§ 3.49 p.m.
§ LORD WELLS-PESTELL
My Lords, with the permission of your Lordships, I should like to repeat a Statement which my right honourable friend the Secretary of State for Social Services is making in another place on the future of the Social Security Act 1973. The Statement is as follows:
"The Social Security Act is due to come into force on April 6, 1975. But as the House knows there are many features of our predecessors' long term pension scheme embodied in this Act which we find unacceptable; in particular the provision it makes for the so-called 'second pension' is wholly inadequate. If the Act goes forward in its present form millions of pensioners will have to supplement their pensions by means-tested assistance well into the 21st century. Moreover, women in general and widows in particular will be left without adequate pension coverage.
"At the same time I recognise that considerable preparations have already been made—by employers, trade unions and those concerned with running occupational pension schemes—on the basis that the Act would be coming into force next April.
"This situation has caused the Government some difficulty. We have had two choices. On the one hand we could allow the Act to come into force next April in its present form, pending the introduction of our own long-term pension proposals on which I have promised a White Paper as soon as possible, and on which we would hope to legislate in the next Session of Parliament. This would mean that people would be paying contributions to the Reserve Scheme for very limited pension entitlements until the scheme was replaced by our own, after no more than two or three years. Moreover, 391 the Government would seem to be accepting a scheme which has been widely condemned by the trade unions and in this House which would not provide adequately for the pension needs of women. Alternatively, we could arrange to bring into operation only those parts of the 1973 Act provisions which would not militate against our own long term proposals.
"After fullest consideration the Government have decided that the second course is the right one. Accordingly, we propose to allow the basic pension provisions of the Act to come into force on April 6, 1975, as planned, including the change to a fully earnings related contribution system, and the winding up of the graduated pension scheme, but not those provisions in it which relate to the Reserve Pension Scheme and the arrangements for exemption from it. The long-term proposals which the Government will put before Parliament will include the repeal of these latter provisions. But the provisions of the Act relating to preservation of occupation pension rights will come into force as planned. I shall shortly be making an order under the Act giving effect to the Government's decision.
"I realise that this decision will affect those concerned with occupational pension schemes who have been overhauling their schemes in order to bring them into line with the recognition criteria. But the setting up of any good new occupational pension scheme or the improvement of an existing one represents a move in the right direction. And by making a clean break we shall avoid an uneasy interim period during which schemes would have had to adapt to one set of requirements at the very time when new requirements were being worked out.
"I want to make it plain that we are in favour of, and wish to encourage the development of, good occupational pension schemes which are highly valued by the people in them. It is not our purpose to place any obstacles in the path of such schemes.
"I realise also that, for the interim period before the Government's long-term pension proposals take effect, those who are not members of occupational pension schemes will lose the 392 benefits that would have accrued from the reserve pension scheme. But those benefits would have been very small indeed for most people. So in general the loss of two or three years of such rights will soon be overtaken by the more generous long-term provisions we shall propose, and the scheme will have a quicker build-up, which, of course will help those approaching retirement age when it starts. Moreover, there is the big improvement we are making already in the basic pension, so that overall both pensioners and prospective pensioners—men and women—can be sure that they will get a better deal from this Government.
"Pending the introduction of our full scheme, the House will want to know how I envisage that the higher basic pension of £10 and £16, as adjusted by annual upratings related to earnings and not just prices, will be financed from April, 1975. As I have previously told the House, we shall at that point move to fully earnings related contributions and the fiat rate contributions will cease as provided in the 1973 Act, but legislation will be necessary this Session to adjust the new contribution rates. Under the National Insurance Bill now before Parliament, the uprating for the current year will necessitate an increase in the standard percentage under the graduated scheme to 5½ per cent. from this August, and in legislating for the situation after April, 1975, we would propose to keep the percentage contribution for employees at the same level. It is not possible at this stage to say what precisely the employer's contribution will be after that date, but we estimate it will be about 8¾ per cent. The Exchequer contribution will remain at 18 per cent. The net effect of all this will be that the vast majority of employees will have no further contribution increase, to finance the current uprating, in April, 1975. The House will also remember that those who were compelled to become members of the Reserve Scheme, and their employers, would have been paying contributions of 1½ per cent. and 2½ per cent., respectively, in addition to their basic scheme contributions, from next April. These additional contributions will not now be imposed.
