 1983 manifesto pledge to provide better protection for people who leave a pension scheme before retirement age —the group known somewhat misleadingly as "early leavers". It was a Conservative Government just over 10 years ago who took the first step to protect the interests of the group—in the Social Security Act 1973. Then, for the first time, early leavers over age 26 with five years' qualifying service had their pension rights preserved. Before that they had usually received no more than a refund of their own contributions.
Under the 1973 Act, however, there was no requirement to increase those preserved rights in the period between leaving employment and drawing the pension. At that stage no one anticipated the ruinous inflation rates of 672 the mid-1970s. Those record inflation rates seriously eroded the real value of preserved pension rights. Most of those who had changed jobs lost out substantially in comparison with their colleagues who stayed in the same job until retirement. Nor was this problem confined to a small minority of the working population. The fact is that up to 90 per cent. of people in pension schemes become "early leavers" at some stage in their careers—whether through involuntary or voluntary change of jobs. A state of affairs therefore in which so many people either lose out, or go in fear of jeopardising their personal security and that of their families should they change jobs, is surely unacceptable.
Legislation and practice must be adjusted to reflect social realities. The point of view was endorsed in 1981 by the Occupational Pensions Board. The board recommended action to redress the balance against "early leavers". The Government's hope was that pension schemes might take the opportunity presented by the board's report to make improvements voluntarily, but by last summer it had become clear that changes were not going to happen without a firm steer from the Government.
Following a special conference on the early leaver issue, which I convened, I set out the Government's proposals in a consultative document last November. Those proposals were broadly in line with the majority recommendation of the Occupational Pensions Board, and they are now embodied in the Bill. The basic effect will be that all those who leave a pension scheme after the Bill comes into force will have their reserved pension rights increased in line with prices or 5 per cent. a year compound, whichever is the less. They will benefit from that revaluation over the whole period between leaving employment and their pension becoming payable.
This protection will apply to all pension rights earned from 1 January 1985 for people who change jobs from the time this part of the Bill becomes law, which I intend should be 1 January 1986. The protection will apply to all benefits provided under scheme rules, except guaranteed minimum pensions which are, of course, already protected.
§ Mr. Eldon Griffiths (Bury St. Edmunds)
As a supporter of the Bill and my right hon. Friend, I hope that he will not regard this as a niggling or Committee point. However, he will know that over the last few years many people in industry have received wage increases of a good deal less than 5 per cent., and sometimes not at all. As he puts his mind down the corridor of the future, does he not think that there could be difficulties if people were required to have their pensions uprated by 5 per cent. when those continuing in work in the same firms got very much less than a 5 per cent. uprating in pay?
§ Mr. Fowler
I recognise that problem. That issue has been put by the engineering employers. I should make it clear that this is 5 per cent. or the increase in prices, whichever is less. That seems to be an equitable way of dealing with the position. In no way do I want to pre-empt debate, but I am sure that the Opposition Front Bench will press us to go further than 5 per cent. Perhaps we may see how the debate develops.
I recognise that all improvements have a cost. The Occupational Pensions Board estimated it as being between 1 per cent. and 2 per cent. of payroll. In practice, 673 costs will vary considerably between schemes. The burden will fall least heavily on those who already give increases for early leavers.
How those costs should be met is a matter for scheme trustees and employers to resolve. A variety of options will be open to them. There could be higher contributions from employers or employees, or from both. Non-contributory schemes could become contributory. There could be changes in the schemes' benefit — for example, by taking state benefits fully into account or by changing the way in which benefits are calculated by changing the fraction. Some schemes will have no difficulty in paying for the improvements, given the high rates of return that they have been able to secure in the current very favourable investment climate.
There are those who argue that I should impose even higher costs by proposing higher revaluations. Having considered the matter in some detail, I am convinced that to go beyond the proposals would in practice be unrealistic. It would put an extra financial burden on schemes retrospectively and would risk the collapse of many of them—something which would jeopardise the interests of everyone in occupational pension schemes, early leavers and stayers alike.
Anyone looking objectively at developments over the last five years would concede that not enough has been achieved by voluntary effort. The case for legislation is unanswerable, and I am convinced that our proposals strike a balance that is fair and reasonable for everyone.
But the Bill does not simply seek to protect the position of those who want to leave their deferred pensions with their old employer's. Clause 2 and schedule 1 also enhance freedom of job changers to transfer their benefit rights. One of the early results of the inquiry into provision for retirement, which I am chairing, was to look at personal pensions. A clear need emerged to give early leavers the right to a transfer value.
The majority of large and medium-sized schemes already allow transfers, but not all. However, all too often the critical choice of how these transfers can be used is limited. On this aspect I issued a further consultative document in May setting out my proposals for change. These proposals won almost universal agreement and support, and are therefore incorporated in the Bill virtually unchanged.
The effect of the Bill will be that in future everyone who leaves a job after its provisions take effect will be given the right to take a transfer instead of leaving their pension rights in their old employers' scheme. The value of that transfer will be calculated in a way certified by an actuary to be a fair cash equivalent of the leavers' full pension rights in the scheme. Those rights will, of course, in their own way be enhanced by the revaluation requirement that I have just outlined.
This transfer value can be used to buy rights in a new employers' scheme, where the scheme is willing to accept the transfer. It can be used to buy an annuity with an insurance company of the leavers' choice, or it can be used in any other way laid down in the regulations. That last provision is primarily intended to cover personal pensions when they are introduced, but it will also give us freedom to include other suitable alternatives which may be developed. The right to opt for a transfer will remain open 674 to a year before pension age. This will give maximum choice and flexibility to the member without causing undue difficulties for the schemes.
The details of the approach to be followed in calculating fair values will be set out in regulations. We shall, of course, be consulting widely on these details. However, I can tell the House that at my request the actuarial profession is considering this whole question, and I am encouraged by the progress which it has made so far.
We are making another important but fairly small change. The age limit of 26 will be removed from the preservation requirements of the Social Security Act 1973, so that in anyone with five years' qualifying service in a scheme, regardless of how young he is, will get a preserved pension, unless he chooses to take a transfer value instead.
§ Mr. Tim Smith (Beaconsfield)
The main grievance has been not that in some cases transferability has not been available but that where it has, the transfer value has been felt to be grossly unjust to the leaver. My right hon. Friend has referred to his discussions with the actuaries, but valuation is absolutely critical. Will he say more about the progress which has been made?
§ Mr. Fowler
It is because I recognise the critical nature of that valuation that we are holding discussions with the actuarial profession in England and Scotland. The aim is to find an agreed and fair way of measuring what should be transferred. It also goes without saying that if it is impossible to find that by agreement or discussion—I have no reason to believe that that will be the case—the Government will have to introduce their own standards. We are entirely at one with my hon. Friend—I recognise his interest in this regard—in seeking to find a satisfactory way of getting a valuation which is fair to the scheme member. I give him that assurance.
I have explained the important reforms for early leavers at some length because they are the vital heart of the Bill. When taken with our action in the previous Session to end franking, they go a long way to give early leavers a new and much fairer deal. Personal pensions, when they are available, will complete the process.
The reforms proposed in clause 3 and schedule 2 will benefit all scheme members — leavers and stayers. Occupational pension rights are often the biggest single asset an individual holds—worth far more than any investment he controls personally, perhaps even including his home. It must, therefore, be right that full information about that major asset should be readily available. We are taking powers in the Bill to give members access to a range of information about their pension schemes.
The detailed disclosure requirements will be set out in the regulations, and I shall consult fully on them. Members will get basic information about their rights and entitlements automatically. Other information about the way schemes are run and funds are invested will be available. The details will be sufficiently detailed to enable a qualified person acting on the member's behalf to form a complete picture of the scheme.
We shall set different requirements for different types of scheme. For example, schemes with just one member will be completely exempt because it would be nonsense to include them. Only the essential minimum financial information will be required from pay-as-you-go unfunded 675 schemes, and there will probably also be reduced requirements on schemes whose benefits are fully insured or guaranteed by statute.
One point that was made often when we consulted on our proposals was that members should be given simple brochures about their schemes, so that they would be able to understand the complex data that might be made available to them by schemes. I hope that schemes will provide such literature. But the exact form a booklet takes is a matter for them of presentation, not content, and is certainly not appropriate for legislation.
There have been some worries about the costs of disclosure and I shall be willing to listen to a full discussion of that. I do not, however, believe that those costs will be significant in terms of a scheme's total resources. Many schemes already provide their members with comprehensive information. Schemes which follow this good practice will find that they will have little or no extra burden as a result of the legislation. We propose to back up the disclosure requirements with a pension schemes register on lines similar to the companies registration office. The register will have several functions. It will act as a central check on schemes' compliance with the disclosure requirements. It will provide an additional avenue for members to bring pressure on unco-operative schemes. It will provide a central, readily available public source of information about schemes which will encourage best practice and enable comparison to be made between performance and standards.
Trustees or managers of schemes will be required to lodge copies of scheme documents, annual reports and other information with the pension schemes register. The register's costs will be recovered from registration fees and fees for inspecting documents. The register will provide a powerful incentive to schemes to comply with the disclosure requirements and will act as a powerful back-up to disclosure.
I appreciate the desire of schemes to have their rules set out in one document. That is why the Occupational Pensions Board will be placed under a duty to determine whether scheme rules meet the legislative requirements. If they do, the scheme will be governed by its rules without reference to the legislation. Therefore, schemes which wish can make the override an interim measure only.
That is the position briefly on occupational pensions. They form the major part of the Bill, but that is not to under-estimate the importance of the other provisions in the Bill. My hon. Friend the Minister with responsibility for the disabled will deal in more detail with two important social security changes that feature in part II. The first provides that married women who are entitled to the over-80s pension at the lower rate will qualify for the standard rate paid to men and other women over 80. Their benefit will increase by an additional £8.65 a week when benefits are uprated next year. The second will have the effect of restoring the 5 per cent. abatement in invalidity pensions when I carry out the 1985 review of benefit rates. The rate of invalidity pension will rise by £1.55 a week for a single pensioner and £2.50 for couples in addition to the normal uprating. I am sure that both changes will be welcomed.
§ Mr. Michael Meacher (Oldham, West)
How many of those who will supposedly get the restoration of the 5 per cent. abatement of invalidity benefit will actually get it? 676 What recompense will the Secretary of State make to those who have been deprived of the benefit for the past five years?
§ Mr. Fowler
I have no proposals on the latter point, but to answer the hon. Gentleman's former point, probably about half. Perhaps I may allow my hon. Friend the Minister of State to deal with this.
