SURVIVING SPOUSE'S PENSION

HC Deb 15 February 1993 vol 219 cc85-92

Sir Ivan Lawrence

I beg to move amendment No. 22, in page 7, line 14, leave out 'one-half' and insert 'two-thirds'.

The amendment deals with a matter that is more serious than that addressed in the previous amendment, because it will have an immediate effect upon the widows and, perhaps in due course, the children of judges who die in harness.

Under the Government's proposals, widows will be hurt greatly. To prevent that hurt from occurring, the amendment would increase from one half to two thirds the sum of money which accrues at the death of a judge.

Under the new scheme, pensions are to be calculated on the basis of pensionable pay rather than on the basis of pay currently received. Pensionable pay is the amount of pay received in the past year—last year's pay. Under the present scheme, a judge who has reached retirement, age can usually wait until the next pay increase on 1 April and retire on the basis of that increase, which is next year's pay.

The Government produced a set of figures for the debate in another place which compared the benefits payable under the old and new schemes. In my submission, those figures are unintentionally misleading because the calculations were made for 31 March—the only day in the year when the two figures are the same. If the figures are calculated for 30 September 1992 or 1 April 1993, the results are quite different.

Under the new scheme, on 30 September 1992 the sum of £62,549 would accrue, but £64,064 would accrue under the old scheme. Under the old and new schemes, as at 31 March, the sum accrued would be the same, £64,064. Under the new scheme, on 1 April 1993 the sum of £64,069 would accrue, but £65,912 would accrue under the old scheme. In the first case, the judge and his wife will lose £1,133 a year, and when the judge dies his widow will lose £567 a year. In the second case, the judge and his wife will lose £933 and his widow will lose £467.

Mr. John M. Taylor

Is my hon. and learned Friend referring to someone who is currently the holder of a judicial appointment and is looking beyond to the effect of the proposed changes? Such a person does not have to enter the new scheme. If he so wishes, he may keep to his existing arrangements.

Sir Ivan Lawrence

I do not challenge my hon. Friend's point, but what about future appointees? If they compare what they will get under the present scheme with what they would get under the new scheme, there is a marked difference in the sums payable not just to a judge, but to his widow. The new system is based on last year's pay rather than on the pay currently receivable. Under that system everyone loses—the judges, the widow and, in clue course, the children. The Government, of course, make savings.

In answer to my hon. Friend the Member for Monmouth (Mr. Evans), my hon. Friend the Minister said that the Bill was financially neutral and that the Government made no gains from it. That matter has been intensely disputed by the actuary for the judges and the Government's actuaries. A request has been made for figures and meetings, and there have been telephone conversations. I do not know whether the last such meeting scheduled for this weekend was cancelled for any reason, but I know that, until recently, the judges' actuary did not consider that he had been given the figures for which the Government were asked when the Bill was being considered in their Lordships' House. There has obviously been a misunderstanding. If the figures were as the judges' actuary calculated, there would be some leeway within the system to make the increase to protect the widows in the way suggested.

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One feature of the new legislation is that many judges will be unable or unwilling to complete their 20 years to qualify for a full pension. Under the old scheme, after 10 years the pension is three quarters earned while under the new scheme it will be only half earned. If we take a salary of £64,064, the full pension will be £32,032 for a judge, and £16,016 for his widow, which is not a large sum in current circumstances—certainly not when compared with the sort of earnings and pensions that can be gained in the private sector. If that figure is to be reduced by a quarter, the judge and his wife on his retirement will lose £8,000, and when the judge dies his widow will lose £4,000. The cumulative loss to the widow is enormous. It depends on the date of retirement, but unless the judge has been foolish enough to retire on 31 March, the figure of £8,000 will increase because of the difference between actual pay and pensionable pay.

There are some cases where the new legislation will work to the widow's benefit—for instance, if her husband dies early in service—but there will not be a large number of such cases. In nearly every case, the judges' pension will be less under the new scheme, so the widow should be given compensation by means of a pension that is two-thirds of one half, not half of one half.

The new scheme provides for the lump sum to be two and a quarter times the pension based on the lower figure for pensionable pay, rather than twice the pension based on current pay. That is inadequate compensation for the lost pension. Independent actuaries have informed the judges that it compares badly with the amount given in the private sector. Under a typical private pension scheme for senior employees, the spouse's pension could well be two-thirds, not one half. Even if it were set at a half, the pension would have been at a higher maximum rate than 50 per cent. of the salary. In any scheme which introduces changes such as those proposed by the Government, there are likely to be gainers as well as losers, but it is impossible to believe that there will be many gainers under the Government's proposals, and the widows will be among the losers.

