§ 8.4 p.m.
§ LORD SWANSEA rose to ask Her Majesty's Government whether they will make any change in the regulations concerning persons receiving pensions from public funds, to enable such persons to be re-employed in the public service without loss of pension. The noble Lord said: My Lords, I beg to ask Her Majesty's Government the Question standing in my name. The hour is getting rather late, and I will try, to the best of my ability, to be brief. This Question covers a very wide field—the whole field of the public services, including the Civil Service, local government, the medical and dental professions, teachers and others. It is too wide 1520 a field to cover fully in the time I propose to allow myself, so I shall confine myself principally to the medical and dental professions, because it seems to me that here, in these professions, is the greatest need for a change.
§ The general principle applying to abatement of pensions on re-employment in the public service is that the salary on re-employment should not exceed the average remuneration over the last three years before retirement. If the new salary plus pension exceeds the old salary, the pension is abated to that extent; and if the difference between the salaries exceeds the pension, the pension will disappear altogether. There has for a long time been great discontent about this among general dental and medical practitioners. With the acute shortage of doctors and dentists, it is surely illogical to discourage or prevent re-employment of them after pensionable age. Unlike salaried officers, the earnings of general practitioners are not at their highest during the last few years before retirement. Indeed, in many cases the salaries at that time are at their lowest point. In 1966 the Ministry of Health and the Treasury recognised the need for revision of the abatements for general practitioners, and the criterion for determining whether an abatement of pension was necessary was changed to the average net earnings over the best three consecutive earning years. Thereby, general dental and medical practitioners were placed on roughly the same footing as salaried officers.
§ Now there is one aspect of this matter which is a considerable source of grievance among doctors and particularly among dentists; that is, that the assessment of the earnings is done on a quarterly basis. This was regarded by the Departments as a concession, because in theory the limit should not be exceeded at any time. But if this were carried to absurdity the result would be that the abatement could be assessed on a monthly, weekly or even an hourly basis, which is truly absurd. It is particularly hard on dentists, as they are paid by a scale of fees, and the patient demand is liable to fluctuate for reasons beyond the dentist's control—according to the season, the weather, illness or various other reasons. So there may be a substantial variation in the net earnings as between one quarter and another. If the limit on earnings 1521 is exceeded in one quarter, the pension is abated, and no account is taken of earnings in the rest of the year, which may be well below the limit. This, I think, is manifestly unfair, and I think that either the earnings should be assessed on an annual basis or one quarter should be set off against another.
§ The question of abatement of pensions is particularly acute in the public health service, in psychiatry and in the tuberculosis service. The reason is that prior to the start of the National Health Service these were the only services which were pensionable. The result was that doctors in other branches of medicine who retired under the age limit had relatively few years of service that counted for pension, and thus receive only a small pension. As a result, they can earn a considerable amount before their pension is subject to abatement. In psychiatry, the public health and the tuberculosis services, which were pensionable before the National Health Service started, most retired doctors have completed the maximum period of pensionable service. This applies particularly to mental hospital staff, in whose case every year of service in excess of 20 counts double for the purposes of pension.
§ I have a particular interest in this last class, because my wife is a member of a hospital management committee which is concerned with a group mental hospital in Mid-Wales. In that part of the country there is a serious shortage of properly qualified personnel in that branch of medicine. The mental hospitals often wish to call upon retired doctors to help out at holiday time, or because there is illness among their staff, but there is very little incentive to retired doctors to do so. Unless a doctor can live at home he has to pay his board and lodging at or near the hospital where he is working; he has to pay travel expenses to and from home, and he is lucky if he is left after that with £7 or £8 a week in his pocket.
§ Most doctors feel that as they have paid for their pensions—in other words, as they are on a contributory basis—they have earned them; and because they have earned them, they should be allowed after retirement to take on what employment they like, without abatement of their pensions. Anyone who has the will, stamina or initiative to wish to work after retire- 1522 ment should not be subjected to heavy financial disincentives but should be encouraged to do so because of the national shortage of medical manpower which threatens the very survival of the National Health Service. Successive Governments have never ceased to urge the need for greater national production if our country is to maintain its position in the world. Like many other pens loners, retired doctors and dentists may still have the capacity to make a useful contribution to the common good, and I feel that in so doing they should not have to forfeit some or all of their pension. This is all wrong.