Part III of the Bill deals with the statutory sick pay scheme. The Government believe that it makes sense to extend the scheme to cover the whole period for which state sickness benefit is normally paid. This will cut the overlap of occupational sick pay schemes with national insurance sickness benefits. It will reduce the effect of the anomaly caused by state sickness benefit not being taxable. It will save public expenditure and reduce staff numbers in my Department. Above all, perhaps, it builds on the success of the scheme in operation since its introduction in 1983. The responses that we have received suggest that many employees prefer statutory sick pay to sickness benefit from the state. When they are sick, all the money comes from one source, rather than from two. For those reasons, I propose that from April 1986 statutory sick pay will cover the first 28 weeks of sickness instead of eight weeks as now.
§ Mr. Frank Field (Birkenhead)
The Secretary of State said that he has evidence from employees that they favour the change. Will he tell us more about that evidence? I have heard no such views.
§ Mr. Fowler
The information collected by the Department shows that the staff whom we have been able to survey believe that the statutory sick pay scheme is an improvement upon the other scheme. I shall ask my hon. Friend the Minister of State to provide the exact data on that. [Interruption.] I must leave my hon. Friend something to do in this debate.
Obviously, what I propose will mean some extra work for employers. However, now that statutory sick pay has successfully become a part of employers' pay procedures, this should not be extensive. Our aim has always been to keep procedures as simple as possible. To achieve that end we shall continue to consult employers' representatives fully. That is why the detailed provisions have been left to be covered in regulations. The House may wish to know that we have already had an initial response from the CBI acknowledging the basic sense of what we propose.
§ Mr. Charles Kennedy (Ross, Cromarty and Skye)
Given that the Minister of State will be replying about sick pay, will the Secretary of State nevertheless have regard to the small business man—the shopkeeper—for whom the change will have a significant effect and which may account for his present profits? I am thinking of the small rural storekeeper, of which there are many in my constituency. They are extremely worried about the change.
§ Mr. Fowler
We have decided to relieve employers of the cost of their share of the national insurance contributions paid on statutory sick pay. The significance of that, as the hon. Gentleman will recognise, is that the National Federation of Self Employed and Small Businesses, and other such organisations, have made this their major complaint about statutory sick pay. We are relieving them of the cost of their share of the national insurance contributions paid on statutory sick pay, so we 677 are meeting their case on that. That will mean a current saving for employers of up to £40 million a year. I propose to make that change not just from 1 April 1986 but from 1 April 1985, a year before we extend the scheme, and I shall table an amendment to the Bill in committee. I hope that the point made by the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) has been met.
Although there may be difficulties of detail on this legislation, the Bill deserves support. The reforms that I am introducing for occupational pensions schemes, in particular, represent the most significant legislative proposals for this subject for at least 10 years. They are only part of our far wider scrutiny of provision for retirement. They are only part of the strategy that we are developing to safeguard the interests of the retired and their families, not just over the next few years but into the next century. I believe that they represent an important step forward, and one that holds a fair balance between the stability of the schemes themselves and the interests of their 11 million members.
These are important proposals that represent an important reform of occupational pensions. I ask the House to give the Bill a Second Reading.
§ Mr. Michael Meacher (Oldham, West)
Even more than most of the other social security legislation of this Government, this is a deceptive Bill. There are items in it that merit support in principle and that the Opposition support, but, even in these cases, more detailed scrutiny of the small print suggests that they are seriously flawed by many offsetting drawbacks. Thus, some restoration of the previous cuts is balanced by new cuts applied to the more obscure parts of the social security system where public understanding is weakest.
It is highly disturbing that the main thrust of the Bill is towards extending privatisation, with all its known disadvantages, over which the Secretary of State glossed very glibly, into further parts of the welfare state—notably long-term sickness. There are ominous signs that the way is being paved for privatisation to disrupt key parts of the all-important pensions sector—notably earnings-related pensions—and an assault on Labour's Social Security Pensions Act 1975 which laid the framework for by far the best deal that pensioners have ever had. No doubt the suspicious trend that can already be detected in this Bill will be fully reflected in the Secretary of State's reports early next year, when they reveal the full scale of the assault being planned on the whole of the welfare state.
Part I of the Bill deals with occupational pensions. We welcome in principle the proposal to revalue deferred pensions, although we regret that it has taken three years to act on the 1981 Occupational Pensions Board report to this effect. However, the Government's formula, based, as the Secretary of State said, on only 5 per cent. a year, or in accordance with the rise in prices, is seriously defective. The proposals will mean that early leavers are still at a disadvantage compared with stayers, who are covered in the Labour Government's 1974 Act for rises in line with earnings. The proposal is already out of line—the Secretary of State may not fully appreciate this—with what the National Association of Pension Funds, not the Labour party, says is happening—that 70 per cent. of the funds are already revaluing at 8 per cent.
§ Mr. Meacher
That is my information. It is out of line with the guaranteed minimum pension, which is guaranteed in terms of earnings increases. Moreover, it offers a poor prospect—
§ Mr. Fowler
I thought that I was hearing things. Did the hon. Gentleman say that 70 per cent. of pension funds are revaluing at 8 per cent.?
§ Mr. Meacher
It is not a bit surprising, in view of the large actuarial surpluses which are building up in many of these funds.
Moreover, the Bill offers a poor prospect. The Government Actuary estimates that the basic state pension will fall to only 10 per cent. of future average earnings if increased in line with prices only. There is no reason to believe that occupational pensions under a similar formula will do any better. In the 1982 quinquennial review, the Government Actuary illustrated this effect on the assumption of an annual 2 per cent. difference in the increase in earnings and prices, which is a reasonable assumption, over 20 years. Compared with earnings, a pension would be worth 15 per cent. less in real terms after 10 years and more than 30 per cent. less after 20 years.
For these reasons, we believe that the 5 per cent. revaluation figure is inadequate because, on the basis of several alternative comparisons, it will provide the early leaver with a poor deal. I agree that it will be better than what he has at the moment, but, if we are to pick a figure, the Government should pick a better one.
§ Mr. Tim Yeo (Suffolk, South)
Is it not ludicrous for the Opposition to criticise the 5 per cent. figure, which is at least in line with the level of inflation under this Government, when for years under the Labour Government, with double figure inflation, there was no protection of any kind?
§ Mr. Meacher
If the hon. Gentleman wishes to get into that kind of argument, I should point out that there was double figure inflation under this Government in 1981, when the rate of inflation year on year was 22 per cent. That is my point. Why did the Government not then act to introduce a measure such as this? They waited three years, and inflation is now 5 per cent. Looking at historic trends, the increase should be in line with earnings, or nearer towards the trend of earnings, which is between 7 and 8 per cent.
We also oppose the revaluation arrangements, because they omit all pensions deferred before 1 January 1985. Surely it is reasonable that these retirement pensions should be backdated at least to the time of publication of the relevant OPB report in 1981. The Secretary of State has argued on many occasions, and again tonight, that this would undermine existing schemes, but the OPB has pointed out that pension funds are building up substantial actuarial surpluses, and many actuaries have, by their funding assumptions, built up reserves to cover this problem. In this important respect, the revaluation proposals are flawed.
On transfer values, the Bill's proposals are an advance, but in a manner that leaves much to be desired. First, it is difficult to see how fair transfer values can be 679 guaranteed without standardising the methods of calculation and the assumptions for calculating those values, perhaps as a result of the discussions to which the Secretary of State referred. If that happens, we shall welcome it. The calculations should be open to the transferring member, and it is reasonable to have an adjudication procedure for disputes, bearing in mind the importance, as the Secretary of State stressed, of occupational pensions as assets. We need an adjudication procedure similar to that for employment and industrial disputes. We should like to see that in the Bill.
Furthermore, the proposed general framework for transfers is far from satisfactory. Unless employers are required to accept transfer values for use in their pensions schemes, the transfers to annuities and other arrangements are inevitable. That is no doubt designed to open up the way for personal portable pensions.
Above all, more protection than is proposed is needed if some early leavers are not to make some disastrous pension investments. As a minimum, this requires stricter controls and publicity material by brokers and insurers in selling deferred annuity policies, requirements that employers make advice from competent pension consultants available to early leavers, a right to a period within which any prospective section 32 policy member can change his mind, as happens with insurance policies and hire-purchase agreements, and discretion for trustees to refuse to transfer to policies which are not approved. None of these requirements is at present explicit in the Bill. In the Opposition's view, all of them should be.
As for the disclosure of more information about occupational pension schemes to their members in clause 3, obviously that is desirable in itself, but again it is offered in a manner which, in our view, falls short of what is needed. In the absence of the details of the regulations, which are not included in the Bill, I can only quote from the consultative document. It is proposed there to provideinformation sufficient to enable an expert pension adviser to form a complete picture of the scheme and its financial soundness.That is hardly enough. Scheme members themselves ought to be able to judge a scheme on its merits, and the employer should be obliged to provide this information in an easily readable leaflet form.
§ Mr. Kennedy
I should be interested to hear the hon. Gentleman's view on a matter which follows from that. Looking ahead to potential money purchase schemes, does the hon. Gentleman agree that there is an argument for saying that employees — members of the schemes — should be able to elect trustees and have greater direct control, obviously subject to professional advice, over where investments are made? Is the hon. Gentleman in favour of the direct election of trustees of money purchase schemes?
§ Mr. Meacher
Certainly I am in favour of more member control over trustees and of more consultation — subject to professional advice, which is very important. Members' interests and the interests of representatives of those members should be more closely taken into account.
§ Mr. Robert McCrindle (Brentwood and Ongar)
Are we to take it from what the hon. Gentleman has just said that the Labour party has now dropped the idea, current a few years ago, that 50 per cent. of the trustees should be appointed by trade unions?
§ Mr. Meacher
I do not regard that as inconsistent with what I have just said. I believe that there should be more control and participation by members and more information provided to them. It may be that the hon. Gentleman and I have a difference of view here, but I do not see why that should not be done through the trade unions. That has happened in the best cases, and I hope that it will be taken further.
The consultative document also says:remedies for non-compliance would correspond to those already available for non-compliance with other statutory requirements.However, it is impracticable for most individual members of a pension scheme to resort to an expensive and uncertain civil action against the trustees. If we believe in employee redress, we need a right written into the Bill for a member to be able to take steps to force disclosure by reporting an employer to an authority, such as the Occupational Pensions Board, which would then act on the employee's behalf.