When the subject of the arrangements between the actuaries arose, the actuary for the judges, Mr. Wynne-Griffiths, suggested to the Government's actuaries that there should be some flexibility and some leeway in the system to enable the Government to make a concession to the widows. That was denied at an early stage and then, after the Government actuaries had considered the matter further, they conceded that there was some leeway. Perfectly properly, as one would expect from honourable people—and no doubt on the initiative of the Government, who are totally honourable, if misguided, in such matters—it was agreed that the sum of money seen to be available after a closer consideration of the statistics would enable the Government to give more help to the children. Now, my hon. Friend the Minister says that the package is fiscally neutral. He said that last time, but it was not. How can we be sure that he is any more correct this time than he was last time?

In the past few days, Mr. Wynne-Griffiths has been able to discuss the matter again with the Government's actuaries. It seems that there has been no detailed calculation to prove financial neutrality. All that has happened is that the Government's actuaries have made some computer predictions and Mr. Wynne-Griffiths has produced a further report. I shall not labour the details of that report, which has been sent to my hon. Friend the Minister and will no doubt be studied, if it has not been already, by the Government's actuaries, who will behave with as much honour as they have done in the past. No doubt, when the Government find that they have made an error, they will behave with the same degree of honour as they did over the concession for children.

I am told that amendment No. 22, which we hope will restore the widows to their former position by raising from one half to two-thirds the amount of the widows' pension, would produce about 0.8 per cent. to 1 per cent. of salary. I believe that there would be sufficient leeway in the system to afford the change that I am proposing without breaching the principle of financial neutrality.

It has been said that it has taken the judges' actuary quite some time to obtain the information, but now that the information has been vouchsafed and it is possible to work on the figures, we can see that the injustice to widows which would result from the proposals in the Bill can be corrected. We are talking not about the pension—my hon. Friend has dealt with that matter, which I was unable to press to a Division—but about how the pension will affect the widow. Of the wives of practitioners at the Bar and of judges, most of those whom I have known have been neglected by their husbands, who have been totally preoccupied with their work and service to the community for many years of their life.

If I am right—I have it on the best advice that I am —that a closer analysis of the statistics between the actuaries reveals a sufficient leeway, it follows that, to make the Bill truly fiscally financially neutral, it will be possible to increase the widows' pension. Will my hon. Friend the Minister give an undertaking that he will take a closer look at the subject to see whether the widows can be helped as a result of the new analysis of the figures?

Mr. Roger Evans

This is the one area where the Minister can make a concession in a way that will be appreciated.

We have talked about fiscal neutrality. Usually, when public expenditure proposals are discussed in these terms, we can work out what we are paying and what the proposals are and say that they balance, so they are neutral. This, however, is not such a simple case. It is not a straightforward public expenditure proposal.

We are discussing two potential arrangements for the future: one under existing premises, and a new system under new premises. It is not for us or for the Minister to decide, in that context, what is fiscally neutral. It is a matter of expert actuarial advice; we need the professional expertise to determine what is likely to happen. That sort of professional prediction is not so nice or accurate as not to allow, within the broad contention that this is fiscally neutral, this concession. It is not so expensive as to alter or detract from the essential proposition, which inevitably contains a degree of built-in inaccuracy; it is only an estimate.

Furthermore, the Minister did not answer on the previous amendment the three actuarial criticisms of the calculations, each one of which is worth a great deal more, I am advised, than the sum we are discussing here.

I support what my hon. and learned Friend the Member for Burton (Sir I. Lawrence) has said, and I urge the Minister to undertake to investigate this actuarial aspect further to see whether he can make some concession on this limited aspect.

Mr. John M. Taylor

Once again, I thank my hon. and learned Friend the Member for Burton (Sir I. Lawrence) and my hon. Friend the Member for Monmouth (Mr. Evans) for their skilful presentation of a case on which they have worked with considerable care.

At the risk of saying it three times, I must repeat that all the information requested by the judiciary or its actuarial advisers has been provided. The circuit bench's actuary had a meeting with the Government Actuary last October. If there were queries about the cost, surely that was the time to raise them—or if not, then at last Friday's meeting, when the gentleman by the name of Mr. Wynne-Griffiths cried off. None of us seems to know why, but I am sure that he did.