§ My Lords, I have confined myself to those professions for the sake of brevity, and also because I think that theirs is the case of greatest need. But these principles apply also to the Civil Service, local government, teachers and the rest. The Royal Commission on the Civil Service in 1953–55 dealt with these points; and the argument was put to them by the Staff Side of the Civil Service that the effect of any increase in pay on a number of re-employed staff was simply to reduce their already abated pension. In particular they pointed out that within the Civil Service there are three types of re-employed persons.
§ First, there is the disestablished officer who continues in his old grade. He does not receive any pension because his pay is above it, and he gets the benefit of any increases in salary scales. At the other extreme there is the officer who, up to his retirement, has held a fairly high grade and who after retirement just wants to take on the little odd job and takes re-employment in a considerably lower grade. In that case his pension plus his pay are together less than the pay of the post from which he retired. He also gets any increases which the grade attracts.
§ But the person who is most penalised is the one who drops only a grade or two and whose pay plus full amount of pension takes him to, or beyond, the previous pay of his job. This situation strikes me as being unfair, and I think it should be put right. In such cases the individual should receive any new rate of pay for that grade, and he should not suffer any further abatement of his I pension. It has been suggested that if 1523 changes were made in these rules a number of anomalies would arise between officers in different grades. That may be so; but I do not think they would be nearly so numerous or so serious as those which exist under the present arrangements.
My Lords, our public services are a great institution. They set the pattern for public services throughout the world—and particularly our National Health Service, which was a very great social step Forward. But especially where the National Health Service is concerned there is grave danger of collapse due to lack of manpower. It would be the greatest pity if this should happen through disincentives which are as absurd as they are illogical. I trust that I have been as brief as your Lordships hoped. I should have liked more time to enlarge on some of the points, as this is a very big subject; but as the hour is late I will leave it there and hope that the noble Lord who is to reply for the Government will give me some encouragement.
§ 8.18 p.m.
§ LORD BOWLES
My Lords, I am sure we are all grateful to the noble Lord, Lord Swansea, for putting down this Question—more so because he was good enough to postpone it from last Thursday (or Friday morning) when although there would have been no pressure of time we should all have been too tired. It shows the interest he has in the subject that he should put down this Question, and I am glad to have the opportunity of dealing with this subject which, as he himself mentioned, is a general one.
May I remind the House that the present practice derives from the Superannuation Act 1834? Therefore it has stood the test of time and doubtless the scrutiny of many previous Administrations. Her Majesty's Government regard the principles upon which it is based as still valid and are not willing to propose changes. Although the practice is very long-standing, this does not mean necessarily that there is any reason for refusing to review it; but I hope that when noble Lords have considered what I have to say about the way in which the present arrangements work and the reasons for them, they will be convinced 1524 that there are insufficient grounds for making a change.
The arrangement is that the re-employed pensioner draws the full pay of the post in which he is re-employed. In addition, he gets so much of his pension as is needed to bring his total income, from his pay and pension combined, up to the level of the salary of the post from which he retired. Thus, in the normal case, when pay and pension combined are more than the pre-retirement salary, no re-employed pensioner suffers a drop in income; and, if the pay of the post-retirement job is more than this, the re-employed pensioner gets that amount in full. Furthermore, the re-employed pensioner will normally already have drawn in full that substantial proportion of his total pension benefits, about one quarter, that is represented by the lump sum payment which the noble Lord failed to mention. He also normally continues during his re-employment to add to his total pension entitlement, in respect both of his lump sum and his pension. In many cases too, that part of a pension that is actually being drawn may itself be increased under the Pensions (Increase) Acts. To recapitulate, therefore, the present arrangements are based on the principle that everyone gets the rate for the job when he is re-employed and draws his full pension to the extent that this will not give him more, when combined with his pay, than he had in his previous job.