What is most worrying about the whole of part I is its pre-empting of the pensions inquiry which is still under way and its assuming some of its recommendations. The original compromise allowing contracting out offers a ready-made structure for a privatisation solution, subject to resolving the major problems of transferability and portability. But, quite apart from the opportunity presented, I cannot emphasise too strongly that any shift away from the earnings-related supplement in the state pension scheme would be nothing short of catastrophic for our 9.5 million pensioners. Not only would it disadvantage severely those unable to obtain an adequate pension through an occupational pension scheme — those on lower earnings; most manual workers and most women — but it would destroy the one escape route from means-tested poverty which was put in place by the Labour Government in their 1975 scheme and which will take virtually every pensioner, as of right, above the supplementary benefit line by 1998. To destroy such a prospect, if that is intended, in the interests of the dogma of privatisation in moving out the earnings-related part of state pensions into the private sector would be a crime against our pensioners.
One demand that we make is that the Secretary of State, or the Minister, should formally repudiate any such intention. I should be glad to give way to the Secretary of State, or to the Minister, if he wished to make such a declaration. Unfortunately, there is no sign of that. I find it disturbing that there is an unwillingness on their part to make a statement of that kind. It is clear that the Bill paves the way for such a possibility, and that is deeply disturbing. It would have extremely damaging effects on pensioners' interests. If that is not the intention, it should be made clear as soon as possible.
In part II, the Secretary of State has brazenly sought to take credit for restoring in November 1985 the Government's former 5 per cent. cut in invalidity benefit. I need hardly say that it should never have been cut in the first place. We cannot express much gratitude to those who merely restore a cut which should never have been made. Moreover, since the 5 per cent. abatement was only justified in 1980 as a precursor to taxation, and since taxation has been recognised by the Government to be impracticable, there is a clear case in equity for the Government being obliged to compensate claimants for the money that they have lost because of an error or 681 foolishness on the part of the Government. The Secretary of State appeared not to have thought about it. I ask him to think about it now.
Between 1980, when the abatement was first instituted, and November 1985 a single person will have been deprived of £354 and a married couple of £569 as a result. Perhaps even more strikingly, had Labour's historic method of fixing invalidity benefit according to the higher of prices or earnings been applied, a married couple on invalidity benefit would now be getting £7.35 a week more than they are. So much for the Government's generosity. They should be on their knees to invalidity pensioners and apologising for having robbed them of money. They show no sign of contrition, and no readiness to return it.
Worse still, the Secretary of State admitted that nearly half the 750,000 disabled people due to receive the 5 per cent. restoration of benefit will find all or part of the increase clawed back. About 150,000 invalidity benefit claimants are also on supplementary benefit, so the increase of 5 per cent. will be correspondingly deducted from the supplementary benefit entitlement. Then the Government have made the mean decision to ban people from receiving both the invalidity allowance and the earnings-related supplement, whereas at present they are entitled to both. That will affect another 150,000 persons.
§ The Minister for Social Security (Mr. Antony Newton)
I shall be commenting on the latter point later. However, to avoid anyone being misled, as on one occasion The Guardian has been misled, the hon. Gentleman will recognise that the fact that those on supplementary benefit do not gain from the restoration of the abatement corresponds with the fact that they did not suffer from the abatement in the first place. If they were on supplementary benefit, anything that they lost on invalidity benefit was made up on supplementary benefit.
§ Mr. Meacher
That is technically true, but it is important that people should have non-means-tested benefits. Labour members always argue that. There is a great deal of difference between a non-means-tested benefit and a means-tested benefit. I am sure that when the Minister replies he will, I regret, assure the House that half those who are supposed to receive that restoration of benefit will receive nothing, because it is clawed back either in whole or in part.
Losing the lower of invalidity allowance or earnings-related supplement may mean that people could lose more by this measure than they would gain from the 5 per cent. abatement. I appreciate that we cannot know for certain, because we do not know the figures for November 1985. But a ministerial statement on 12 November 1984 said:existing beneficiaries will be protected to ensure that their benefit is not actually reduced.Therefore, will the Secretary of State give a commitment that those claimants will not lose more by this further cut than they will gain by the belated restoration of a previous cut? That is an important question. Once again, I shall be happy to give way if I can have an assurance that that will be so. If the Secretary of State will not give that commitment, it shows that, so far from the Bill improving the position of invalidity pensioners, it will make matters worse for many of them.
Let me give an example. On the November 1984 rates, as from today, a person incapacitated at the age of 40 with 682 an invalidity allowance of £7.50 a week will lose an average earnings-related addition of £2.50 a week and will gain only a single person's 5 per cent. abatement of £1.71 a week. That is not generosity; it is a further imposed deprivation. That is why we have strongly opposed that part of the Bill. By all means restore what should never have been cut, but it is exceedingly mean to make further cuts as a result of which many people will once again be worse off.
The third major change in part III is the extension of statutory sick pay from eight to 28 weeks. The effect of that major extension of privatisation is that all the worst anomalies of sick pay will be exacerbated. The Secretary of State's extremely bland reply to my hon. Friend the Member for Birkenhead (Mr. Field) staggered me. Substantial arguments have built up against statutory sick pay in the light of experience. If he does not know them, I shall spell them out.
First, benefit rates for sick pay are paid on the basis of salary, not need. That means that families with children are worse off under sick pay than under national insurance sickness benefit.
Secondly, taxation is levied on sick pay, not on sickness benefit. National insurance contributions are also payable, with all their regressive burden weighted against the low paid.
Thirdly, sick pay and sickness benefit are paid only after four or more days of illness. But while sickness benefit links different short periods of illness within an eight-week period, sick pay only does that within a two-week period. That is far meaner and will mean that a number of people will not get the benefit of sick pay whereas they would have got it if sickness benefit were still on offer.
Fourthly, there is a significant drawback under the statutory sick pay arrangements. If, for example, a worker has received his holiday pay in advance within the eight-week assessment period prior to the sickness, or if he were on an overtime ban or anything that might reduce his wages, his sick pay will be correspondingly lower.
Fifthly, sick pay, under the aegis of employers, is refused if a worker goes sick during an industrial dispute.
Sixthly, if a worker books his holiday and then becomes sick, employers are entitled under the sick pay arrangements to regard him as being on holiday.
Seventhly, and importantly, since most illnesses are over in eight weeks and only the serious ones go on to 28 weeks, there are real fears that employers will discriminate against people with frequent sickness records. Indeed, the unions have already picked up monitoring by employers which shows an increase in their concern with health records. There must be a real worry that that will be turned against those who, through no fault of their own, are frequently ill.
Eighthly, sick pay is often wrongly calculated. The Secretary of State should know that his Department has been making inquiries. The National Federation of Self Employed and Small Businesses recently found that one in four small businesses was making errors. In December last year the Department stated that out of 180,000 cases checked, one in six—16 per cent.—made either over or under-payments.
Ninthly, employee redress is clearly weaker under the sick pay arrangements. If people are unwilling to take on the DHSS at a tribunal, even fewer will be willing to take on their employers.
683 I could go on, but I shall not. The Secretary of State said that he was not aware of any disadvantages, but I hope that I have given him nine strong reasons why sick pay is manifestly bad. Employer-controlled sick pay suffers from a series of hidden drawbacks. That is why we strongly reject this extension of it.
One final major objection concerns the abolition of employers' national insurance contributions on sick pay. Did I hear the Secretary of State say that that was to be done a year early? That is an extraordinarily generous concession when we are told that there is not the money to pay people the kind of benefits that are needed and when there are extra cuts so that invalidity benefit claimants cannot have the full 5 per cent. restoration. That is extraordinarily generous of the Secretary of State when he has been extremely mean to employees.
The abolition of national insurance contributions on sick pay proposed in the Bill is a blatant repudiation— not only when it is paid a year early but whenever it is paid — of the principle enunciated by the Minister with responsibility for the disabled as recently as 1982. The hon. Member for Hornsey and Wood Green (Sir H. Rossi) said:In relation to the question of principle … the earnings-related contribution schemes are geared to the basic concept of employers and employees both paying contributions on all assessable earnings. It is alien to the scheme structure to expect employees but not their employers to contribute on one type of assessable earnings."— [Official Report, Standing Committee B, 2 February 1982; c. 367.]I should be interested to know on what grounds there has been a U-turn in Government thinking, so much so that they are eager to offer that benefit to employers one year early.
The Government have largely caved in to the employers to secure that big extension in privatization — if I am wrong, the Minister will tell me—even at the expense of substantially reducing any savings in public expenditure. The first offer to employers was a reduction of 0.5 per cent. on national insurance contributions to compensate for their extra cost. Savings to the Exchequer for removal of sickness benefit responsibility would then be £375 million. The Exchequer would lose £420 million in national insurance contributions from employers and the Government would get tax on sick pay worth about £200 million. They would also save £30 million in administration costs. Thus, public expenditure would be reduced by £400 million for a net revenue loss of £200 million. That was the original offer, as I understand it. Now, several offers later, the Government have agreed that employers are to deduct the full cost of their payments of sick pay from national insurance contributions. Therefore, compensation to employers has risen sharply to £565 million and the Government have made only half the estimated savings on Civil Service costs.
The net saving to the Exchequer from that huge exercise, with the enormous disadvantages to employees that I have spelt out, is only £40 million, not the proposed £200 million. In addition, the net effect is a direct transfer from employees' incomes via taxation to the incomes of employers. That is why we strongly reject it. Those financial effects are another fundamental reason why we oppose these provisions.
This is a mixed Bill and we give it a mixed reception. We support the principle of revaluation of deferred pensions, but we reject the failure to backdate that protection to existing pensioners, at least for three years. 684 We support wider disclosure for occupational pension scheme members, but we insist that it must benefit not only experts, but ordinary members. We welcome the restoration of the 5 per cent. cut in invalidity benefit, but we are appalled that the Government can be so brazen as to make further cuts which will prevent half the potential beneficiaries making any gain. We oppose the major extension of privatisation of sick pay, because, in manifold ways, it will worsen the position of many groups of low-paid and vulnerable workers in terms of sickness provision, will not bring about the public expenditure savings that were promised and will redistribute income from poorer workers to employers.
For all those reasons, we give the Bill conditional support. I shall therefore ask the House to vote for our reasoned amendment.
§ Mr. Robert McCrindle (Brentwood and Ongar)
I shall deal solely with the occupational pensions aspect in part I of the Bill.
The House will know that for a long time I have been concerned about the problems of early leavers from occupational pension schemes. I suppose it could be said that I have been a thorn in the flesh of successive Governments in pressing on them just the sort of legislation that we are considering.
It was about eight years ago that I first drew to the attention of hon. Members the inequity and injustice which appeared to exist in regard to those who changed their occupations with any frequency. Therefore, it is a considerable personal pleasure for me to be able warmly to welcome the legislation.
The Bill is not perfect. In an ideal world we could no doubt go much further, but, by any reckoning, the Bill is a major step along a road which I have been anxious to travel for some time.
