HC Deb 26 June 1991 vol 193 cc993-1002 3.31 pm
The Secretary of State for Social Security (Mr. Tony Newton)

With permission, Mr. Speaker, I should like to make a statement about recent developments in pension provision and to say how the Government plan to build on those developments for the future.

The Government's approach to financial provision for retirement has always been to increase choice and flexibility for individuals while ensuring an economically sound and sustainable system of state support. Thanks to that policy, we now have a much wider spread of occupational and personal pension provision, and much greater protection for those who move between pension schemes.

Better occupational pensions have made a major contribution to increasing pensioners' incomes in the past decade. In all, nearly two thirds of those who retire can now do so with an occupational pension. Taken together with the abolition of the "earnings rule" in 1989, occupational pensions have made it easier for people to decide for themselves when they wish to retire, and for employers to introduce more flexible retirement policies, irrespective of state pension age. By 1990, about 14 million people had chosen occupational or personal pension schemes rather than remaining in the state earnings-related pension scheme. In pensions terminology, that is 14 million people contracted out.

Against that background, we think that the next priority for the development of policy in this field is to move in a well considered way to establish, in practice, the equality of treatment between men and women, to which we have long been committed in principle.

I shall begin with occupational pensions. The Government must have regard to an important development in European law. Right hon. and hon. Members will be aware of the judgment of the Court of Justice of the European Communities in the case of Barber v. Guardian Royal Exchange Group. Mr. Barber became redundant at the age of 52. As part of his compensation, his employer offered him a deferred pension payable from the scheme's normal retirement age, but a woman in his position would have been entitled to a pension immediately.

Mr. Barber's case eventually reached the European Court of Justice, which gave its judgment on 17 May 1990. At the core of this judgment was a decision by the court that occupational pension benefits are "pay" for the purposes of article 119 of the treaty of Rome, which enshrines the principle of equal pay for equal work. As right hon. and hon. Members will know, article 119 has direct effect. The result of the judgment, therefore, is that there must be no discrimination between men and women in occupational pension schemes, for example in relation to pension age.

As I have already suggested, the Government welcome that principle. Our task now is to address its considerable practical implications for the United Kingdom. Occupational pension schemes with unequal pension ages will be the ones most significantly affected, but many others may need to change their benefit provisions to some extent to comply with the Barber judgment.

The judgment clearly applies to benefits based on service since 17 May last year—the date of the judgment. The Government will prepare proposals for legislation as soon as possible to require occupational pension schemes to comply with Community law in this respect. I shall consult the pensions industry and other interested parties on the issues involved, and on the implications of equal treatment for the current arrangements for occupational pension schemes to contract out of the state earnings related scheme. The European Commission is itself considering the implications of the Barber judgment, and we shall play our full part in this process.

Those of my right hon. Friends who are responsible for public service pension schemes are considering the implications of the Barber judgment for those schemes. Some modifications will be necessary and they will bring forward proposals for any such changes in due course.

It is unclear whether the Barber judgment applies also to benefits based on service before 17 May last year. Retrospection would be damaging to the economy, to jobs and to the competitiveness of United Kingdom business. Because contributions to many schemes will not have been set at the level needed to fund equalised benefits, the effect would be to confront schemes and employers with large unforeseen liabilities. These could amount to as much as £40 billion to £50 billion for the United Kingdom as a whole, depending on the assumptions made. That would represent a significant shift of resources away from businesses and those in work.

The Government will therefore seek to clarify the implications of the Barber judgment for benefits based on service before 17 May 1990. As the decision of the European Court of Justice can be clarified only by means of a judgment in another case, we have recently agreed in principle to provide financial support for a case concerning the trustees of the Coloroll Group pension scheme if it is referred by the High Court to the European Court of Justice. We shall seek to ensure that the European Court is made fully aware of the potential implications, both for individuals and for the economy as a whole, of applying the Barber judgment to past service. We shall argue before the court that the judgment does not have that effect. We have already been taking steps to ensure that the European Commission itself, and other member states, understand the implications if the judgment applies to service before 17 May 1990.

Right hon. and hon. Members will recall that the Social Security Act 1990 includes provisions requiring final salary schemes to pay indexed pension increases up to a maximum of 5 per cent. These provisions will apply to all such schemes in respect of future 'service and, in respect of past service, to schemes with a surplus. In view of the substantial financial uncertainties faced by occupational pension schemes as a result of the Barber judgment, I do not believe that it would yet be in the interests of the generality of schemes or their members to reach a final decision on when the 1990 Act provisions should be brought into effect. I shall review the position again once the present uncertainties are removed. In the meantime, I remain committed to the principle of limited price indexation of occupational pensions and would encourage schemes to pay increases to their pensioners on a voluntary basis where they are financially able to do so.

