HL Deb 06 August 1975 vol 363 cc1759-66

[Nos. 3, 4 and 5.]

Clause 35, page 27, line 25, at end insert—

("or

(c) such fixed compound rate for each relevant year after that year as may be in force at the time when contracted-out service is terminated and which is, in the opinion of the Government actuary,—

  1. (i) equal in value to an increase of 5 per cent. plus the further increase secured by the premium calculated in accordance with section 43; and
  2. (ii) consistent with other assumptions made as to increases in earnings.")

The Commons disagree to this Amendment but propose the following Amendments in lieu— Page 36, line 26, after ("unless") insert ("either— (a)") >Page 36, line 28, after ("above") insert ("or

(b) those provisions conform with such additional requirements as may be prescribed").

Lord WELLS-PESTELL

My Lords, I beg to move that this House doth not insist on their Amendment No. 3 to which the Commons have disagreed, and agree with the Commons Amendments Nos. 4 and 5 in lieu thereof. When the Bill left your Lordships' House after the Third Reading, it had been amended by the inclusion of an Amendment moved by the noble Lord, Lord Byers, the essence of which was that an employer would be able to re-value the guaranteed minimum pension of an early leaver by, if I remember correctly, a set percentage in the region of 8 per cent. and without need to pay a premium. As I indicated at the time, this was not a proposition which the Government felt able to support, for reasons partly of complexity but largely of cost.

Since then, as I think the noble Lords, Lord Byers and Lord Aberdare, know, further meetings have been held with the pensions interests at which the whole matter was discussed at length. Let me be quite frank in saying that the Government have been unable to abandon their view of the difficulties presented by the Amendment put forward by the noble Lord, Lord Byers. Indeed, the Government are not convinced of the necessity for an additional provision. Nevertheless, they recognise the continuing unease among those concerned with occupational pension schemes, and I hope the noble Lord, Lord Byers, will feel that we are going some way along the right road as regards the effects of the provision made for the pensions of early leavers on the volume of contracting out. For this reason the Government are prepared to continue discussions with the pensions interests. I am sure that I am not telling the noble Lord, Lord Byers, something that he does not know; I think he does know that the Government are prepared to continue these discussions. An Amendment was put forward in another place by Mr. Paul Dean, as a substitute for the Amendment introduced by the noble Lord, Lord Byers, which would enable the discussions to continue. It would also provide a means for making any change if the Government were persuaded that a change was necessary. This Amendment was supported by the Government in another place and appears now as the Amendments in lieu.

The Amendments in lieu which are now proposed should, I hope, find at least one supporter in your Lordships' House, for they are for practical purposes indistinguishable from the proposition which stood in the name of the noble Lord, Lord Aberdare—and I hope to goodness he is going to come to my rescue tonight—when we were last dealing with the Bill, but in the event it was not moved. I should like to think that it is now possible for all noble Lords to give their support to the Amendments in lieu. I hope they are going to meet with the approval of the noble Lord, Lord Aberdare, and that I can persuade the noble Lord, Lord Byers, that it is the right thing to do.

What the Amendments in lieu do is to leave the way open for further discussion. The Government can give no commitment—again I must be honest about this—that the power will be used or will be used in any particular way. If discussion did persuade the Government that further measures were necessary, I must make it clear that they would feel bound to hold the balance of fairness as between those contracted-out and those fully in the State scheme, and in so doing to avoid adding to the burdens of the National Insurance Fund.

I think the noble Lords, Lord Byers and Lord Aberdare, know that the Government, and particularly my noble friend the Minister of State for Social Security, have gone out of their way not only to listen to the occupational pensions interests but to try to meet them. They are prepared to continue the discussions, and are prepared to be convinced on this matter. But, as I say, there is in the background this one matter, that they feel bound to hold the balance of fairness as between those contracted-out and those fully in the State scheme. I am hoping that on this basis I can commend to your Lordships, and that you will accept, the Amendments in lieu. I beg to move.