Few people would now contend that it is other than wrong to penalise those whose only crime is that they wish to change employment. Whether on grounds of equity or mobility of labour, there is a strong argument for dealing more fairly with those who change their jobs.
We all know about the different pensions payable to the man who changes jobs two or three times in his working lifetime and the man who stays with his original employer until retirement. The man who, on the face of it, has shown enterprise and initiative by changing jobs, perhaps to go where the work is or to better himself so that he can look after his family, is penalised, whereas the man who stays with his employer gets a pension which may be 50, 60 or 70 per cent. higher than that of the man who has moved around.
Some will say that such a result is no more than the reward for loyalty, but that is an attitude of yesteryear. If we are to encourage enterprise and mobility, we cannot continue to penalise those who change jobs. I have no doubt that the Bill will immeasurably assist in that aim.
I am sure that the Bill will receive almost universal approval. I particularly welcome the fact that not only are we to have preservation or uprating of pension entitlements after an employee has left, but that there is to be the alternative of transferability and, within that, a range of options. It is a fair Bill, which recognises that whether or not the 5 per cent. is adequate it is a reasonable 685 percentage at which to pitch the required annual revaluation. The range of options available to those who go for transferability is also a move in the right direction.
However, I am a little disturbed that until the speech of my right hon. Friend the Secretary of State there had been so little mention of the cost of the proposals or who was likely to have to pay for them. I regret that I find in this world little of the "nothing for nothing" approach.
Earnings on previous employees' contributions have been used to boost the pensions of those who stay with the employer. That is unfair, but it has been cost-effective.
We must presume that the same pensions will be expected by those who have remained with one employer during their working lifetime, yet there is to be more justice given to early leavers. Therefore, the total costs must rise. Thus, it is appropriate for us to ask who will carry the financial burden. Will it be those who have stayed loyal to one employer? That would be unjust in the extreme. Will it be those who have changed employment frequently and who are now to be given some belated justice? If so, it would seem to be a case of giving with one hand and taking away with the other. One reaches the inescapable conclusion that employers will have to find the additional cost.
I am worried that employers with smaller pension schemes may discover that it becomes so difficult to find the extra outlay to meet the provisions of the Bill that they will have to consider seriously the continuation of the scheme. I hope that that will not be the case, and I stress that pension funds will probably have to think carefully about their investment performance. Not all pension schemes perform in such a way as to minimise the cost to the employer. In addition, administration costs of some schemes could be brought under better control. However, there will be additional costs and they will have to be met by employers.
There is no problem for the Government. Even the hon. Member for Oldham, West (Mr. Meacher) did not suggest that there should be a subvention from Government funds to enable transferability to be implemented. However, just because the Government have no direct responsibility, Ministers cannot sweep these matters under the carpet. On the contrary, they will have seen only this weekend a statement by the Engineering Employers Federation, which is worried that the Government's proposals will impose considerable additional costs on employers. That must be conceded and, therefore, it is important that the Government do not put any additional impositions on occupational pension schemes.
The proposal to give more information to members of pension funds is obviously a move in the right direction. However, much depends on the sort of information that one has in mind. I hope that we shall not become so prone to communicating every jot and title of pension fund management that we succeed only in confusing pension fund members with comparative irrelevancies. We should consider providing more information on how the fund is performing, particularly against the expectations that have to be achieved if the promised pensions are to be delivered.
It is right that fund members should be made aware of where money is invested and what steps are being taken to redress any shortfalls on investment returns, but I beg the House not to assume that every member of a pension scheme is accustomed to the jargon of institutional 686 investors. The fundamentals must be communicated to the average member of a scheme, but I hope that such communication will be meaningful.
The Bill is a trailer for the introduction of portable pensions. They were talked about previously as the force which would open the oyster to produce a major step forward in the advancement of a property-owning democracy. In the recent past a more realistic assessment of the limits of what can be achieved by portable pensions has come upon us.
Such a move would extend freedom of choice, assist mobility and ease the pressure on the state system, and to that extent I am in favour of it. The competition that portable pensions would bring to the traditional occupational pensions schemes would do nothing but good. The performance of some occupational schemes has been sluggish, to say the least.
Portable pensions have long-term implications. They would have an effect on occupational pension schemes. Who will opt for a portable pension? I predict that the young or mobile will choose a portable pension. If they leave occupational pension schemes, the imbalance in the age distribution might make some of the occupational schemes unviable.
A good argument can be made for applying some controls on where portable pensions funds can invest pensioners' money. Without controls we run the risk of providing the individual with an inadequate pension, which might force him back on social benefits, which is the antithesis of what the Government wish to achieve.
Although I welcome the broad concepts of portable pensions, we must be careful when introducing them not to destabilise existing occupational schemes. No benefit could be gained from doing that. We should be looking for balance when the successor to the Bill is introduced. A competitive spur can do nothing but good for the existing schemes at the heart of the legislation.
§ Mr. Tim Smith
My hon. Friend says that young and mobile people will opt for portable pensions, but why should anyone opt for portable pensions if there is no obligation on the employer to make up the contribution?
§ Mr. McCrindle
That is a considerable defect. If my hon. Friend suggests that he will join me in pressing for a change in that proposal before a scheme is introduced, he will find a ready listener. [Interruption.] Some of us know a little about these matters, and hon. Members might do well to pay attention.
Opposition Members should also pay attention to another fundamental and important point which I want to make to the Secretary of State. I cannot welcome the Bill without raising the associated and inseparable topic of the tax treatment of pension funds and contributions. Tax relief applies in three areas—to the contributions to an occupational scheme, to the lump sums that can be taken in lieu of part of a pension and to the fund itself.
The suggestion is that there may be a movement towards removing some or all of those tax reliefs. If there were a move to change tax relief on pension funds' contributions, I should consider that a betrayal which would upset personal budgeting. If that happened, we could no longer make membership of an occupational pension scheme a condition of employment. It would also probably lead to a substantial undermining of occupational 687 pension schemes, and would have a powerfully adverse political effect. I hope that my right hon. Friend will pay particular attention to that.
If tax exemption on the lump sum which can be taken on retirement is to be the target of changes, many of us believe that, since tax is paid when the lump sum is spent, it would be close to double taxation. It would also compare unfavourably with the position of a person who had tried to arrange for his retirement through an endowment pension scheme, the proceeds of which are free of capital gains tax. The threat that such a change might happen in future is leading people such as senior police officers coming up to retirement age to opt for retirement because they cannot face the thought of the lump sum to which they are entitled being subject to taxation.
If 10 per cent. were levied on the fund itself and the benefits had to remain as promised, that would have to be paid in some way. Once again, one would have to expect improved performance from the fund and turn to the employers. That, allied to the additional costs which are implicit in the Bill's proposals, could be the straw that breaks the camel's back.
I hope that my right hon. Friend will take my comments on board and not fail to communicate the concern which many of us would feel if there were a move towards taxation under one of the headings to which I have referred.
Although my right hon. Friend may be forgiven for not understanding me, I give a warm welcome to the Bill. My welcome is allied to a call for realism about the cost entailed to employers in introducing its provisions. My welcome is also allied to a warning to the Chancellor of the Exchequer that he could yet torpedo all that has been achieved by occupational pension schemes. I hope that it is not unparliamentary to say that the best advice I can give to the Chancellor in this respect is, "Hands off'.
§ Mr. Charles Kennedy (Ross, Cromarty and Skye)
On behalf of my right hon. and hon. Friends, I warmly welcome the principle of the Bill.
§ Mr. Kennedy
That is like the pot calling the kettle black. In proportional terms, I probably represent the alliance better than those Labour Members present just now represent their party.
We welcome the principle which the Secretary of State is advancing in the Bill. A reform of occupational pensions is long overdue. As the Secretary of State said, unfairnesses have afflicted the so-called early leavers.
The Secretary of State was right to emphasise fairness, freedom of information and the need to encourage job mobility. Although I endorse that thrust, I believe that the Bill could have been more ambitious. The hon. Member for Brentwood and Ongar (Mr. McCrindle) sees the Bill as a forerunner to a further change, and the Secretary of State will probably confirm that.
The Bill is probably only the first step towards any real improvement. We should be cautious, because the American experience of 10 years ago with the employee retirement income security legislation, based on the same principles, caused difficulties with the burdens that it put on employers. It became self-defeating.
Eventually, it thwarted its own purpose. There is some disappointment with the pace that the Government have set 688 themselves. Some say that they are being too cautious but it is probably right to proceed with some caution rather than frenetically in the way that ended with the American experience.
When the scheme is implemented, there will inevitably be financial pressure, and pressure will obviously fall on employers. I am sure that none of us wants employers to be inhibited by additional pressures in taking on new employees. That would run contrary to the spirit of other measures in the Bill.
Comparability between those who have retired and those who are in work has been discussed. There will also be two groups in work. One group will be in the occupational scheme and the other will consist of those who contract out into their own schemes. If inflation is above 5 per cent., there will be a cut in the pension entitlement, and if it is less than 5 per cent., or if public sector wage increases are higher that 5 per cent., some will be caught by that limit. That could be a cause for frustration and division. It will be interesting to hear the Government's thinking on these matters. I am reminded of the value of X in the privatisation of British Telecom. The then Bill included the RPI minus X formula. There will always be arguments about the value of X in terms of the figures that are brought forward as a result of the Bill.
The policy set out in the Bill is that those who change jobs should have the pension entitlement that they have built up in previous employment protected against an inflation rate which has been set at 5 per cent. That rate could be regarded in some circumstances as too high. If there is a target figure against which pension increases are being paid, that measure may be adopted by employees for their pay increases. The annual expectation of a 5 per cent. increase or a 5 per cent. revaluation rate could be inflationary. A 20 per cent. increase in pension costs for employers could act against their interests and the interests generally that the Government wish to promote
The Engineering Employers Federation has said that it would like the rate to be nearer 3 per cent. and to be determined from year to year. That reflects the difficulties that employers could face. It is difficult to make predictions at this stage and we shall have to wait until the scheme is set up and implemented. Like the Government, we are conscious of the doubts of both employee and employer organisations.
§ Mr. Tim Smith
I thought that the hon. Gentleman was advancing the arguments which have been advanced by the Engineering Employers Federation. Surely there would be inflationary expectations only if the rate of inflation were less than 5 per cent. If the rate of inflation were less than 5 per cent., the increase in deferred pensions would also be less than 5 per cent.
§ Mr. Kennedy
I am not reciting an argument that has been presented to me by the federation or anyone else. If inflation is running at a rate lower than 5 per cent.. there may be expectations. At the same time, the Government must not rest on their laurels and ignore the possibility of inflation increasing once again. It would take only an oil price explosion to ruin the Government's economic policies or those of any other Government.