I turn now to the state pension scheme. We are committed to achieving equal treatment for men and women in the state scheme as well as in occupational schemes, and in particular to tackling the issue of unequal pension ages. There are a number of possible ways of doing that, ranging from a single common pension age to equality of treatment within a flexible scheme which has no single pension age.

The idea of more flexible pension arrangements is one which commends itself to people both inside and outside this House. For many people the age at which they can receive their state pension remains the major factor in deciding when to retire. We therefore propose to consider in detail whether more can be done to achieve greater flexibility within the state scheme in a practicable and affordable way.

There are many important considerations that will need to be taken into account before any decision is reached on state pension age, including the costs involved, the changing ratio of contributors to pensioners into the next century, and developments in the pension policies of our competitors.

Any changes to the state scheme will require careful consideration and detailed planning, and could certainly not be implemented overnight. The Government believe that it would be wrong to take decisions in this area without a period of public discussion. To help inform the debate, we intend shortly to issue a discussion paper which explores the issues and provides some background information. We shall then bring forward considered detailed proposals in the light of that public debate.

Mr. Michael Meacher (Oldham, West)

Equality in pension provision is certainly a very important and pressing issue, but since it has been a pressing issue for over a year since the Barber judgment, and since there is not a single new Government proposal about pension equality in the statement we have just heard, is it not clear that the statement is rather less about equalising retirement ages and rather more about expending the necessary time of the House to keep the right hon. Member for Finchley (Mrs. Thatcher) off the television screens at 6 o'clock?

Regarding equal retirement ages, whereas the Secretary of State says that he will review the costs involved, the changing ratio of contributors to pensions, and pension policies abroad, is he aware that the last time that words like that were used was by his predecessor, the right hon. Member for Sutton Coldfield (Sir N. Fowler), and he used them as a preamble to cutting the value of SERPS by half?

There is one central question which the Secretary of State must answer on this issue and which he ducked in his statement, so I ask it again. Will women still be able to retire at 60 and on a full pension, or are his words meant to rule that out? If he refuses to give that guarantee today, "flexibility" in his language is a euphemism for cutting women's right to a pension at 60, or for paying a reduced pension at 60. If the Secretary of State cannot answer that question, is it not clear that this whole exercise is really a delaying action to push the whole matter of equality for women beyond the next election—when, if his party is returned, he intends to increase women's pension age or to cut their pension?

Turning to the only announcement of substance in the statement, will the right hon. Gentleman accept that his abandonment, for the time being, at least of limited price indexing of 5 per cent. a year is indefensible? Is he aware that surveys show that, at present, occupational pensions are increased on average by only 3 per cent. a year when the average rate of inflation over the whole period of three Thatcherite Governments was 9.5 per cent. a year? Is he aware, too, that even with limited price indexing of 5 per cent. in place, the average occupational pension, according to the pension actuaries Bacon and Woodrow, would still lose about 60 per cent. of its value in real terms over an average 20-year retirement period? Is it not clear, therefore, that any dropping of limited price indexing today will mean condemning 10 million occupational pensioners to an even faster whittling away of their pension assets, and real poverty for millions with the smallest pensions?

As to the future of limited price indexing, is the right hon. Gentleman saying, as he appears to be, that, if the Barber judgment is retrospective, he is dropping limited price indexing permanently? Is he telling occupational pensioners that they can have either equal retirement ages or limited price indexing but not both? That is certainly what he seems to be saying.

If the right hon. Gentleman is saying that, will he acknowledge that there can be no case whatsoever for dropping that modest improvement in limited price indexing, when pension funds in total were recently standing at about £50 billion?

Is it not even more of a scandal that the right hon. Gentleman is proposing to drop, or at least postpone, slightly improved but still inadequate inflation protection for occupational pensioners, while at the same time allowing some of the biggest employers to take contribution holidays year after year because their pension funds are in surplus?

Opposition Members strongly support full equality for women in retirement, but this statement is more vacuous than real and is yet further evidence of dithering by a Government who are afraid to act decisively on the crucial issue of equality for women.

Mr. Newton: I had hoped that we might for once draw a rather more measured and responsible response from the hon. Member for Oldham, West (Mr. Meacher). As it is, we have heard a classic Oldham response—taking up a gun, firing it wildly in the air and finally turning it on himself.

