TRANSFER PAYMENTS

HC Deb 14 July 1987 vol 119 cc1047-9

Sir Brandon Rhys Williams

I beg to move, in page 15, line 14, at end add—

` (3) Regulations made under this section shall provide that the rules of the scheme shall require the trustees in respect of any member withdrawing from pensionable service before the normal pension age under the rules of the scheme at the withdrawing member's option either—

1. (a) to pay an approved scheme a transfer payment in respect of the withdrawing members' entitlement of the sum that would be required by the withdrawing members' scheme for the purpose of admitting a new member of the same age, sex and pensionable remuneration as the withdrawing member in order to credit him with the same number of years of pensionable service as the withdrawing member (but subject to modification in accordance with (4) below, or
2. (b) to award preserved benefits to the withdrawing member of the same actuarial value as that sum.

(4) In a case where an actuary certifies that on the date of the certificate the scheme under this section is not fully funded, (which is to say that the scheme does not have sufficient assets to meet its liabilities in respect of the whole or any specified part of the accrued rights to benefit of its members), the transfer payment, or as the case may be, the part of the transfer payment which corresponds with the specified part of those accrued rights, may be reduced at the discretion of the trustees by the percentage by which the scheme is so shown to be deficient.

(5) It shall be permissible for the pension trustees of an approved pension scheme under this section to amend the rules of the scheme in regard to the calculation of transfer payments and of preserved benefits on behalf of any member ending pensionable service before the normal age of retirement under the scheme in accordance with the provisions of this section.

(6) An approved pension scheme which by 1st January 1988 does not have rules such that the transfer payments and the preserved benefits payable under the scheme are to be calculated on terms at least as favourable to the beneficiaries as those specified in this section shall not qualify as an approved pension scheme in repect of liabilities incurred after that date except by the permission of the Occupational Pensions Board.

(7) The pension trustees of an approved pension scheme may apply to the Occupational Pensions Board for deferment of the latest date for the amendment of the rules of their scheme if necessary to accord with this section and with the approval of the Board the scheme may retain its status as an approved pension scheme in respect of its liabilities incurred after that date to a date not later than 1st January 1989.

(8) The Secretary of State for Health and Social Security shall lay before Parliament regulations under this section subject to affirmative resolution of the House of Commons which shall specify the grounds on which the Occupational Pensions Board may approve applications for deferment under subsection (8), above.'.

Before I embark on this I should like to say that this provision is not a new recommendation of mine but is new in the context of the newly available personal pension schemes. I shall be tabling a new clause to the present Finance Bill which would have the effect of applying a similar method of valuation for transfer values or preserved benefits in schedule 3 or wherever it is appropriate in regard to schemes already in existence. I want to say the minimum at this point in moving this amendment because I do not want to make myself ineligible to move a similar one at a later stage in the proceedings of the Committee.

There is merit in having the same rules across the board where valuation of transferred or preserved assets is concerned. Therefore, I do not think it is wrong that we should seek to apply this particular formula to the new schemes just as much as to the old. I have to move this amendment at this point if I am right in thinking that there is room for it where the private personal schemes are concerned. I realise that, for the most part, in a money purchase scheme, the proposals that I have drafted, which were intended to relate primarily to final salary schemes, would seem to have only rather tangential relevance. However, I think that it might well happen in the competition which is arising already to attract the interest of people who may decide to take out personal pension schemes, that systems will be devised which will allow a measure of latitude in assessing the transfer I Lie, or at any rate the preserved value, of the assets. of one who decides to terminate his connection with the scheme before the normal age of retirement. Therefore, I believe that I may be serving a useful purpose if I present this method of valuation so that the same regime would be applicable right across the occupational pensions and the private pension schemes.