There is an unfairness because the current percentage calculations are based on final salary. The problem can be overcome if there is an elimination of that criterion. One approach is to take account of the defined contributions 689 that will be necessary. These contributions should be invested and they should move with the transferee when he or she moves to alternative employment. Those in the City who are involved in assessing possible mergers already consider the pension savings that may accrue when a merger takes place. If two companies are brought together and there is a shedding of staff, that can have a considerable demographic effect on the pension scheme.
A second example that should be considered is that of a holding company that has overall control of two separate organisations from which employees may transfer and who in doing so lose certain entitlements. The Minister is probably aware that between 25 and 33 per cent. of employees are in the younger age group and can be expected to move on elsewhere. What does the Minister think will be the overall effect of that on those who are left in the companies from which they move? They will obviously have less incentive, if any, to withdraw from the scheme. There could be extremely damaging effects on pension schemes for those in the 35 to 40-year age group, and those who are older, who are left with a scheme which is receiving a smaller financial contribution overall. The scheme will offer a less attractive investment and problems will accumulate.
I am conscious that time is passing and I am aware that other hon. Members, including the hon. Member for Birkenhead (Mr. Field), wish to participate. That being so, I shall not detain the House for much longer.
The Secretary of State spoke about the need for professional advice in investment policy. Even with professional advice, when stocks are at a low value that can lead to the quality of the investment being reduced. It might be argued that that is the purpose of professional advice. Given the way in which the market works, there may be instances when that happens. That will lead to difficulties for the employees who are involved. It is desirable that we try to make trustees of schemes answerable to employees when they want to know what is happening to their investments, subject to professional advice.
I hope that the Government, in showing that they are willing to take greater steps towards increased scrutiny—for example, with the register—will not bow to the wishes of the employees who tend to want to call the shots when deciding the nature of the investment. I welcome the setting up of the register. It may allow greater information to be made available. There is concern, however, that the register incorporating pension schemes, annual reports and financial documents could result in too much money spent on administration and not enough on the benefits of the scheme.
In principle, we welcome the legislation, although there will be points to be argued at greater length. We shall certainly give the Bill our support.
§ Mr. Roger Freeman (Kettering)
I welcome the Bill wholeheartedly. I commend my right hon. Friend the Secretary of State and his colleagues in the Department for the speed with which they have brought the Bill forward to deal with the urgent problem of the early leaver. The difficulty in comprehending this complicated issue is borne out by the fact that the Opposition Benches are so empty and the fact that the hon. Member for Oldham, 690 West (Mr. Meacher) made such a dramatic and appalling error when he talked about the current practice in the private sector of indexing the deferred rights of early leavers.
I shall set the record straight. The hon. Member for Oldham, West was incorrect in saying that 70 per cent. of private sector schemes index by up to 8 per cent. the deferred rights of early leavers. The truth is that few schemes in the private sector index in that way; hence the need for the Bill. The hon. Gentleman may have been confused by the provisions for indexing the graduated minimum pension or the provisions for pensions in payment. That error should be corrected and the record set straight.
I shall concentrate on two issues: first, the rate of indexation; and, secondly, the effective date for indexation of deferred pension rights. The Bill provides that for early leavers only service after 1 January 1985 will be indexed. We are not talking about the whole of the pensionable service of an early leaver who leaves the pension scheme after 1 January 1985.
To a certain extent the comments of my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) were misplaced. The initial effect on industrial and commercial costs of operating a final salary pension scheme will be modest. We are talking of between 1 and 2 per cent. of payroll costs. That is not an excessively onerous provision. I hope—I know that several of my hon. Friends will agree—that some companies will take the initiative and index the whole of those deferred rights for the whole of the qualifying pensionable service. It is right that the Bill should require the much more modest and, I believe, financially acceptable provision for service only after 1 January 1985.
A balance must always be struck between equity and cost. I join my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle), who dealt eloquently with the inequities in the historical provision for early leavers, in commending the Government for introducing provisions to right the great historical wrongs to the early leavers. We must, however, take account of the costs which are ultimately borne by the employer, who is the final guarantor of final salary schemes.
The maximum rate at which early leaver benefits can be indexed is 5 per cent. Last Session I introduced a Bill on the subject. Frankly, I should have preferred a different approach. I would have required pension schemes to make the same increase for deferred pensioners as has been decided for pensions in payment. That would provide equity between the early leaver and the pensioner who received a pension in payment.
I accept that the Bill provides broadly the same thing. Hon. Members may be aware that 5 per cent. is the recommended target rate for increasing pensions in payment. This dates back to the Occupational Pensions Board's recommendation. That is a target, not a legislative requirement. The Bill contains a legislative requirement to index the early leaver's benefits up to a maximum of 5 per cent. I accept that one of the benefits of the medium-term fiancial strategy during the next few years will be to hold inflation below 5 per cent—as we hope that it will decline from that level—and therefore the provisions in the Bill are equitable and just. In practice, most companies will be increasing pensions in payment for the pensioner 691 who has retired at the same rate as the increase that is awarded for the pensionable service of the early leaver earned after 1 January 1985.
Transferability is confusing. My hon. Friends the Members for Brentwood and Ongar and for Beaconsfield (Mr. Smith) touched on this point. The House must appreciate the fact that the transferability rights written into the Bill are the other side of the coin to indexing the rights of the early leaver. There is no enhanced value to transfer without the indexation provisions for the early leaver's benefits. It is only because the first part of the Bill provides for the indexation of the frozen or deferred rights that one gets an enhanced value to transfer if one chooses to move those rights to another scheme or a portable pension plan. The transferability rights are complementary to the provisions on indexation.
I echo what my hon. Friend the Member for Brentwood and Ongar said about taxation. My right hon. Friend the Secretary of State said that there would be no problem for private sector employers in paying the 1 or 2 per cent. increase in payroll costs because recently investment returns had been good. Surely that is the key. If there are dramatic moves in next year's Budget — for example, taxation of investment income and realised capital gains from occupational pension schemes—we will be pulling the rug out from the excellent two feet which the Bill introduces — provisions for indexation and transferability. I hope that the Ministers in the Department of Health and Social Security will remind our right hon. Friend the Chancellor of the Exchequer of the importance of retaining stability in the tax regime.
I commend the provisions on disclosure. It is a great sadness that hitherto it was not until one reached the age of 50 or 55 that one began to worry about one's pension. I hope that the provisions contained in the Bill for greater disclosure and access to information by employees will encourage those aged 20 and 25 to make proper provision for pensions.
§ Mr. Frank Field (Birkenhead)
Although I am sure that it was unintentional, the Secretary of State misled the House when he concentrated upon the pension proposals. One can see how misleading it was, because so far no one has disagreed with the substance of the proposals. My hon. Friend the Member for Oldham, West (Mr. Meacher) made the valid point that the measures do not go far enough, and the hon. Member for Brentwood and Ongar (Mr. McCrindle), who brings considerable expertise to these debates, was laying down marks of caution to his hon. Friends. He was telling them that they should go so far but no further. However, there is no dispute about the nature of the reforms being proposed.
There was agreement about the proposal relating to the revaluing of pensions and the disclosure of information. I do not believe that any of us will vote against them. There have been some modest changes.
We are really debating the compulsory savings that most people have to make. They are compulsory savings to occupational private schemes, and we should be judging whether we are giving those people, who have no choice in the matter, a fair deal. We see how far we are from giving them a fair deal when the Secretary of State reminds us that even taking into account the value of a person's home, their right to a pension is probably their "biggest single asset", and I quote him there. When wealth figures 692 are published, the tendency is to add pension rights into them, yet when one considers the Bill against those figures we see how modest the reforms are that the Government are proposing.
When most people think about wealth, they think about their rights to realise an asset and to make a choice about it. The pension contributions are a major form of compulsory saving yet most people cannot gain access to the assets until they retire, and then it is on terms which are not determined by them.
If the Government were non-paternalistic, as they often like to tell us they are, they would bring forward a measure which would allow people if they so wished to cash their pensions long before their pensionable age. In other words, we would say, "If you believe that you can make a better deal by a business initiative yourself, or to invest the funds yourself, we will give you the right to take the value of your pension now to do just that." Of course this would have to be accompanied by an understanding that if that initiative failed, there would only be the state scheme to fall back on. It is some measure of how timid the Government are, that we are discussing only these reforms tonight. They show also how paternalistic the Government are because they would throw up their hands in horror rather than bring forward such a measure.
§ Mr. Yeo
Apart from my amusement at the hon. Gentleman's apparent condemnation of the paternalistic attitude, it is possible for someone with a personal portable pension to borrow against the value of that pension. Does that not go a long way towards giving people in the freedom of choice that the hon. Gentleman wishes them to have?
§ Mr. Field
I am not sure why the hon. Gentleman: finds it amusing that I should put forward non-paternalistic views. In every contribution I make, I try to put forward libertarian rather than paternalistic views. He is right to say that that severe disadvantage can, to some extent, be overcome if one can find someone to lend money against that accrued value. As he is aware, that is not always possible.
We shall nod through these proposals. In Committee, we shall put down amendments to try and make them more effective, and the Government, with the help of the hon. Member for Brentwood and Ongar—if he is allowed on the Committee—and the hon. Member for Beaconsfield (Mr. Smith), will vote them down.
There are one or two other measures in the Bill which have already been welcomed by most speakers. There has been a general welcome that the 5 per cent. abatement is being restored—if only to half of those who have had their pensions abated, and for the fact that elderly women pensioners are to be treated equally with male pensioners.
The main part of the Bill, however, is about extending the statutory sick pay scheme from eight to 26 weeks. I wish to address myself to that. As my hon. Friend the Member for Oldham, West (Mr. Meacher) said, this is a major measure of privatisation and I find it strange that the Government did not wish to tell the House that such was the case. They are proud of such measures and usually take great pains to tell us that another election pledge has been fulfilled.
Hon. Members and their constituents outside are puzzled to know why the change is taking place. The Secretary of State gave two rather vague reasons. He said, 693 first, that we must build on success, but he did not say on what success we would be building. Then he said that it "made sense". But does it?
The Minister will probably remember that on 3 November 1983 one of the Government's supporters asked whether the statutory sick pay scheme would be extended. The reply from the then Minister for Social Security was:We have no plans at present to extend the scope of the statutory sick pay scheme.He said that there had been discussions to extend it in a very small way but went on to say:In the light of the comments received, we have decided not to proceed with its extension."—[Official Report, 3 November 1983; Vol. 47, c. 452.]So in November 1983 we learned that there was to be no move towards extending the scheme.