393 "I shall be bringing full details of the contributions payable from April, 1975, before the House in due course."
That concludes the Statement made by my right honourable friend in another place.
§ 3.58 p.m.
§ LORD ABERDARE
My Lords, I am grateful to the noble Lord for repeating that long Statement but I cannot say that I am grateful to him for its contents. It seems to me to be a disastrous Statement and will cause the utmost confusion to all those who are concerned with occupational pension schemes. The 1973 Social Security Act was based on a balance and on the use of a Government scheme coupled with a very large place for occupational pension schemes, and I am quite sure in my mind that, faced with the two choices which the noble Lord has told us the Government have, the right thing to do would be to choose the first alternative, namely, to allow to come into force next April the Act as it had been passed through both Houses of Parliament, pending any changes that the Government White Paper might have proposed.
My Lords, this is a minority Government, and who knows whether they will still be in power to carry through any proposals in their White Paper. There is plenty of time available; there is no need for rush decisions in this matter. The Act could have been left to develop as proposed and, in the meantime, the White Paper could have been produced, followed, if necessary—or if this Government were still in power—by legislation. That, in my view, would have been the right way to tackle this matter. In the meantime, a severe blow will have been dealt to occupational pension schemes. It is no good keeping chopping and changing in this matter. Immense efforts have been made by a large number of people, none more so than those by the noble Lord, Lord Byers, to encourage occupational pension schemes. All that good will will be lost, and it will be very difficult indeed to recreate it in future. I do not think it is any good for the Government to say that they are in favour of good occupational schemes, and then to treat them in this fashion. I sincerely hope that those who are working on occupational pension schemes will continue, despite the difficulty that now 394 faces them. I believe that these proposals will cause the maximum amount of chaos and confusion and will, as the noble Lord has told us, deprive those people who are not members of occupational schemes of a reserve scheme benefit. He says that this benefit is very small, but even a small one is a valuable addition to a pension, and who knows whether it will ever be made good to them.
My Lords, this is a very complicated matter. The Bill was very complicated, and we need to study carefully the effect of the emasculation of half the Bill. I would ask the noble Lord just two questions: first of all, what is the future of the occupational pensions board itself? Secondly, the Statement states that it is hoped to legislate next Session. In that case on what date do the Government expect to introduce their own pension scheme?
§ 4.2 p.m.
§ LORD BYERS
My Lords, noble Lords will probably know my significance in this matter, as chairman of the Company Pensions Information Centre. This Statement will of course require a good deal of time to study, and I think it will also require a great deal of clarification. At first sight I can only agree with the noble Lord, Lord Aberdare, in expressing my regret that the Government have decided at this stage on the course that they are going to adopt, particularly the decision to remove the incentive for an employer to provide a good second pension for his workmen. This is particularly regrettable when both employers and trade unions are in the course of discussing occupational pension schemes often far better than the minimum standards required for recognition up to now. The removal of the target date of April, 1975, may well slow down the whole process of providing much needed better occupational schemes for millions of people.
I am particularly distressed because it was the intention—and I hope it will still be the intention—of many companies to bring their manual workers into occupation schemes on a parity with staff. This would have been a tremendous step forward. I only hone that many of us engaged in this field will continue to press for this step forward because it is a social reform which is long overdue. Does not the Minister agree that by 395 abolishing the time scale and the requirement to meet minimum recognition standards, millions of workers may well receive lower retirement incomes than they would have done if the Act be preserved? I can only agree with the noble Lord, Lord Aberdare, that the intentions of the Government for the future do not appear to be clear enough. May I therefore ask once again for the assurance that those people who understand the technicalities of these things—and I do not rate myself as one—should be fully consulted before the Government embark upon a new scheme?
§ 4.4 p.m.