I emphasise that, I refer only to the new schemes set up under this chapter. In order not to say too much on this point and to come to the central feature, what I am suggesting here—I have suggested it on previous occasions in the House—is that the transfer payment should be calculated by a formula which would be precisely the same if the movement of the employee was reversed. If the employee or the person taking out the pension were moving into the scheme and buying himself in, that would be a method of valuation of what I think should be the appropriate transfer or preserved value when the member leaves the scheme.

I have to say that the result of using that formula—which I have set out in the amendment and which I do not need to read out in detail—would be very different indeed from what is often recommended even by highly competent and actuarially trained people and in normal practice now. It is difficult to estimate what people who leave schemes early leave behind and how much they lose by changing their jobs. However, over the whole field of pension provision in approved schemes, it is a very substantial amount and, after all the years for which I have been pressing this on successive Governments, I find it rather disappointing that I still have to make this point. Everyone agrees that the early leaver gets a raw deal, whether he takes a transfer payment or leaves behind a preserved asset; yet the House does not act.

If my right hon. Friend the Financial Secretary does not think that the formula that I have adopted here for assessing the early leaver's assets is the best possible and the fairest, I trust that he will come forward with an equally specific and better provision. If he is not able to come forward with anything better, I strongly recommend that he should accept this, because it is not only in the interests of fairness and the good reputation of the private scheme institutions which are springing up that they should be seen to be giving a fair deal to someone who severs his connections before the normal age of retirement; it is also all-important to the Government's policy of encouraging the mobility of labour, particularly among senior executives. It is when a man is a senior executive that his pension asset is likely to be worth most. Therefore the fact that he is very likely to be cheated if he changes his plans and leaves his scheme early under existing normal practice makes the mobility of labour argument so important.

I have said enough on this. The Committee can see precisely what I am aiming at in my amendment. I trust that my right hon. Friend will welcome it and that, by suggesting this again tonight I shall have got a stride nearer to a genuine system of statutory fair treatment for the early leaver. That is why I hope that the Government will accept my proposal.

8.45 pm

Mr. Norman Lamont

Clause 28 sets out certain basic conditions relating to transfer values and personal pension schemes. My hon. Friend said that, in a sense, his amendment anticipates the broader assault that he intends to make on this problem in relation to occupational pension schemes. The amendment appears to relate primarily to transfer values paid by occupational pension schemes. My hon. Friend acknowledged that the benefits under a personal pension scheme will be based on money purchase and will be attributable to the individual. Therefore, I am confident that the problem outlined by my hon. Friend will not arise in the same precise way with transfers from personal pension schemes. I suggest that we might debate this more widely when we come to schedule 3. That would perhaps be more appropriate than discussing it during a debate which is narrowly focused on personal pensions.

Sir Brandon Rhys Williams

My right hon. Friend rightly pointed to the fact that, in private pension schemes that we envisage at present, my proposals might not be especially relevant. However, I think that we have to work with the ingenuity of the market, and I imagine that schemes which will be eligible for approval—which have not yet been envisaged, at any rate by me—will come into existence. Therefore it would be a good thing from the start to have a simple uniform regime for valuation of the early leaver's asset which would become applicable from the beginning.

We have this catastrophe that in the occupational pension schemes nothing was laid down from the beginning as to the valuation of the early leaver's assets and it has done untold harm in this country that early leavers have been cheated year in year out, since the start of the private occupational pensions movement. It does not apply in the public sector, mercifully, and a very farseeing civil servant, Mr. Herbecq, whom I had the pleasure of knowing some 15 or 20 years ago, did manful work to ensure that people moving in the public sector within a very wide range of occupations were able to protect their pension rights. But this does not apply in the private sector and there is a real problem.

I do not think that we want to start a whole new type of scheme without provision from the beginning for the early leaver to have a fair deal. Even if my particular recommendations here are not entirely appropriate, I hope that I am asking my right hon. Friend to move in a direction in which he is willing to go and that he will provide some valid protection for the early leavers asset from the very start. In the circumstances, as I accept that, in this case, I am on a rather narrow point, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.