HL Deb 05 November 1969 vol 305 cc366-77

4.4 p.m.

LORD SHACKLETON

My Lords, with permission I should like at this point to make a Statement on partial contracting out under the National Superannuation Scheme. It will fall to my noble friend Lord Crook to congratulate the noble Lord, Lord Stokes, but I must say—and I am sure the whole House will agree—that it was a most remarkable and satisfactory speech. However, I will not take up time by saying more now, because nobody is better qualified than my noble friend Lord Crook in this area of industrial relations.

My Lords, the Statement that I am about to make on the National Superannuation Scheme closely parallels one which is being made in another place by my right honourable friend the Secretary of State for Social Services, who yesterday laid before Parliament a White Paper setting out the terms on which the provision for partial contracting out will be made in the Bill introducing the national superannuation scheme and copies of the Paper (Command Paper No. 4195) are now available in the Printed Paper Office. The Government attach great importance to the role of occupational schemes as partners with the State scheme; and before deciding on the contracting out terms, we consulted the T.U.C., the C.B.I., and a wide range of organisations with a special interest in occupational pension matters. These consultations gave us a comprehensive view of all the relevant issues, and the Government are greatly indebted to those who took part.

The purpose of having contracting-out facilities is to offer occupational schemes the opportunity of taking over responsibility for part of the State scheme pension and in this way to limit the extent to which occupational schemes may need to cut back both in contributions and benefits when the enlarged State scheme is introduced. As to the scale of the contracting-out provision, our initial suggestion was that the annual rate of pension for which contracted-out schemes would take over responsibility might be set at around 0.9 per cent. of the earnings on which the employee contributed to the State scheme. It was represented to us, however, that occupational schemes would find it helpful to take over responsibility for a rather bigger share of the pension; and we decided, with a wide measure of support from those we consulted, that for men the annual amount of pension for which the occupational scheme would take over responsibility as a condition for contracting out should be 1 per cent. of the employee's reckonable earnings. For women, who have a lower pension age than men, the equivalent figure is 0.55 per cent. of reckonable earnings.

We sought the advice of the Government Actuary on what deduction from State scheme contributions would correspond to these deductions from the State scheme pension. He advised that, on a strict actuarial calculation, a contribution abatement for the employee amounting to 1.25 per cent. of his reckonable earnings, with an equal deduction from the employers' contribution, would be fair for the average occupational scheme. Most of those we consulted wished to have a bigger contribution abatement, and although we could not go as far as they wished without being unfair to employees not contracted out, we have decided to go beyond the strict actuarial terms based on averages and to abate the contributions for contracted out employees by 1.3 per cent. a side of their reckonable earnings. The Government Actuary has advised that this improvement in the terms should be sufficient to make them financially acceptable to a further number of schemes covering an appreciable number of employees.

We are confident that on these terms the balance will be struck fairly between those employees who are partially contracted out and those who are not. The way in which the terms have been arrived at is described in full detail in the White Paper, which shows how far the Government have been able to go in meeting representations from the occupational pension interests and contains supporting information which will repay careful study.

I now turn to matters affecting public service pension schemes for which responsibility lies also with a number of my right honourable friends and in regard to which I, in my capacity as Minister in charge of the Civil Service Department, have a particular responsibility. The Government have a special responsibility for the public service schemes and in view of the misunderstandings that have been voiced in recent months about our intentions towards these schemes, I should like to make the following points clear.

First, we have no intention whatever, as has been alleged, of dismantling public service pension schemes. Members of the public services take a pride in their occupational schemes, and the Government understand and share these feelings. It should not be forgotten that occupational pension schemes were pioneered in the Government service. Secondly, whatever changes in present occupational schemes may be necessary after the introduction of the new State scheme, we do not intend that benefits earned by previous service in existing schemes should be subject to retrospective change. Thirdly, anxieties about the retiring age have been expressed on behalf of the police and fire services, and other groups who because of the special nature of their duties cannot continue in their present employments until the age at which the State retirement pension comes into payment. There is no intention of making a change in their retiring ages. Fourthly, where the Government are the employers, any necessary changes in occupational pension arrangements will be fully discussed with staff representatives, as I have no doubt other employers in the public services, and I hope elsewhere, will be doing. Indeed, in many areas such consultations have already begun. We have no intention of acting precipitately, or without full consultation with staff interests.