Moved, That the House doth not insist on their Amendment No. 3, to which the Commons have disagreed, and agree with the Commons in their Amendments Nos. 4 and 5 in lieu thereof.—(Lord Wells-Pestell.)

7.44 p.m.

Lord BYERS

My Lords, when the noble Lord, Lord Wells-Pestell, refers to continual unease, I hope he will subject this continual unease to a tapering-off process, which we have been discussing under the first Amendment. Naturally I am disappointed that the Government have rejected the Amendment made by this House to deal with this problem of early leavers. But I am glad that something has been salvaged from the wreck, in that the Bill now allows the Secretary of State to deal with this problem, if he considers it right to do so, by way of prescription or regulation. I believe that in the end something along the lines we proposed may have to be adopted if employers are to be encouraged to contract out.

I should like to comment briefly on the arguments against the Amendment which were put forward by the Government in another place, some of which were repeated by the noble Lord tonight. The background to this is that where a person leaves a contracted-out scheme before retirement the employer has to ensure that the pension he has earned to that date is revalued up to the time of his retirement. I am in favour of that. That is not in dispute. What is in dispute is not the principle but the method of paying for the revaluation. Under the Bill the employer can take on a completely open-ended liability to revalue according to changes in national average earnings. That is one option. As the second option, he can take on a complex alternative of revaluing at 5 per cent. a year so long as he pays a premium in addition to that to the State at the date of the man leaving his job. Those are the two options. This could be very onerous, very embarrassing, when major or minor redundancies occur in small firms. I proposed this third alternative, which would enable an employer to provide for the required revaluation within the employer's pension fund instead of having to pay this premium to the State. This would cost no more and no less. That is why I do not understand this business of its putting a cost on the State. It enables the employer to make continuing provision to meet his liabilities instead of having to meet an immediate demand for cash to be paid to the State at a given date.

The Government's objections are threefold. They say, as the noble Lord said, that the Amendment is complex. It is no more complex, probably less so, than the present provision in the Bill. It would require that the contracted-out pension should be revalued at a rate determined by the Government Actuary, which is in practice equivalent to the premium which the Actuary would have to calculate in any event. So I cannot see that it is any more or any less complex. It was said, secondly, that it introduces uncertainty. The answer to this, surely, is similar to the first answer. Some fixed rate has to be assumed in order to calculate the premium. That is the starting point. That is what the Government Actuary has to do. The same fixed rate would be used in the alternative I have proposed. Of course, the rate would change from time to time, but only for those leaving service thereafter; and in any event the premium in the Bill will have to be recalculated, and there is no more or no less uncertainty.

Then I come to this point, which I still do not understand. We are told a potential cost is involved to the National Insurance Fund. That has never been demonstrated. It has never been proved. It has only been asserted. The Government just say it will cost money to the National Insurance Fund. I do not understand that, because this new State scheme is not a funded scheme; it works on a pay-as-you-go basis. The ability of the State to pay benefits does not depend upon the amount of interest earned on the contributions that are paid in at the earlier stage. It is quite a different system. It is not an occupational scheme.

If the Government are now saying that to finance part of their scheme they need to earn interest on these premiums, then this is a new assumption, and nowhere has that assumption been spelled out in all these long discussions we have had. I cannot see how a cost to the National Insurance Fund arises, because my alternative removes from the State the liability for revaluation and houses it within the employer's scheme. Furthermore, the suggestion of a premium was made at a relatively late stage in the Bill. It was not included in the White Paper when the scheme was first published. Consequently, any income from premiums or interest on premiums cannot be fundamental to the financing of the new State scheme, because it was not envisaged in the White Paper; it was put in only as a result of a suggestion of some section of the pensions industry. I ask myself, is it that the Government have seen a fortuitous source of profit that they are now unwilling to relinquish? Have they suddenly seen that they can get a premium paid into the State scheme, and by golly! they are not going to let go of that? In fact it may well be that this is the deterrent which makes it more difficult for an employer to decide to contract out.