It is of interest to go back to the original debate in Committee on the Bill which introduced the eight weeks statutory sick pay scheme. In that debate one of the Government's own supporters suggested that it would make sense not to have eight weeks but to have all the sickness benefit paid by employers. The then Minister for Social Security—not the one who is to reply tonight—gave three reasons why we should be rejecting an extension of the sick pay scheme. First, he said that, in the eight weeks scheme being proposed, about 90 per cent. of people drawing sickness benefit were covered, so why bother to extend the scheme? Secondly, he said that, even if the scheme were to be extended, there would be very few staff savings, and that was one of the original attractions in introducing the statutory sick pay scheme. Then we suggested a third reason, and the Minister replied:Further, after eight weeks about 40 per cent. of the working population is no longer covered by occupational sick pay schemes.We have heard a good deal tonight about the wonders of occupational sick pay schemes, but not about the important point about which the Minister for Social Security reminded us in Committee on the original Bill. He went on to say:For that group it is more important that financial provision be tuned to their family circumstances. While it is true that supplementary benefit to top up SSP is available to employees who qualify, it is administratively simpler for us to pay sickness benefit and supplementary benefit together rather than to pay supplementary benefit only.As though the issue should not be left there, later in the debate the Minister returned to the theme and told us:If employers took over the whole of the sickness benefit scheme … or if we were to extend that period beyond eight weeks, there would be problems with employees' families. There has already been criticism of the sick pay scheme on the basis that it provides for flat rate payment, irrespective of family circumstances, and there is the fall-back on supplementary benefit. That argument would be much reinforced if we were to carry the period beyond eight weeks." — [Official Report, Standing Committee B, 15 December 1981; c. 156–7.]They were the three reasons, which seemed so compelling, against extending the scheme beyond eight weeks. However, if I remember correctly, the Government put the Whips on and voted against the amendment that was orginally proposed by their own side.
Therefore, we are still left with the question why the measure makes such good sense now when it did not make sense when we originally considered the introduction of the limited period of statutory sick pay. The answer is in the explanatory and financial memorandum of the Bill. 694 The Government have had to deliver some cuts. They have delivered them to the tune of at least £200 million. While the Secretary of State has been successful in presenting himself to the press as resisting Treasury cuts—he will be supported now, thank goodness, on both sides of the House, in resisting social security cuts—this appears to be one cut that he has willingly delivered to the Treasury.
Therefore, the reason why we are debating this major extension is not that it will be better for our constituents, not that they will get a better deal, but that the Government are making a further reduction in social security provision. The Minister for Social Security shakes his head. I shall listen carefully not only to what he says now but to his replies to some of the other questions to which he will have to address himself when he winds up.
§ Mr. Newton
I shall say more about his matter, so I shall not go into the details now. I hope that the hon. Gentleman, who is always very fair, will acknowledge that family circumstances have been somewhat altered by the abolition today of child dependency additions to short-term benefits.
§ Mr. Field
The circumstances have been altered to some extent. The Minister has some cheek to get up and refer to abolishing additions paid to claimants with children. He says that the situation is now less rough on them than it would have been had that cut not been made originally. He gets full marks for cheek, but I do not think that he will fool many people outside the Chamber.
The Minister may have had time to consult the Library brief prepared by Julia Lourie for those participating in the debate. If he has done so, he will realise that the measure goes against one of the themes in the Conservative general election manifestos of 1983 and 1979. They said that the Conservative party was the party of the family, and favoured those with children compared with those without children. In the brief prepared for all hon. Members, Julia Lourie says:Sickness benefit is neither taxable nor subject to deductions. Thus a married man receiving £60 would receive only £32.26 SSP net (c.f. £44.05 sickness benefit). But a single man earning £100 would receive £37.34 SSP as opposed to £27.25 sickness benefit.So when the Secretary of State tells the House that it makes sense to make the change, it makes sense if the Government are committed to penalising those with children, but it is the exact opposite of sense for the Conservative party that fought two general elections saying that it was in the business of protecting families with children.
I should like to consider some of the other problems of the scheme. Any Government who had not introduced the measure in haste under pressure from the Treasury to save money presumably could have told us a little more about two other important aspects of the scheme. First, I should have thought that we would be told about the policing of the benefit, given the figures quoted by my hon. Friend the Member for Oldham, West from the small businesses groups, which are finding an error rate of one in four payments. That is not much out of line with the figures published by the Government, giving an error rate of about one in six of sickness benefit claimants investigated.
I know that the Government figures include overpayments as well as under-payments, but under-payments are bad because, unless the inspector tells the person, the chances are that he will not know of the under-payment, 695 and no doubt over-payments are clawed back by employers, just as the Department of Health and Social Security claws back over-payments in benefit. If it had not been a rushed measure, and if it had not been mainly concerned with delivering some cuts to the Treasury, why, when he introduced the measure, did the Secretary of State not tell us a little about the extra policing for the scheme to ensure that people get the right introduced in the Bill?
There is an even more disturbing aspect to the Bill. If the Bill had not been a rushed measure, would not the Secretary of State have been able to tell us something about those who will be eligible for invalidity benefit after the six months of sickness benefit? How will they fit into the scheme? It is extraordinary that we should be presented with a major change in the welfare state, affecting not only those who have paid in for sickness benefit but affecting entitlement to invalidity benefit, while at the same time the Minister says that we shall have to wait until the Committee stage before we know who will be affected. If we are so told, this will be the first Committee stage of a social security Bill on which I have served since 1979 during which we shall have been given the details. I look forward to that experience.
The Secretary of State has misled the House by emphasising almost exclusively the pension changes in the Bill. Those changes are very modest. No hon. Member will vote against them, although some of my hon. Friends and other hon. Members may well try to make them more radical.
We should, however, study the part of the Bill which concerns sickness benefit. It involves a major privatisation in the welfare state, introduced to effect savings to the tune of at least £200 million, and it will mean cuts for all too many of our constituents. Nevertheless, it has been introduced in such a rush that, despite his ability at the Dispatch Box, I suspect that the Minister for Social Security may well not be able to fill in all the details when he replies.
§ Mr. Tim Smith (Beaconsfield)
My right hon. Friend has told us that there are 90,000 occupational pension schemes with 11 million members, and funds in excess of £100 billion. The hon. Member for Birkenhead (Mr. Field) has told us why, in his view, the extension of statutory sick pay from eight weeks to 28 weeks is fundamentally objectionable. Both proposals are of major importance. Yet only two Labour Members and one alliance Member are present. It is an appalling reflection on the Opposition that they should take so little interest in the Bill.
§ Mr. Smith
I shall confine my remarks to part I of the Bill. The Bill imposes obligations on occupational pension schemes. Such schemes are essentially voluntary arrangements. It is important to recognise that fact at the start of any debate on pension schemes, because, in theory at any rate, any occupational pension scheme may be wound up at any time, should the employer choose that it should. If we place too great a financial burden on occupational pension schemes, there is a real danger that many small schemes may be wound up.
Some people say—it has already been said from the Front Bench this evening—that the Bill provides too 696 little, too late. However, I believe that the Government were right to give pension funds the opportunity to put their own house in order, and that has been the main cause of the delay. The pension funds failed voluntarily to introduce revaluation of deferred pensions, so the Bill is now necessary. With one major exception, I welcome the provisions in part I. The exception relates to what I believe to be an important omission—the failure to introduce a comprehensive statutory framework for pension schemes.
Last February a consultative document, entitled "Greater Security for Rights and Expectations of Members of Occupational Pension Schemes", was published.
According to the consultative document, pension schemes are subject to the general law of trusts. The document noted that that gives rise to two main problems. First, there is lack of clarity of definition of legal rights and obligations of all the parties to schemes — employers, employees, members and trustees and their professional advisers. Secondly, trust law makes no particular provision for the day-to-day administration of pension schemes.
The document also noted that, in its 1980 report, the Wilson committee recommended that there should be a new legal framework for pension schemes—a pension schemes Act. In 1982, Professor Gower supported the case for reforming legislation in his discussion document. I therefore regret that the Government have not taken the opportunity to clarify the legal rights and obligations of the various parties to pension schemes. The only reason given by the Government in their consultative document was that opinion now seems to have moved substantially in favour of retaining trust law as the appropriate legal basis. No evidence has been given to support that assertion. I believe that it would have been much simpler and clearer if, in one Act of Parliament, each party to a pension scheme could find set out his rights and duties.
The consulative document said that the Government proposed to amend employment protection legislation to require employers to inform employees of their pension rights and the extent to which they form part of their contract of employment. That does not appear in the Bill. I assume, therefore, that it is a matter for the Department of Employment. Perhaps my hon. Friend, in his winding-up speech, will say when the change will be made. Subject to that important reservation I welcome part I.
The 5 per cent. revaluation of deferred pensions from 1 January 1985 is a compromise proposal, but it is about right. There must be a ceiling for funded schemes. A minority of the Occupational Pensions Board wanted 8.5 per cent., or the increase in average earnings if less; the majority wanted 5 per cent.; and, in a late bid, the Engineering Employers Federation said that it wanted 3 per cent. At 5 per cent., or the increase in prices, the Bill provides the right amount.
The important thing is that the principle is right. In the past, stayers have been advantaged at the expense of early leavers. Employers have argued that they are in business to encourage people to stay, not leave. That may be so, but the Government must take a wider view of the consequences for mobility of labour. The Bill does that.
The transferability provisions are welcome for the same reasons. As I said in an intervention in my right hon. Friend the Secretary of State's speech, the key element missing from the Bill is the basis of calculation of transfer values. That is critical, and I hope that it will be possible for my right hon. Friend to reach agreement with the 697 actuaries. Nevertheless, I was glad to receive his assurance that, in the absence of such agreement, regulations will clearly set out the basis of calculations.
The disclosure and registration requirements are also welcome, because they will increase the accountability of pension schemes. In the Financial Times last week, Eric Short complained that only the pensions expert will understand the information provided. The same could be said of companies' disclosure and registration requirements, but nobody suggests that they should be changed for that reason. As with companies, published pensions information will be scrutinised closely by those who have an interest, and the accountability of schemes will increase accordingly. Many schemes will also provide simplified versions of their reports and accounts to members, as do many companies. Moreover, the consultative document made it clear that regulations will require schemes to provide members with individual benefit statements. That will be of special value because pension scheme members are often not aware of the precise benefits of their scheme.
The registrar's job will be similar to that of the Registrar of Companies. I wonder whether there might not be some administrative saving if the Registrar of Companies was given the job and became the Registrar of Companies and Pension Schemes.