I am reluctant to say this but I must: the paper prepared by Mr. Wynne-Griffiths contained a number of factual inaccuracies. For instance, the detailed calculations have not been made; it contains flawed logic in its actuarial approach—for instance, that a change in the financial assumptions would have a significant effect in releasing a margin for further benefit improvements. The judiciary's actuarial adviser also assumed that there was a bunching of retirements in April under the present arrangements. The information on retirements shows that that is not so.

Mr. Wynne-Griffiths' paper also contained an apparent error in the actuarial costings. For example, the cost of improving the spouse's benefit from a half to two thirds appears to have underestimated the true cost by a margin of 50 per cent. The actuarial adviser to the circuit judges has acknowledged that he has not made any detailed calculations, but the Government Actuary has assessed the cost at just over 2 per cent. of pay.

Given the number of errors and flaws in Mr. Wynne-Griffiths' paper, the Government do not place too much reliance on the validity of the circuit judges' actuarial advisers. In short, the paper fails to impress.

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As for the selected date, I should point out to the House—it was also pointed out to Mr. Wynne-Griffiths—that the comparative tables that we have provided are not, as he suggested, misleading. The footnotes make quite clear the assumptions on which they are based, and the covering letter from the Lord Chancellor specifically drew attention to them. Some date for comparison had to be chosen, and 31 March was chosen precisely because it is the only date when the starting point for the remuneration part of the pension calculation under the various schemes is the same.

The point of introducing the concept of pensionable pay is not to make savings for the Treasury but, as is accepted elsewhere, to iron out an injustice. As I have already said, there is no evidence of any bunching of retirements on or around 1 April.

My hon. and learned Friend and my hon. Friend have assumed that we have created some headroom in the system. If there were any headroom, I can assure them that it would have been amply absorbed by the nine changes under the scheme which involve an increase in value to the beneficiaries. Lump sum retirement benefits are increased from twice to two and a quarter times pension. Lump sum death benefit in service is increased from once to twice pay. Service enhancements applying to death in service or on ill health retirement are introduced, to reckon one-half of potential service to age 65. As the pension comparison tables show, that is better at most durations than the position under current schemes.

Maximum pension age is reduced to 70 and opportunities to retire on pension aged 65, or with actuarially reduced pension from the age of 60, are introduced. Contributions from members of the higher judiciary are reduced from 4 per cent. of pay to 3 per cent. of pay. No deductions from lump sum benefits in respect of outstanding contributions for spouses' benefits are to be made. There will be an integrated pension scheme for the whole judiciary, with no loss of benefit expectations on promotion. The list continues with the improvement of eligibility for children's benefits and the lump sum death benefit after retirement improved to a balance of five times pension.

I did not embark on this litany inadvertently. I thought that this Report stage of an extremely important Bill was a crucial moment to put some of these matters on record. Although not many hon. Members are in the Chamber now, this debate will have, if not a wide, then a learned readership tomorrow morning, and the Government are entitled to put the basis of their case on record even if that involves slightly delaying the House.

I should like strongly to rebut the idea that the Government are seeking to do judges or their spouses out of part of their pensions. No husband or wife of a serving judge will lose out as a result of the Bill, because membership of the new pension arrangements is entirely voluntary. No serving judge will be forced to join the scheme.

The spouse's pension is half the deceased scheme member's pension under both the existing and the new arrangements; the Bill, therefore, makes no change to the method by which the surviving spouse's pension is to be calculated, save to provide for its enhancement in the event of a judge's death in service. Many Members will have seen the tables prepared by the Government Actuary's department comparing the level of benefits which can be obtained from the existing and proposed arrangements. These demonstrate that there are circumstances when one arrangement provides a higher level of benefit than the other arrangement, and vice versa. This should come as no surprise to anyone; it is the inevitable result of making changes to a pension scheme while keeping the overall cost the same. No savings whatever are expected to be made by the Exchequer as a result of these changes.

It has always been the Government's intention that the changes to the judicial pension arrangements should have no effect on their overall cost. If we are to keep to this aim, then this amendment could be accepted only if corresponding reductions were made to the level of benefits elsewhere in the scheme to offset the increased cost of providing spouses' pensions. The cost of this amendment would be slightly over 2 per cent. of the judicial payroll, so the adjustments to other benefit levels would be severe. I do not believe that my hon. and learned Friend and my hon. Friend would win much support from members of the judiciary who will become members of this scheme if they forced us to travel that road.