This is a clear statement of commitment in practice, which goes beyond anything that any previous Government have said, to implementing equal treatment in pensions, and I have outlined the steps that we propose to take to that end.

As regards what the hon. Gentleman called the "central" question, we shall publish a discussion paper in which we will set out, as fully and fairly as we can, the costs and implications of all the possible options, including a range of flexible pension schemes. We have made no decision in advance of that—there is no hidden decision. We believe that a decision that needs to take account of demographic patterns over a generation and more and of long-term social, economic and other factors should properly be taken after considerable informed public discussion, which is what we propose to bring about. I am surprised that the hon. Gentleman does not accept that.

There is no question of our having dropped limited price indexation, but we have to recognise that it is a question not merely of a handful of large and sometimes publicised schemes but of many tens of thousands of schemes which do not have large surpluses and which already face considerable difficulties arising from the Barber judgment, even if it is not retrospective. We need to take account of their interests, and we shall be doing no favours to occupational pensioners or to anyone else by driving an increasing number of employers to give up occupational pension schemes altogether, which is the risk we run if we do not proceed with care.

Finally, the hon. Member for Oldham, West had the nerve to refer to "dithering". This is the man who has gone around the country making one massive pension pledge after another, including equal pensionable age at 60, most of which turn out on examination to be what the hon. Member for Derby, South (Mrs. Beckett) says are no more than "desirable aims". The hon. Member for Oldham, West has elevated dithering at the expense of pensioners to a fine art.

Several Hon. Members


Mr. Speaker

Order. A point of order was raised about this statement before we started questions today. Forty-nine right hon. and hon. Members seek to participate in the next debate. Exceptionally, I shall curtail questions on this statement, which I am sure we shall return to from time to time, at 4.15 pm, when there will a ten-minute rule motion; then we shall move on to the debate.

Sir David Price (Eastleigh)

Does my right hon. Friend recall that I introduced a Bill in 1983 based on an all-party Select Committee report which dealt with equality of age opportunity between men and women and with flexibility? It was never defeated, but simply talked out. Therefore, I invite my right hon. Friend to reintroduce my Bill in the next Session of Parliament. It is all there, there is no problem and I am sure that, if he wanted, we could pass it in July and have it on the statutue book.

Mr. Newton

I do not think that I can promise to do as my hon. Friend suggests, but I am grateful for the thought, because I know how much expertise he has in these matters. We shall seek to take account of his thoughts as the public discussion proceeds, and I hope that I am right in reading his remarks as general support for the proposal.

Several Hon. Members


Mr. Speaker

Order. May I clarify a comment that I have just made? I intend the questions to continue until 4.5 pm so that we can move on to the debate at 4.15 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

Any progress towards the genuine equalisation of pensions is widely welcomed, but will the right hon. Gentleman ensure that steps are taken to begin to end the scandal of companies raiding pension schemes for reasons other than the pensions themselves?

Mr. Newton

I think that the hon. Gentleman will be aware that we have made a number of changes in successive Social Security Acts over many years, which are designed, among other things, to protect the rights of early leavers; that very much interrelates with the point that he has raised. I am aware of the continuing concerns, and obviously we shall continue to consider them during the discussion on which we are now embarking.

Sir Robert McCrindle (Brentwood and Ongar)

My right hon. Friend will know that the occupational pensions industry has been more than a little perplexed since the Barber judgment and has been looking forward to some intimation of the Government's intention with regard to the state scheme retirement age. Will he confirm that, while the very desirable consultation about a possible equalisation of pension ages under the state scheme is proceeding, there is no reason why the occupational pension schemes which have been at the forefront in moving to a common and very often favourable retirement age should not continue to do so, in view of the fact that many of them already permit the men and women to retire at the same age, and very often considerably before 65?

Mr. Newton

I underline the fact—almost as an aside, but not quite—that the consultation is not about a possible move, but about the means to be chosen for a definite move in that direction. That is an important distinction. As for the point about occupational pension schemes, many already have equal pension ages. Their number has grown since the Barber judgment, and I want to encourage further moves in that direction. As far as it is in my power to do so, I want to create a reasonably stable framework of policy within which schemes can take sensible decisions to that end.

Mr. Huw Edwards (Monmouth)

Would the Secretary of State not agree that, if they really want to achieve equality of pension treatment, the Government must attack the fundamental inequalities between men and women in the labour market? Does he not agree that the inequalities faced by women in their working lives are magnified in retirement? Should not the Government reverse some of their policies which discriminate against women in the labour market, such as their proposal to abandon the wages councils, which provide minimum wages for thousands upon thousands of women in low-paid employment?