It is not in question that changes are necessary in public service pension schemes. One of the disadvantages of pioneer schemes is that if they are not periodically reviewed they get out of date. In the Civil Service, for example, we are all aware that, despite the many improvements that have been made in recent years, the arrangements for preserving or transferring the pensions of those who leave for other work are still not nearly as comprehensive as we should like to make them. In another field, the Government are already pledged to seek better ways than the series of Pension (Increase) Acts of reviewing the level of pensions already in payment.

But it would make no sense at all to reshape occupational schemes to deal with these and other points without at the same time taking into account the important part to be played by the new State scheme. The pensioner is concerned with his total pension benefits, and careful co-ordination is essential to ensure that the pensioner gets the right benefits from the two schemes, State and occupational, taken together, without avoidable gaps or duplication. This is the way to ensure that the member does not have to pay too much in contributions and that he gets value for money. Clearly, any adjustments that may be needed to take account of the State retirement pension will apply only when the individual is old enough to receive it. Those who retire on pension before the State pension age will still receive an immediate pension as good as that which they would now receive; necessary adjustments to take account of the State retirement pension will apply only at the State pension age.

This is the background against which we shall be discussing changes with staff representatives. The discussions will cover not only any changes needed to take account of the new State scheme, and whether the public service schemes should make use of the partial contracting-out facility, but also any proposals that staff representatives themselves wish to put forward.

The Armed Forces are in a special position but my right honourable friend the Secretary of State for Defence has asked me to say that the same general approach will be adopted in considering what changes may be necessary in their present arrangements.

My Lords, I have been dealing with those schemes for which the Government have a special responsibility. In setting up occupational pensions schemes the nationalised industries have also exercised a pioneering role. Their schemes may also need to be adjusted in the light of the proposals for the new earnings related State pension scheme. I am, however, confident that, taking the State and occupational pension scheme arrangements as a whole, there will be better provision for future pensioners and their families throughout public sector industry generally, as there will be for public service pensioners.

4.15 p.m.

LORD DRUMALBYN

My Lords, I should like to thank the noble Lord for that very full Statement. I am sure all noble Lords will wish to study it in detail, and also the White Paper that has been laid; because without doing so undoubtedly they will not be able, any more than I am, to understand its full meaning. But may I ask the noble Lord one or two questions?

The accumulation of personal savings represented by the net growth in occupational pension funds in 1968 was reckoned as £810 million. I wonder whether the noble Lord has any estimate that he can make of the effect of the present proposals on occupational pension schemes surpluses. After all, the noble Lord, Lord Stokes, whose speech we have all so much enjoyed, has just been laying emphasis on investment and the amount of our resources that have to be devoted to investment. Of course, the State scheme is going to be a pay-as-you-go scheme and not a scheme which is going to enable a large proportion of investment to be made; so therefore this question is absolutely crucial.

There is one point—I do not know whether it is made clear in the White Paper— which I think may be puzzling your Lordships, as it is me. The Statement talks about an abatement of 1 per cent. of the employee's reckonable earnings. I think that what your Lordships would like to know is what proportion this will represent of the employee's actual pension when it comes to be paid —not just the reckonable earnings, but what proportion of the pension that is to be carried by the occupational pension scheme as a basis of contracting out. Those of us who have had experience of pension schemes and their passage through Parliament will know that the working together of occupational schemes with the State scheme is always the point of greatest difficulty in setting up these schemes, and I think we may find that to be so in this case, too.

The noble Lord spoke of a wide measure of support. I take it he means a wide measure of support for these proposals in the context of the Government's intentions to set up these schemes, and not necessarily a wide measure of support for what is going to happen to occupational schemes as a whole. After all, the original White Paper envisaged that any such arrangements as the Government are proposing are likely to lead to the winding up of a certain number of occupational pension schemes.

May I say one word about the public sector? The public sector accounts for more than half of all employees at present contracted out. It is not clear from what the noble Lord has said to-day whether the expectations of pension in the public sector are going to be affected or not. This particularly applies to those who reach their peak earnings at the end of their service. The noble Lord said that, if they retire before the age of 65, under the new proposals they will get until they reach 65 the full pension that they would otherwise have received. But he seemed to imply that their present pension expectations thereafter—not referring to retrospective payments—will be adversely affected by the present scheme. We should like to know whether that is so or not.