To come now to the reason for this arrangement. I can well understand that many re-employed pensioners will take the view that, under the terms of their employment, they become entitled to a pension on reaching retiring age, whatever that might be—in the normal case 60 or 65—and that this pension should be paid at that age irrespective of whether they continue in work. This feeling will no doubt be stronger to the extent that the pensioner has himself in part contributed towards his pension. Moreover, if a public servant who has retired takes a job in private industry, he is fully entitled to draw his pension and the pay of that job. For all these reasons, therefore, it is very natural that some people should resent the present rule.
But, if I may say so, these attitudes, while very natural, fail to take account of 1525 the real purpose of a pension. This is simply to help maintain the pensioner when he leaves employment in the public services. Essentially, therefore, the payment of the pension is determined not by the retirement date specified in whatever scheme the pensioner may belong to but by the fact of retirement. Clearly, it is only right to say at what age public employees become entitled to a pension—in other words, the minimum age at which they can expect to leave their employment with a continuing income for their retirement. But, if those who reach pensionable age decide not to retire but to stay in public employment, then it seems to me that the public services should not be regarded as being bound to ignore this fact and to treat the person concerned as if he were no longer working for them. In this matter we surely have to compromise as between what the pensioner might regard as his rights and fairness as between him and the taxpayer or ratepayer who is paying his salary and all, or the greater part of, his pension.
The noble Lord asked me: Why should the income of the re-employed pensioner be limited to what he was earning when he formally retired, rather than to what he would now be able to earn in the same job? It is important to remember that no pensioner who is re-employed ever gets less than the proper rate for the job which he is doing. Let us look at two cases. First, imagine a man who retires and is subsequently re-employed in a similar job at the same salary level. He goes on drawing the full current rate of pay for the job, and he gets the benefit of any increases in the rate for the job as they come along. His pension is wholly abated, but he receives his lump sum on first retiring.
The second man retires from a job at the same level as the first, but is reemployed in a job with less responsibility and a lower rate of pay. He gets the full rate of pay for that job plus his lump sum, and in addition enough pension to bring his income up to the level it had reached at the time when he retired. This means that he is protected from any fall in income even though he is now doing a job which is less onerous or responsible. There is no good reason. however, why his income should increase in pace with increases in the pay of the 1526 job he held before retirement. The first man continues to carry the responsibilities of the more senior job and benefits from the pay increases; the second man takes a less arduous job, and therefore his income, although protected against a fall, does not keep pace with that of his colleague who continues to carry out the duties of the more senior and onerous job.
Finally, before I come to the more specialised points raised by the noble Lord, I think noble Lords will find that the practice which I have described compares favourably with that of employers outside the public sector, who do not commonly pay an employee any part of his pension so long as he continues in work. Generally speaking, such an employee receives only the rate for the job—but in fact it is far more usual for private employers to stop employing someone at all once he has reached pensionable age. In this respect again, therefore, I see no case for departing from our long established practice in a way which would not be justified by comparison with the general practice of employers outside the public sector.
The noble Lord concentrated the main part of his speech on the question of those people entitled to a pension before the National Health Service. He referred to the application of abatement by reference to quarterly earnings; but it would not necessarily be in the interest of a pensioner to apply the rules on an annual basis. A man's earnings may be at, or close to, his ceiling, when averaged over twelve months, but in a single quarter may fall well short of the ceiling. Quarterly assessment makes it possible to deal with this situation. As to the other points made by the noble Lord, they are, as he recognised, of general application, but I do not think they add up to a case for specially preferential treatment for National Health Service pensioners.
I hope that the noble Lord will feel that we have gone some way to wards clearing the air, because there is a good deal of misunderstanding about this. This practice has been in operation for 134 years, but we can look into these matters in the various reviews, such as the social security review, which are taking place at the present time, for 1527 example, on earnings related pensions and the like, on which, as the noble Lord knows, we hope to bring in a Bill in the lifetime of this Parliament. With these 1528 and my earlier remarks, I hope that the noble Lord will feel satisfied.
House adjourned at twenty-eight minutes past eight o'clock.