§ LORD WELLS-PESTELL
My Lords, I am obliged to both noble Lords for their comments. If they will allow me to say so—and I do not say this with any degree of impertinence—I think they are unduly pessimistic in their reaction to the Government's plans. All this Government wish to do is to provide the best possible pensions for people on retirement. The noble Lord, Lord Aberdare, asked me whether this would not cause some confusion and uncertainty in the occupational pensions world. In reply, I would say that I think it will bring to an end the period of uncertainty which followed the change of Government. Secondly, it will avoid an unnecessary interim period from now until our own proposals take effect, a period during which occupational schemes would have been adapting to an already obsolescent set of standards. Thirdly, it will avoid the bottle-neck which was plainly going to arise just before April, 1975. Only a handful of applications for recognition has so far been received by the Occupational Pensions Board. Fourthly, much of the effort which has been expended in improving schemes and setting up new ones will not have been wasted because there is no reason why these new and improved schemes should not come into being just as soon as they are ready.
I was asked about the Occupational Pensions Board. First I should like, on behalf of the Government, to pay tribute to the work already done by the very able chairman and members of the Board and the supporting staff. So far as they have concentrated on the details of the conditions of recognition, we acknowledge that their efforts have been largely 396 abortive, but we envisage a continuing role for the Board. They will be responsible for supervising the preservation requirements which affect all occupational schemes and for helping schemes to modify their rules. There are also the advisory functions in the Act, so one imagines that they are not going to be exactly idle during the interim period.
With regard to occupational pensions as a form of deferred pay, it is our view that there should be a place for good occupational schemes in any pension strategy. As I have pointed out to your Lordships, the Government give encouragement to occupational schemes. That is how we are approaching our long-term proposals. For actual details—and I realise that to some extent this must be unsatisfactory to some of your Lordships—I think we have to wait for the White Paper, which I hope will be available some time this summer, when we can then discuss the matter.
§ LORD SLATER
My Lords, may I say that the observations that were made in the first instance by the noble Lord, Lord Aberdare, took one back to a position in the other place in 1950, when it was the purpose and intention of His Majesty's Government at that time to nationalise the steel industry. The appeal on that occasion by Mr. Eden, as he was then, was to suspend that for a period of six months. The noble Lord, Lord Aberdare, to-day is requesting Her Majesty's Government to hold this over for a period of time as we are more or less a minority Government. But we are in power and Her Majesty's Government—
§ LORD SHEPHERD
My Lords, I wonder whether my noble friend will forgive me. I think it is understood, when we have a Statement, that noble Lords are entitled to state a view, basically to the Government, on the Statement with the intention of asking a question. I suspect that my noble friend was trying to support Her Majesty's Government against the strictures of the noble Lord, Lord Aberdare. I should not have thought that that was the right use of the period after Statements have been made. If my noble friend wishes to put a question, I hope he will do so. I hope he will take my words in the spirit in which I put them: that we ought to try to keep the period after a Statement for the purpose 397 of elucidating information from the Government rather than expressing rather strong views.
§ LORD SLATER
I sincerely hope that my noble friend the Leader of the House will restrain himself for a moment until I complete what I was going to say. The first question I should like to direct to the Government is this: how many occupational schemes are there in existence in this country? After all, Her Majesty's Government are one of the largest employers in the country and we have all these people in superannuation schemes. For example, there are those who are serving in the nursing profession, and particularly in the mental section, who are expected to retire at the age of 55, yet they can make their application for an extended period of two years. The same principle applies in the Post Office, where people in that service are expected to retire on reaching the age of 60 but can still make their application for an extended period of two years over that age and go on to the age of 62. It would be very interesting to hear from my noble friend, if he is in a position to give us the information, how this will operate, how it operates now, and the number of occupational schemes that are outside those covering people engaged in Her Majesty's Government's service?
§ LORD WELLS-PESTELL
My Lords, in reply to my noble friend, I believe there are something like 65,000 schemes—the noble Lord, Lord Byers, shakes his head, and I am very grateful to him for his help.
§ LORD WELLS-PESTELL
I was just going to say that those schemes involve about 11 million people. The only other comment I want to make is that we do not take exception to the criticism made by the noble Lord, Lord Aberdare, or the comments made by the noble Lord, Lord Byers. This Government have their own conception as to what a pension scheme should be. We are obviously anxious to have comments, criticisms and observations. I think the time to make such comments, criticisms and observations will be when we have the White 398 Paper, which I hope will be before your Lordships in the not too distant future.