We should be considering the value of the surviving spouse's pension to the surviving spouse, and how it compares with that provided by other schemes. It has been argued that a spouse's pension of two thirds of the scheme member's pension is common in the private sector. I am informed by the Government Actuary's department that that is not true. It is most unusual for any pension scheme to provide a spouse's pension at that level. The typical private sector occupational pension scheme provides a spouse's pension of about only 17 per cent. of a member's pensionable pay after 20 years' service, compared with 25 per cent. of pensionable pay provided by the new judicial pension arrangements after the same period of service. That, incidentally, is identical to the level of spouse's pension, expressed as a percentage of pensionable pay, payable to the widow or widower of an hon. Member after the same period of service. I am mildly surprised that it should be implied that benefits that the House considers good enough for the spouses of Members are less than sufficient for the spouse of a deceased judge.

When one considers other public service pension schemes, one finds that the attractiveness of the benefits offered by the new judicial pension arrangements becomes more apparent. The usual benefit payable to the surviving spouse of a member of a typical public service pension scheme after 20 years is only 12.5 per cent. of pensionable pay—half the value of the Members' and judges' scheme. This disparity is justified by the unusual career patterns of the judiciary and Members of Parliament, and the Government believe that that treatment is generous enough.

The new judicial pension arrangements provide for a fair and attractive level of surviving spouse's pension, and I must ask the House to reject the amendment.

Sir Ivan Lawrence

I am sorry that under our system Mr. Wynne-Griffiths, a senior partner in a well-established and successful firm of actuaries, is not able to defend himself here from the critical comments of my hon. Friend the Minister.

I am not able to go into the details of conversations, letters and telephone calls between the Government's actuaries and the actuary acting on behalf of the judges, but when it was said that the Bill was financially neutral Mr. Wynne-Griffiths corrected that assertion, having presented his own figures without—I do not go into the reasons—being able to see all the conclusions on which the Government based their statistics. He drew to the Government's attention the fact that the Bill was not financially neutral and that there was some leeway. Having considered the point, the Government's actuaries agreed that Mr. Wynne-Griffiths was right. A small concession was given to children, for which the judges are extremely grateful. I understand that that resulted from Mr. Wynne-Griffiths's skill, knowledge and wisdom, and if my hon. Friend the Minister is not able to give credit where it is due I am sorry.

I am sorry, too, that my hon. Friend the Minister did not feel that it was appropriate to say, "We are in the world of mystery of the actuary". I suppose that actuaries are much like economists. About 360 economists wrote to say that some aspect of Government economic policy was wrong, but they did not apologise when it was discovered that they were all wrong. I suppose that, like economists, actuaries are capable of error in the conclusions that they draw from statistics. They are probably no different from anybody else, and I hope that they are not. I hope that they are human and that they understand these matters.

It is not for my hon. Friend the Minister or me—we are not actuaries and we do not understand their world—to join the detailed argument, but I have quoted some alarming figures showing how much a widow may lose. I hoped that my hon. Friend might find it—I hesitate to say in his heart, as Ministers are not supposed to have hearts—within his generous personality and capability to say, "We shall look at these figures again. We shall arrange a meeting between Mr. Wynne-Griffiths, the actuaries and the Government Actuary and if, after a closer look, it appears that what was unthinkable last time but which proved to be so and what is unthinkable now turns out so, we shall, because we wish to do no harm to widows, see whether an improvement can be made in the provision for widows."

Mr. John M. Taylor

I should like to say, for the sake of the record, that the improvements made to benefits and designs, to which my hon. and learned Friend referred, were made by the Government in response not, I am afraid, to arguments advanced by the gentleman whose name has been referred to more than once this evening but to representations in the other place.

Sir Ivan Lawrence

I am instructed that those improvements were possible only because leeway was discovered in the financial arrangements. That was discovered not by politicians or lawyers but by actuaries on the prompting of Mr. Wynne-Griffiths. All I am saying is that if there is a conflict between the actuaries it should be thoroughly considered to ensure that a widow, or perhaps a substantial number of widows, does not suffer loss because of the Government's proposals for equalising the law of pensions for judges.

Perhaps my hon. Friend the Minister, once he has read this interesting debate, will think again before their Lordships consider our amendments, which I shall not oppose, to see whether widows can be helped. I am sure that it is the wish of the entire House that they should be helped. I see no response from my hon. Friend the Minister, and in the absence, again, of support from the hon. Member for Brent, South (Mr. Boateng) and the serried ranks of Opposition Members, who I would have thought, on a matter of widows if not judges, would have had some reason for saying, "Yes, we support the case that you are advancing", I face up to reality and realise that this is not a matter to be pressed to a vote. One is never too surprised at things that happen in this place. I hope that the biggest surprise will be when my hon. Friend the Minister causes some change to be considered for the future. Having said that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.