Finally, the noble Lord referred to discussions still to take place. From that I would assume that the Bill cannot be presented for some time. Perhaps the noble Lord will be able to give us some indication of when the Bill is likely to come before Parliament.

LORD SHACKLETON

My Lords, I congratulate the noble Lord. When I sat down I nearly said, "I hope your Lordships understand it." I understand my part of it, but the other part is very com- plicated, and although I have been very involved in it it has taken me a long time to grasp all the factors. Unfortunately, I did not make a note of the noble Lord's points, because I thought he was going to make only one or two; if I miss anything perhaps he will remind me.

First of all, he raised the important question of the effect of funds available for investment. When I say that I cannot give an answer to that question, it is because it is not yet possible to tell what the various schemes will do. This was a very big factor in the mind of the Government, not only in the interests of retaining partnership and keeping good occupational schemes going, but because this is an important source of funds. The figures that the Government have now arrived at have taken this sort of consideration much into account; but it is not really possible to be more precise, although obviously this is a matter of importance.

Then the noble Lord asked me what proportion of pension would result from the abatement figure. Here again, the proportion in the total amount will depend on the earnings and therefore the actual entitlement to pension. If the noble Lord studies the new State pension scheme he will see what I mean. I shall, however, be able to give him a table; and if it is of help to your Lordships I will see whether it is possible to put in the Library some other information if the information that is contained in the White Paper does not cover this matter far enough.

The noble Lord then raised the subject of the discussions. I do not think that these will necessarily hold up the preparation of the Bill itself, which is far advanced. Discussions on the general nature of the scheme and on the level of contracting out—and we have to remember that at least half the population of the country are not in occupational scheme at all—are now complete. The next stages will be consultation between employers and employees on how they propose to adapt the occupational scheme, to mesh it in with the State scheme when this comes into effect. On that point discussions will go ahead. In my area of responsibility in the public service we are ready to proceed. We have a joint committee in existence and some discussions have already taken place; but it has not been possible to make them really meaningful until the level of abatement was fixed.

I believe the noble Lord asked me one more question, about the level of pension for those who have to retire early by the nature of their job. I do not think I can add anything to the carefully chosen words that I have already given; but it is meant to be an absolutely firm assurance that those who have to retire early by nature of their particular jobs —and the list I gave was not exclusive, but those are the ones with regard to whom concern has already been expressed—will still get a retirement pension at that age as good as they would expect to get now.

LORD ILFORD

My Lords, I have not yet had an opportunity to see the White Paper or the other document to which the noble Lord referred. May I ask the noble Lord whether he is able to give an assurance that the quite comprehensive arrangements under which local government officers at present retire will not be modified to their disadvantage?

LORD SHACKLETON

My Lords, that is quite an appropriate question, because it is in the area of local government that the greatest concern has been expressed, by NALGO in particular, and I must frankly say that I find it most difficult, after the explanations that have been given by my right honourable friend, to see why they are so concerned. It is clear that if one is introducing a new and revolutionary pension scheme which will apply to all the community, modification in occupational schemes to take account of the new scheme must take place. But, of course, considerable additional benefits will flow to the occupational scheme employee. There will be a much better prospect for him, in regard to both frozen pensions and the transferability of pensions. There is a whole area which will be the subject of negotiation, and I should be most surprised, taking into account the responsibility and the power of the unions and the attitude of the employees, if the ultimate outcome is not most satisfactory. But obviously there must be a certain disturbance of existing arrangements.

Being, as I am, one of the great unpensioned, I find myself heavily engaged in ensuring that those for whom I am responsible really have a good deal, and I am quite confident, and should not be embarking on this scheme if I were not well satisfied as to what we are likely to achieve with the Civil Service; and this will, I think, tend to set the pace across the field of the public services. I do not myself have direct responsibility over the local government field—that is for the local authorities; and my right honourable friend the Minister of Housing and Local Government is responsible at second hand. In the last resort my Department plays a co-ordinating role. Anything that the noble Lord can do in the light of that assurance to put people's anxieties at rest will be helpful, because it would be a great pity if, in this suspicious age, there should be some feeling that people were going to be "done down".