In one article last week, Eric Short talked of the Government's proposals for radical changes for occupational pension schemes. In another, he spoke ofa mouse of a solution".However, to complain that the Bill does nothing for existing early leavers is completely unrealistic. Apart from the restrospective nature of such a proposal, a huge cost would fall on employers. The hon. Member for Oldham, West (Mr. Meacher) gave no indication of what it would cost even to backdate these provisions to 1981. Making them open-ended would put an intolerable burden on employers. Bearing in mind the voluntary nature of schemes, I believe that the Government have gone as far as they could reasonably be expected to go. I welcome that.
§ Mr. Frank Cook (Stockton, North)
On a point of order, Mr. Speaker. In the past you have afforded me gracious patience when I have experienced difficulty with the procedures of the House. The hon. Member for Beaconsfield (Mr. Smith), for whatever reason, stated that only two Labour party Members and one member of the SDP were taking part in the debate. Any hon. Member who kept his eyes open and saw less than double would know that that was quite untrue. When do truth and untruth become distinguishable, and when is untruth permissible?
§ Mr. Speaker
Every hon. Member must accept responsibility for what he says. It is not for me to adjudicate on such matters. However, if the hon. Member for Stockton, North (Mr. Cook) wishes to make a speech, perhaps he will catch the eye of the Chair.
§ Mr. Alan Howarth (Stratford-on-Avon)
I add my personal congratulations to my right hon. Friend and my welcome to the Bill in which he is tackling the problem of the early leaver. There has been a widespread and serious problem about the early leaver and his unsatisfactory treatment, and it was right to deal with it.
698 By the same token, it is disappointing that the pension fund industry was so unwilling to address itself to this problem and that it was so dilatory in its response to the report of the Occupational Pensions Board in 1981. Despite multiple and various proddings, the industry refused to come forward with constructive suggestions for a change. Indeed, according to a report from the National Association of Pension Funds, in 1982 82 per cent. of private funds were still granting no increase on deferred pensions. Far from proposing constructive reforms the industry indulged in a curmudgeonly and graceless rearguard action against constructive changes proposed by others—for example, the Centre for Policy Studies.
I warmly congratulate my right hon. Friend on introducing his inquiry into provision for retirement; on insisting that these issues should be thoroughly scrutinised and addressed; on the open manner in which he conducted the inquiry, which ensured that the views of the public as well as the pensions establishment were heard; and on pressing ahead with the introduction of this legislation.
The improved deal for early leavers embodied in the Bill is an elementary act of justice. It will also be of major economic benefit. In so far as it removes one of the principal impediments to labour mobility it will tend to make the economy more flexible, responsive to change and innovative, and over time it will help to generate more jobs. In passing, I express the hope that the Minister for Housing and Construction will take his cue from my right hon. Friend and act to remove rent control, the other major impediment to labour mobility.
Two major uncertainties loom over the Bill. The first is the basis for transfer values. One reason why early leavers have been in such an unsatisfactory predicament is that their benefits have been cut in two ways simultaneously—by the conservative calculations of the actuaries of both the fund from which they were departing and the new employer's fund.
There are genuine difficulties in arriving at an agreed basis for transfer values. The age structure and other circumstances of each fund may vary considerably, and there is large scope for different assessments of future prospects for inflation, increases in earnings and returns on investment. The members of the actuaries' profession, who are a clever and a conscientious breed of men, may be more prone to draw attention to the complexities and difficulties in arriving at an agreed basis than to put forward a basis for a ready and liberal assessment of transfer values, and I suspect that my right hon. Friend the Secretary of State may once again be fairly vigorous in encouraging a concentration of minds. It would be good if the basis upon which transfer values are calculated were agreed relatively soon so that Parliament can understand the full circumstances for which it is legislating.
The second major uncertainty that looms over the Bill is, as my hon. Friends the Members for Brentwood and Ongar (Mr. McCrindle) and for Kettering (Mr. Freeman) said, the intention of my right hon. Friend the Chancellor of the Exchequer in respect of the tax treatment of pension funds. The Chancellor should not be casting around for new burdens to lay upon pension funds. He should be concentrating on reducing inflation, because that has wrought havoc to the position of early leavers. If the Government are to require funds to revalue deferred benefits to take account of inflation, it is the more incumbent upon the Government to reduce inflation. Therefore, the Chancellor should concentrate on limiting 699 public expenditure, not increasing taxes. I commend to my right hon. Friend the Chancellor the practical maxim of Marie Stopes: it is more important to turn off the tap than it is to mop up the bath water.
If my right hon. Friend the Chancellor introduces a more unfavourable treatment for pension funds, I fear that he will undermine and make a mockery of the reforms introduced by my right hon. Friend the Secretary of State for Social Services. Moreover, he would be spiting himself and his successors. If he taxes lump sum pension benefits he will strike a blow against the private investor. That is presumably not his wish; it is certainly in contradiction of other purposes. If, in other ways, he makes the tax treatment of pension funds less favourable, he will add to the burdens on employers, making it more expensive for them to achieve equivalent pension benefits for their staff. He will almost certainly end by increasing the pressures on public expenditure and increasing the demands on the state earnings-related pension scheme. He will also make it much harder to extend personal and portable pension schemes.
If I have one regret about the Bill, it is that my right hon. Friend has not chosen to take a decisive step forward to create a framework in which there can be the option of personal and portable pensions for everyone. The benefits of that would be great, and perhaps I could find common ground with the hon. Member for Birkenhead (Mr. Field) in recognising that personal and portable pensions would tend to make for greater choice and responsibility. They would be valuable in encouraging recognition by the individual that his interests should be identified with the profitability of enterprise. They would help to promote self-employment and small businesses, to which we must look in the future, not least for the generation of the new jobs that we need.
In my view, many purchase schemes are preferable, given the non-inflationary conditions which it is the duty of the Government to provide, in that they do not involve expectations and promises of pension benefits that have not yet been earned. That is safer and healthier.
We should in this debate consider our broad philosophy on pension provision and our expectations for the future in pensions. The post-war national insurance legislation, deriving from the Beveridge report, was based on the proposition that it is the role of the state to provide against destitution, to ensure that the individual is not destitute, but that it is not the role of the state to provide or guarantee a higher standard of living. However, the National Insurance Act 1959 introduced graduated pensions, and the Social Security Pensions Act 1975 introduced the earnings-related scheme. Between them, they marked a clear change and the implementation of a different approach—one that said that the state should provide more amply.
In our debate, we should recognise at least two possibilities. One is that the state earnings-related pension scheme presupposes an economic performance by this country over the coming years that we have no right to assume. We should not have excessive confidence that that will take place. Secondly, we should recognise that there will be—there already are—structural changes in the pattern of work. It may become an anachronistic view to suppose that final salaries are necessarily peak salaries. For those reasons, we should at least question whether we should expect the paternalistic approach, whether state or corporate paternalism, to continue.
700 We should do our best to make sure that we make a success of the state earnings-related pension scheme. We should, with the new flexibility and the reforms that my right hon. Friend wishes to introduce into occupational pensions, accept that they will play an improved and valued role in the provision for retirement. It is also right to recognise that there is a basic function of the state—to ensure that there are stable financial conditions. It will be as well if my right hon. Friend proceeds to introduce personal and portable pensions and provide a framework in which there can be maximum individual responsibility, in which citizens can freely and in their own responsibly chosen ways make provision for their retirement.
§ Mr. John Watts (Slough)
The principle of protection for the value of deferred pensions and the extension of the right to a fair transfer value will be as widely welcomed outside the House as they have been in the Chamber. However, I am sure that my right hon. Friend the Secretary of State will recognise that translating that principle into practice is a complex matter. Witness to that is the complexity of the Bill's schedules, some of which I tried to understand, with little success, earlier today. Therefore, I was pleased to hear my right hon. Friend say that discussions with the actuarial profession are continuing. I am saying that not just because I am an adviser to the Institute of Actuaries, but because it is important that the implementation of these principles should not be hampered by any technical flaws in the legislation.
If I had one criticism of the proposals, it would be directed towards the proposed register and registrar. I am not sure why we need to have a new bureaucracy and why it is not possible for the Occupational Pensions Board to undertake certain necessary additional functions. I remain to be convinced that the register, as distinct from the extension of rights to information for members, will bring benefits that are commensurate with either public expenditure costs or the compliance costs that will all on pensions schemes.
The Bill makes a valuable contribution to the protection of pension rights, but, as some of my hon. Friends have pointed out, this will not be without additional costs. Therefore, I add support to what was said by my hon. Friend the Member for Brentwood and Ongar, who urged my right hon. Friend the Chancellor not to make changes in the tax regime that will undermine the valuable work of this legislation in enhancing and improving pension rights.
Any of the proposed changes in tax treatment, over which there has been speculation, will necessarily be to the detriment of pension benefits or make pension provision more costly. However attractive in the short term it may appear to my right hon. Friend the Chancellor of the Exchequer to suck off some money from pension funds, such a view would be short-sighted and in the longer term the burden on the social security system could be considerably increased if the result were to discourage employers and employees from making adequate provision for retirement.
§ Mr. Tim Yeo (Suffolk, South)
Whatever may have been said earlier, accurately or inaccurately, about the number of Opposition Members present during the debate, it is a pleasure to be the fourth consecutive Government 701 supporter to be called. No doubt this is the pattern that we are likely to see in the future, but it also reflects the concern of my right hon. and hon. Friends for this important but not very controversial subject.
I endorse entirely what my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) said in sounding a warning to the Chancellor of the Exchequer about the adverse consequences for pensions and pension funds of any attempt to change their taxation treatment.
I address myself briefly to part I, for which the ground has been well prepared by the Government. I congratulate my right hon. Friend the Secretary of State on the consultation process which has been gone through, as a result of which the Bill contains very few surprises. I hope that that will make the task of the House in considering it a light one.
The Bill contains measures which are most welcome and which are in the interests of the members of occupational pension schemes, especially early leavers. I endorse the concern which was expressed for that group by my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle). Their rights are improved in a number of ways, all of which are desirable, but, as has been pointed out, there is no such thing as a free lunch. The cost of these improvements has been estimated at between 1 and 2 per cent. of the payroll, and it is employers who will bear that cost. To that extent the effect of the Bill will be to increase employment costs, and thus it may represent an influence, albeit a marginal one, in the direction of higher unemployment. My right hon. Friend the Chancellor's reference to higher real wage costs as a cause of unemployment cannot be ignored. The possibility must also exist that some smaller employers will choose not to offer occupational pension schemes.
Looking at the specific items in the Bill, a provision to extend entitlement to preserve benefits to early leavers under the age of 26 but with five years' service is sensible. The revaluation of deferred pensions by 5 per cent. or the increase in prices is also very much in the interests of early leavers. But it must be recognised that many employers are worried about the cost of this provision. However, it will force them to make a more rational assessment of how the burden of paying for pension rights should be allocated. For far too long the absence of these rights for early leavers has been the lifeline through which employers have been able to fund the cost of their pension schemes.