Not one of these three arguments seem to me to bear investigation. For this reason, I thought it right to place these comments on the record, because I find the Government's arguments quite unconvincing, and so, I think, do all the organisations in the pensions industry. They have supported the Amendment in letters to the Press and in other ways. This House supported the Amendment, and the other place rejected it. It has been described in different parts of the Press as an important Amendment. I believe that if contracting out is to be made attractive something like it will eventually have to be introduced, and therefore I welcome the fact that at least out of this we have got the Amendments in lieu, and I particularly welcome the statement of Lord Wells-Pestell that the Government will continue to discuss this matter with the pensions industry. I do not think we have solved this yet, but I felt it right to put on record what I believe to be the proper answer to the Government's contentions.

7.51 p.m.

Lord ABERDARE

My Lords, as the noble Lord, Lord Wells-Pestell, rightly foresaw, I can do nothing but welcome this Amendment, which reproduces in almost the exact form the Amendment I had down at Third Reading. This is only natural as the mover of the Amendment in another place, Mr. Paul Dean, was a valued colleague of mine at the Department of Health and Social Security. Like the noble Lord, Lord Byers, I think that his Amendment had a great deal of merit in it, and I am sorry that it has not been adopted rather than this fallback Amendment, which I only put down and did not move at Third Reading because I thought that the noble Lord's Amendment was preferable.

However, this at least has the great merit of keeping the door open for further consideration and is therefore very valuable even at this late stage. It has a drawback for those on this side of the House who are usually unanxious to give the Secretary of State more powers to make regulations, and we should not normally have considered that this was the right way to do it. But, in the event, at the very late hour of this Bill's existence before becoming an Act, it has the merits of giving the Secretary of State flexibility and keeping the options open.

We have throughout sought to find agreement with the Government to establish a balanced partnership between Government pension schemes and the occupational pensions field, and I should like to congratulate the noble Lord, Lord Wells-Pestell, and his right honourable friend on their willingness to continue to receive representations from those who are interested in the occupational pensions schemes, which have been very helpful. May I also with due respect congratulate the noble Lord, Lord Byers, on his immense persistence, which in the end has been so valuable in helping the occupational pensions industry to put their points over to the Government. I hope that the further discussions which will take place may arrive at a mutually satisfactory result both to the Government and to those whose only interest and anxiety is to establish a successful private sector in occupational pensions. For obvious economic reasons we should be doing all that we can to encourage personal savings, and this is best done through occupational pension schemes. Therefore, I am content to accept the noble Lord's proposition.

Lord WELLS-PESTELL

My Lords, I am grateful to the noble Lords, Lord Byers and Lord Aberdare, for their comments and observations. Let me say, because I can say this quite truthfully, that I know that my right honourable friend the Minister of State has a great respect for the knowledge which the noble Lords, Lord Byers, Lord Banks, and Lord Aberdare, bring to this field. We are not unmindful that we are dealing with experts in this field, and we recognise this because it happens to be true. In the last analysis we are only concerned with having the best possible scheme, and this also is the goal of the noble Lord, Lord Byers, and the other two noble Lords.

It may well be that along the road we are going to differ at various points, but the door is still open. Discussions can continue. I do not think that there is anybody who is more receptive to ideas than my right honourable friend the Minister of State for Social Security. I could say to the noble Lord, Lord Byers—but it probably is not a great deal of help—that this subject is so complex that I do not think that I can deal with it adequately myself, and it is no good pretending that I can. I can take advice from my right honourable friend the Minister of State and write to the noble Lord, Lord Byers, and this I am happy to do. He may feel that he would like to make his own overtures, and this I would accept. But if the noble Lord wants me to raise this with my right honourable friend the Minister of State, I shall do so. He knows that the door is open. He knows that my right honourable friend the Minister of State is always accessible.

Lord BYERS

My Lords, I appreciate that very much.

Lord WELLS-PESTELL

Perhaps he would prefer me to leave it there, and for him to make his own overtures. This applies also to the noble Lord, Lord Aberdare, as he knows only too well. I do not think that I can usefully say anything more, and I hope at this stage noble Lords will feel able to accept the Commons' view on this matter.

7.56 p.m.