LORD LEATHERLAND

My Lords, may I put one or two questions to my noble friend? If he cannot answer them now, I shall be quite content if he says that he will look into them. The first question follows on what the noble Lord, Lord Ilford, has mentioned and concerns local government employees. These local government employees now retire at so many fortieths of the salary they have been drawing for the last three years of their service. Is that kind of employee likely to be better off, or worse off, under the new Government scheme? The second point concerns equal pay for women which we are going to see in operation in six years' time. Will the fact that in 1975 women are to get equal pay in any way throw the actuarial calculations off their balance? The third point is—

LORD SHACKLETON

My Lords, may I deal with those two questions while I remember them? On the first point, which concerned the terms for local government employees, I would say that these are matters which employers and trade unions and the staff side will want to discuss. There are various alternative ways of calculating pension entitlement. This is not a completely open and shut matter. The Government have set out the framework and this is a matter which they will have to discuss with those concerned. But I must say that the object of the exercise is that the pension arrangements in all sections shall in no way be worsened. There may be changes. There may be changes which are most desirable for the public sector or for any other occupational scheme members. There may be a choice of interest—the type of provision for widows. It is unlikely that any lump sum arrangement will be changed, because under the State scheme there is no provision for a lump sum. As for the position of women generally, I can assure the noble Lord that actuarily they have been taken fully into account; and under the State scheme their retirement age still remains at 60.

LORD LEATHERLAND

My Lords, may I then ask my noble friend about the firemen, policemen, et cetera? He told us that when they retire at, say, 55 they will be guaranteed a pension at least as good as that which they get now. Will they draw that pension when they are 55, or will they have to wait until they are 65 before they actually put it in their pocket?

LORD SHACKLETON

My Lords, no: they will be able to draw it. That is the essence of its being as good as they would get at present. Many of them may not retire completely, in the sense that they may go on working. The fact is that they will draw their pension.

LORD LEATHERLAND

My Lords, my next question is with regard to the universities' federated superannuation scheme. Is that likely to be affected in any serious way? Finally, can my noble friend tell us about the investment aspect of this scheme, which I think has already been mentioned? At present, pension schemes, particularly those in local government, invest a considerable proportion of their accumulated funds in industrial equities. Will this Government fund be restricted to investments in gilt-edged? If so, the flow of money into industrial investment will be quite seriously affected.

LORD SHACKLETON

My Lords, I think my noble friend is beginning to take a little advantage of the freedom of this House, and I ask him to wait until he has had a chance of reading the White Paper. I have already dealt with the investment side, and I do not want to get drawn into the kind of investment which may be done by the State. Indeed, I should have to wait for my noble friend Lord Mitchison to participate on that. I am not sure what was the other point that my noble friend raised.

LORD LEATHERLAND

My Lords, I asked about the federated superannuation scheme.

LORD SHACKLETON

My Lords, I think I will leave that until another day. I must stress that the essence of the arrangement is that it is not for the Government to lay down; it is a matter for discussion and negotiation between employers and employees, and I am sure that all wise employers will see that there is full consultation. Inevitably, however, when the State scheme comes into payment, at the age of 60 for women and 65 for men, it will be necessary to provide some form of assimilation. Otherwise, there could be over-provision and the employee would be paying more for his pension during his working life than he would want to do. So there will need to be careful discussion. I agree that it is going to involve a lot of work for people.

LORD DRUMALBYN

My Lords, may I trespass on the time of your Lordships just to ask two questions to put the matter into perspective? The importance of occupational pension schemes is tremendous, and while the noble Lord is quite right in saying that half the population are not covered, I would ask him whether he is aware that only one third of the male employees are not covered by occupational pension schemes? Incidentally, may I say that I hope that he will at least get his national insurance pension? He is a pensioner himself to that extent.

To sum up, so far as contributions are concerned, am I right in understanding that the contribution of those who are contracted out will be abated from 6.5 to 5.2 per cent. each side? And am I right in thinking that that applies only to earnings up to one and a half times the average national earnings, and that the employers will have to pay the full 6½ per cent. on all that is earned over that national average?

LORD SHACKLETON

My Lords, I was referring at that moment to my position in relation to occupational pension schemes, and I should point out that Ministers are not even entitled to take part in the graduated pension scheme—we are a very hard-done-by lot. As to what the noble Lord has said with regard to the contribution rate, if he has worked it out I have such respect for his acumen and accuracy that I should be very surprised if he was not right. I should be unwise, even with him, to confirm precisely the figures, but I shall examine urgently what he has said and make sure. I tried to write it down. I think he probably is right, but I really must look at the figures. I am sorry that I can say no more at the moment.