The Opposition's argument that the 5 per cent. level is too low is quite ludicrous, bearing in mind that they presided over a period of Government with very high rates of inflation during which no attempt was made to look after the position of early leavers. Furthermore, the suggestion that the provisions could now be backdated to 1981 is another example of how the Opposition wish to support an apparently attractive amendment, the costs of which would be enormous and would be borne by employers, and the only direct effect of which would be to destroy other people's jobs. Once again we see the Opposition defending the privileged people who are already in secure work, as they are members of occupational pension schemes, at the expense of the unemployed. This will be seen right across Opposition policies. They are likely to damage the interests of unemployed people.
702 I welcome unreservedly the requirements in clause 3 and schedule 2 for the wider disclosure of information about pension schemes to members and prospective members. For far too long information has been limited and too difficult to obtain. The wider scrutiny which should result from the greater disclosure of this information will be beneficial.
One consequence of that scrutiny may be to uncover inadequacies in the record keeping and administration of some existing schemes. I note the comment of the Occupational Pensions Board about that in the advice that it gave to the inquiry earlier this year.
The only note of caution that I would sound is about the complexity of the subject and the difficulty which some lay people may have in understanding some of the information which will be made available. The benefit of providing that information may be lost for individuals if they cannot understand what it is they are being told. Those complications are a problem for the professionals as well.
A lesson may be drawn from the experience since the passing of the Social Security Pensions Act 1975. More than 450 statutory instruments have been made. The Bill's provsions for the disclosure of information will again be effected by regulation. I merely express the hope that they will not be excessively numerous, so that members of schemes and their advisers can cope with the flood.
The Bill's provisions on occupational pensions are helpful to members. They will impose some costs on employers and may be complicated for laymen, but they are thoroughly desirable and they deserve the full support of the House.
§ Sir Brandon Rhys Williams (Kensington)
I am sorry that I have not heard the speeches in the debate other than the opening speech of my right hon. Friend the Secretary of State, but I am glad to be able to make a short contribution as "explication de vote".
In 1970 the Conservative party manifesto said:We will ensure that everyone can take their pension rights with them when they change their job",but after the election we lost our nerve. Now we have this Bill nearly 15 years later and, frankly, it is disappointing. I regret that I shall be unable to support the Bill in the Lobby on Second Reading.
The Bill follows the pusillanimous and misconceived Brimelow report, in that it places emphasis on preservation rather than transferability—which is the right answer to the early leaver's problem. It does too little for job mobility. It takes too long to tackle the unfairness of the treatment of early leavers. It chooses the 5 per cent. formula, which is neither natural justice nor actuarially defensible.
The Government should be helping early leavers now, not in the 21st century. They should be protecting rights which have already accrued in occupational pension schemes. The Government should have been ready to spell out now the terms for calcualting transfer values. I listened with interest to what my right hon. Friend said on that subject. He still might do so and incorporate a fair formula for the transfer values in Committee. I hope that he will do so, but in the meantime I am bound to reserve judgment. The Bill does not do enough to protect the rights of the early leavers.
§ Mrs. Margaret Beckett (Derby, South)
I hope that no one will mind if I welcome the remarks of the hon. Member for Kensington (Sir B. Rhys Williams), if only because they form such a welcome contrast to the trail of praise of the Government which we have had from those Conservative Members who spoke before him.
The hon. Member for Brentwood and Ongar (Mr. McCrindle) said that the Bill is the trailer in many ways for the Government's personal pensions provisions that are likely to come in later years and in a later Bill. The more one looks at the trailer and the more one sees the reactions of people to those proposals, once so welcomed and still spoken of by the Secretary of State as if nothing has happened since he first introduced them, the more one realises the likelihood that, as so often in motion pictures, the trailer may be exciting but the main feature will be extremely disappointing.
§ Mrs. Beckett
We shall all have to wait and see, at least for another year.
When I say that the main feature may be disappointing I have in mind some of the reservations about the sort of proposals that the Secretary of State is laying before us as a trailer or that he seems likely to lay before us in the main Bill and which have already begun to be expressed since he gave us a description of those proposals in such glowing terms.
In its evidence in July the Institute of Actuaries made one or two pertinent remarks about the dangers of the kind of arrangements that the Secretary of State is discussing. For example, it suggested that in its view such arrangements would lead to less pension provision overall. Furthermore, and perhaps even more alarmingly, if that were not the case it suggested that that would be disadvantageous in another respect in that if the proposals result in a substantial increase in the number of people contracted out from existing schemes, contribution rates to the national insurance fund generally would have to be raised. Those are only some of a number of substantial criticisms that have been made in that document and many others.
That evidence was given to the Government's inquiry in July. That inquiry has not yet finished and I therefore wonder why the Government have chosen to bring this trailer—a part Bill—before us. Their full proposals will be delayed for at least another year. All Governments complain about the dangers of retrospectivity, but surely the Government could have announced their intentions now and allowed that much retrospectivity in legislating for the full scheme. I hope that the Minister for Social Security will be able to cast some light on the decision about timing.
We are interested not only in the information that will be disclosed to experts but in the idea of a brochure that will be more comprehensible to ordinary mortals. However, I wish to raise one matter, partly to discover whether I have understood the Government's proposal correctly and partly to ask the Minister for Social Security to deal with the alarm that I feel at my understanding of the implications of what the Government are saying.
If I understood the Secretary of State correctly—and that understanding certainly accords with what was said in the consultation document on occupational pensions—it 704 seems that no requirements will be made about disclosure for schemes that cover only individuals. Therefore, I assume that the disclosure provisions will not apply to the sort of personal pension proposals that we have been discussing.
Conservative Members may believe that a person with a personal pension will know all the necessary details, but most people recognise that it is likely that many of those who choose to opt for personal pensions will do so within the framework of a more general scheme provided by, say, insurance companies. Therefore, I hope to hear from the Minister tonight or in Committee what is intended in terms of the disclosure of information. We shall be alarmed if it proves that in this area, too, there will be less protection than is afforded under existing schemes.
Almost all the hon. Members who have taken part in the debate have concentrated on the part of the Bill dealing with occupational pensions. I wish to concentrate on the other part of the Bill.
I was surprised to hear the hon. Member for Suffolk, South (Mr. Yeo) speak so fulsomely about the Bill and how wonderful it was, while not mentioning the proposals for invalidity pension or the changes proposed for statutory sick pay. I thought that the hon. Gentleman felt strongly about the interests of the sick and disabled. He has been known to lecture the Opposition about his concern for those people, yet he was so anxious to praise the Government tonight that he had not a word to say on behalf of the sick and disabled. Perhaps I should be charitable and say that it was because the hon. Gentleman wanted to paise the Government that he did not feel able to mention the proposals in the second part of the Bill.
Why are the proposals on invalidity pensions in the Bill? There is no need for primary legislation to restore the 5 per cent. cut in invalidity benefit. When the abatements in unemployment benefit and invalidity allowance were restored in earlier years, it was done in the annual uprating.
If there is no need for primary legislation, and if the Government are so delighted about the fact that they have been able to restore the 5 per cent. abatement, there is no need for them to wait until the Bill has received the Royal Assent; they could restore the 5 per cent. abatement now, by means of a fresh uprating statement. Therefore, I should like the Government to tell us why, if they feel able to be generous to those on invalidity pension, they cannot be generous this year instead of next year.
I suspect that one reason why the Government are taking action in primary legislation is that, although they are pleased with what they are doing in restoring the 5 per cent. cut, they are taking away with the other hand, as is usual with everything that the Government give in social security. As with all social security under this Government, there is always another side of the coin which takes away a little more than the Government give.
The Secretary of State says that the decision to offset the earnings-related supplement to invalidity pension against the invalidity allowance is a logical step. Surely the earnings-related supplement relates to what the individual earned when he was able to work. The invalidity allowance, by contrast, specifically relates to what an individual has been unable to earn. It is intended specifically as a compensation for loss of earning power because of disability. That is why it is related to age. There can be no question of an offset. The two components relate 705 to two different areas. There can be no other excuse for the Government offsetting one against the other than a desire to make savings.
During the passage of the Social Security Act 1975, Conservatives pressed the Labour Government to be more generous and to make greater concessions on the earnings-related supplement. The late Brian O'Malley referred to the separate nature of the invalidity allowance and said that he would have had to make concessions had the invalidity allowance not existed to cover the different circumstances of lost earnings.
The Secretary of State admitted that many invalidity pensioners will not receive the full 5 per cent. Certainly, they will receive no recompense for the money that they have lost as a result of the cuts over the years. For example, someone who is now receiving £2.50 earnings-related supplement and £2.48 addition will, under the proposals, lose the whole of the £2.48. Someone on a similar earnings-related supplement plus a £7.50 age addition—the maximum—will lose £3. Unfortunately, it is typical of this Government that they take comparatively small sums from those who can least afford to lose them. That record is bringing them more and more into disrepute.
It is suggested that the current position of invalidity pensioners will be protected, although only in cash terms. That means that they could lose all the benefit related to inflation in next year's uprating, leaving aside that before then there might be other changes.
Sometimes I think that I have a nasty, suspicious mind. When I heard that the Government were to restore the 5 per cent. abatement of invalidity benefit, I immediately thought that that was because the Chancellor would tax it in the next Budget. I looked back through all the parliamentary answers, which assured us that that was too 706 difficult and out of the question. I thought that perhaps I was mistaken. I was gratified to have my faith—or lack of faith—in human nature on the Government Benches restored when I noted that the Secretary of State and the Minister were noticeably unwilling to give an assurance that invalidity benefit would not be taxable from the date of the Budget. Perhaps they are being even less generous than we supposed.
What will happen to people who are currently to be protected, although only in cash terms, if there is a break in their entitlement to benefit? The rules for means testing child dependant additions suggest that if there is a break in entitlement for as little as one day a week the person becomes a new claimant and loses whatever protection might be available under the Bill. I look for an assurance that that will not happen.
The final area of Government involvement with invalidity benefit is the earnings rule. Again, I seek information from the Minister. I am sure that the House is aware that there are two different earnings rules. One rule applies to women and the other to men. One rule is significantly more generous than the other and for once it is the one that applies to women. The Secretary of State said on 12 November that, although he intends to harmonise the two rules and to have one common rule, the details are still under consideration. I take it from the Minister's nod that the details are still under consideration. If he cannot give us the figures, perhaps he can tell us whether it is likely that the new earnings rule will be as generous as the more generous one that now exists. Is it likely to be a little lower in value or a little higher?
§ It being Ten o'clock, the debate stood adjourned.