Mr. Newton

It will not surprise the hon. Gentleman to know that I do not accept his allegations of, as it were, Government discrimination against women in the labour market. According to some recent reports—again following Barber in part—more firms' pensions schemes are allowing entry to women who preponderantly work part-time and I wish to encourage that. That is one problem faced by many women, and I should welcome a reduction of it.

Mrs. Marion Roe (Broxbourne)

I am delighted to learn of the Government's declaration of intent to equalise the state pension age. I have often raised that issue with Ministers, and I welcome the opportunity of a public discussion about that important issue. Can my right hon. Friend say when he thinks that the European Court of Justice will be able to pronounce judgment on the Coloroll case and thus remove the uncertainties in that case?

Mr. Newton

I cannot be absolutely certain about that, although I believe that the outcome of the Coloroll case is not likely until well into next year. However, a number of other cases are going to or already at the European Court of Justice, including one from Germany, one from Holland and some others from this country, so there is a good deal of uncertainty about the timing of all this which I personally cannot resolve.

Mrs. Margaret Ewing (Moray)

When the Secretary of State said that he was looking for greater flexibility within the state scheme in a "practicable and affordable" way, does that mean that the discussion document will study other elements of the benefit system? Surely there must be a need for an overall review of the position, given the knock-on effect for housing benefit, community charge relief and other benefits. When will that be published, and what is the time scale for discussion?

Mr. Newton

The hon. Lady, with her knowledge of these matters, is absolutely right to say that there are closely interrelated issues of other benefits in which unequal age plays a part. We will seek to consider that. On timing, I deliberately used the word "shortly" in my statement, and I cannot refine that further. A great deal of work has already been done, but a great deal of complex actuarial and other work is needed before we can be confident that we have put the best information before the British public. I hope that "shortly" will not mean too long, but I cannot give a clear-cut promise that it will be, for example, before the recess.

Mr. Ian Bruce (South Dorset)

My right hon. Friend knows well that it takes upwards of 50 years to earn a pension. Can he give the House an assurance that he will consult widely with Opposition parties so that we can go forward together and not have a lot of chopping and changing? Can my right hon. Friend make sure that the Labour party understands the cost implications of many of the pledges or possible wish lists that it keeps putting before the British electorate?

Mr. Newton

I would very much welcome such an interchange with the Opposition, which is why I was genuinely disappointed by the reaction today of the hon. Member for Oldham, West (Mr. Meacher). It is necessary in this area not only to decide what it might be nice to do, but to look hard at the costs and implications over a long period and not just over the next year or two.

Mr. Greville Janner (Leicester, West)

While looking at the cost implications, is the most important part of the right hon. Gentleman's statement the fact that, if retrospective effect is given to Barber, it will cost the industry £40 billion or more? What does he consider that will do to the industry? What are the Government doing to prepare for that? What steps do the Government propose to take now rather than waiting, as they have done in the past, to decide what to do if something happens?

Mr. Newton

The hon. and learned Gentleman, with his legal experience, will know that we are talking about a judgment of the European Court of Justice which I cannot determine and which I cannot invite Parliament to overrule by an Act of Parliament. It is too early to speculate along the lines that the hon. and learned Gentleman invites me to consider. Equally, the effects on British industry will vary very much from scheme to scheme. The worst case—[Interruption.] It might be helpful if the hon. Member for Nottingham, North (Mr. Allen) would listen to this. The effects will be very variable, and I invite people to think about the position of a scheme, for example, which has few women and many men in the declining industry in which fewer and fewer people make contributions. That is a maximum difficulty area.

Mr. Iain Mills (Meriden)

May 1 ask my right hon. Friend to agree that it is about time that a Government recognised the long-standing problem of equality of retirement age? Will he accept my congratulations on the fact that, despite the synthetic indignation of the Opposition, he has finally made a proposal that will lead to a solution? Consultation is obviously essential. Can he enlighten us on the resource implications of the various options open and comment on the resource implications of a flexible scheme? I congratulate him—I hope that he will accept this—on taking the first step.

Mr. Newton

I am grateful to my hon. Friend. One of the purposes of the discussion document will be to set out resource and other implications, including those for the labour market, which must not be minimised, in more detail than I conceivably could this afternoon. As a broad range, one is talking, as is suggested in a costing that we published recently, of a cost of around £3 billion for equalisation at 60 and a saving of about the same order for equalisation at 65, and there are a range of options in the middle. The exact costing would depend very much on what one chose. We will seek to set all that out for a proper discussion.

Mr. Paul Flynn (Newport, West)

Has not the Secretary of State again understated the value of SERPS in enhancing the pensions that are paid to today's pensioners and overstated the value of occupational and personal pensions? Is he aware that half the value of the contributions that are paid into a personal pension scheme in the first year are swallowed up by commission, and that independent analysts tell us that at least 1 million people who are now making personal pensions contributions will shortly find it in their best financial interests to opt back into SERPS? Will the right hon. Gentleman give an undertaking that his Department will advise those people when is the right time for them to opt back into SERIS?

Mr. Newton

We have repeatedly said that people must take their own advice on their own situation, because the relevant factors will vary greatly from one person to another. I do not accept the generality of the hon. Gentleman's remarks, because the popularity of personal pensions reflects people's wish to have greater choice and flexibility. One of the ways in which we have already moved a long way towards achieving flexibility for many people is by enlarging their capacity to make such choices for themselves.

Mr. Patrick Nicholls (Teignbridge)

Does my right hon. Friend agree that one consequence of this welcome announcement will be the raising of expectations in many people's minds that the equalisation of the pension age might actually come about? Does he further agree that nothing could be more cruel and more likely to dash those hopes than for the Labour party to give people the impression that the equalisation of the pension age is an easy option, with no resource implications? Is that riot what the hon. Member for Oldham, West (Mr. Meacher) offered, and is it not completely bogus?

Mr. Newton

Yes, I do agree with that, and it is what I had in mind when I intended to say that it is not responsible for the hon. Member for Oldham, West to go around the country apparently promising retirement at 60 for all, when everybody else in his party says that that is not a policy or a promise, but just a "desirable aim".

Mr. Simon Hughes (Southwark and Bermondsey)

Will the Secretary of State acknowledge that his statement is a timely reminder of the fact that, to date, those concerned with equal treatment for women have more reason to thank the treaty of Rome and the European Court than the British Government? If we are to have both the flexibility of choice as to retirement between the ages of 60 and 70 and equal treatment, which my colleagues and I would say is right, should we not be able to move quickly towards implementing both those principles once they have been firmly established?

Mr. Newton

I have said that there is widespread support for that principle, and that we shall seek to set out the ways in which it might be achieved—as well as its problems and obvious advantages—when we produce the document. However, I remind the hon. Gentleman that it was the British Government who signed the treaty of Rome.

Mrs. Edwina Currie (Derbyshire, South)

Will my right hon. Friend please congratulate my constituent, Mrs. Daisy Adams, who will celebrate her 111th birthday on Sunday and who has been drawing the pension for 51 years? Does my right hon. Friend agree that equality will be expensive, especially since it will mean bringing men's pensions up to the standard enjoyed by women in this country, who retire earlier and live much longer?

Mr. Newton

It is certainly true that at the moment women get a better deal out of most pension schemes than men. That is no doubt one reason why many men will actively support the idea of an equal pension age.

Mrs. Maria Fyfe (Glasgow, Maryhill)

Further to his answer to the hon. Member for Moray (Mrs. Ewing), how long does the Secretary of State envisage the consultation process taking once he is ready to send out the consultation document? Will he publish a list of the bodies that he intends to consult, and will he accept suggestions about the women's organisations that he should add to that list? As this issue is of immense importance to millions of women and is so complex, a suitably long consultation period is vital to allow those organisations that will be involved in the consultation process to consult fully with their members.

Mr. Newton

I envisage a consultation or discussion period of some months, because anything less would be unrealistic. I shall try to remember to send the hon. Lady a list of the organisations that will be consulted when I have concocted one. It will certainly be extensive, and will include trade unions, employers' bodies, pensioners' organisations and, of course, women's organisations.

Mr. David Shaw (Dover)

Can my right hon. Friend confirm that British retirement ages and total pensioner incomes are among the most favourable in Europe? Can he further confirm that there has been a great improvement in the United Kingdom vis-a-vis Europe on total pensioner incomes since the Government were elected?

Mr. Newton

Yes, many people have recognised that the overall improvement in pensioners' net average incomes—to use the familiar phrase—has been considerable, and, indeed, greater than that for the rest of the population. However, as I always add when I have said that, we recognise that a fair number of pensioners do not have savings or occupational pensions, and we have sought to help them through improvements in income support.

Several Hon. Members


Mr. Speaker

Order. I am sorry that I have not been able to call all the hon. Members who were rising, but we must now move on to the ten-minute Bill.

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