HL Deb 23 July 1975 vol 363 cc406-21

6.53 p.m.


My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Social Security Pensions Bill has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament, for the purposes of the Bill.


My Lords, I beg to move that this Bill be now read a third time.

Moved, That the Bill be now read 3a.—(Lord Wells-Pestell.)

On Question, Bill read 3a, with the Amendments.

Clause 34 [Annual rate of earner's pension]:

Lord WELLS-PESTELL move Amendment No. 1:

Page 25, line 10, at end insert—

("(3A) The earner's pension need not be in accordance with subsection (2) above in case of his service in the relevant employment being terminated before he attains the scheme's normal pension age and when—

  1. (a) he has completed in that employment less than five years' qualifying service for the purposes of Schedule 16 to the Social Security Act 1973 (preservation); or
  2. (b) he is under the age of 26 on termination of that employment")

The noble Lord said: My Lords, this is an Amendment to make it clear that, apart from the guaranteed minimum pension, a pension under this Bill need be preserved only if there is an entitlement to short service benefits under the preservation arrangements in the 1973 Act. A guaranteed minimum pension would still have to be preserved unless it had been extinguished by payment of a State premium. This is, in a sense, a technical Amendment. I beg to move.

On Question, Amendment agreed to.

Clause 35 [Earner's guaranteed minimum]:

6.55 p.m.

Lord BYERS moved Amendment No.

Page 28, line 3, at end insert—


(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 44; and
  2. (ii)consistent with other assumptions made as to increases in earnings.").

The noble Lord said: My Lords, I must say at the outset that I am extremely disappointed at the Government's refusal to close completely the open-ended commitment on early leavers by substituting a straight 8 per cent. revaluation for the 5 per cent., plus a premium. I believe that this is likely to constitute the biggest single stumbling block to contracting out. Even at this stage I had hoped that the Government might change their minds, but I assume that they are not going to do so. Therefore, I have tabled this Amendment as an alternative.

This Amendment seeks to give employers an extra option in respect of their early leavers. This option would allow them to revalue the contracted-out pension of early leavers at whatever fixed rate applies when a person leaves their service. In return for the scheme undertaking this liability they would be exempted from paying a premium. I do not put this forward as anything better than the straight 8 per cent. proposal because I think that is what employers and industry still wish to have, but I think it is better than leaving the Bill unamended.

I have put forward this Amendment after very careful study of the points made on this issue by the noble Lord, Lord Wells-Pestell, on previous stages of the Bill, and I hope and believe that I have met most, if not all, of the objections which he put forward. First, he objected that a fixed rate of 8 per cent. would impose a cost on the State scheme where increases in earnings actually exceeded 8 per cent. But the premium payable to the State must assume a certain rate of increase in earnings, and all this Amendment is seeking to achieve is the same cost but charged in a different way. I am saying that the rate of increase assumed for calculating the premium should also be assumed for the purpose of deciding what fixed rate of increase the scheme should have to undertake. If my Amendment is accepted the size of the burden will be the same, but it is a burden that will be preserved in the scheme instead of being brought back into the State scheme.

The second objection raised by the noble Lord, Lord Wells-Pestell, was that a fixed rate might result in schemes with low turnover subsidising schemes with high turnover. This is not so with my Amendment: each scheme will bear its fair share of the burden, and indeed each member of the scheme will give rise to, an identifiable burden. I think this Amendment bears out a point made in another place by Mr. Kenneth Clarke. I do not think anyone is trying to avoid paying the proper price for early leavers, but what is needed is some fixed assessment of that price, as Mr. Clarke made clear in the other place.

I hope therefore that this Amendment will receive a sympathetic hearing. In saying that I speak as one who wishes to see as many people as possible in good occupational schemes. I speak as one who believes that the open-ended commitment still remaining in the Bill is the biggest single obstacle to contracting out, and it may well deter employers from doing so. It is the employer who has to make the contracting in or out decision; it is a decision which today has to be made against an unstable and inflationary economic background, and I believe we ought to do what we can to make it that much easier to make a decision to contract out. I beg to move.

6.59 p.m.


My Lords, I wish to support what has been said by the noble Lord, Lord Byers, and to urge the Government with all the force at my command to accept this Amendment. The Government have said from the beginning that they want partnership with the occupational pension schemes and, indeed, I am sure they would be the first to acknowledge that this is of vital importance when one simply thinks of the fact that a third of the total savings of this country come from funded pension schemes, and when one realises the tremendous need at this moment for investment. As the noble Lord, Lord Byers, has said, it is vital to give employers, and those who counsel them on their pension arrangements, confidence in the Government's proposals in this Bill. They are not at the moment confident and—to repeat what I said at the Committee stage of this Bill—they are gloomy. The noble Lord questioned whether I was right; I have checked again and they are gloomy. That is not too strong a word, and I am speaking of the people with whom I have been in contact, the National Association of Pension Funds, the CIB, the Society of Pension Consultants, the Life Offices Association and the Association of Consulting Actuaries. As the noble Lord has said, the one reason for this gloom is the concept of the limited revaluation premium in Clause 45, which will make it extremely difficult to recommend employers to contract out of the State scheme.

Throughout the stages of this Bill, we have spoken about the open-ended commitment. If a premium is to be paid to the State at some future unknown date every time someone leaves his employer before pensionable age, and if the basis on which that premium is calculated can be changed, then there is an open-ended commitment on a pension scheme, and a situation could arise which might even bankrupt an employer. I know that the noble Lord opposite has done his best, and that the Government have done their best, to try to lessen that threat by various means—by inserting a period of notice, and by ensuring that the actuarial tables do not assume a negative yield on investments. But the fact is that the open-ended commitment still remains. I am afraid there will still be many employers who are suspicious that future Governments will change the terms adversely against them. Already they have seen what has happened with the Boyd-Carpenter scheme, as I mentioned at Committee stage, where those who were not contracted out will now receive, as a result of this Bill, preferential treatment compared with those 5 million people who were contracted out. There is still a feeling of intense resentment at the action of the Government, and it has raised further doubts about the wisdom of contracting out.

But there is another grave objection to this proposal of a premium, and I would ask the noble Lord to consider this very carefully. The objection is that the usual form of pension scheme is not designed to pay out capital sums at odd intervals. As the noble Lord knows very well, a normal pension scheme is built up on the basis of State contributions so invested as to produce a requisite pension at the appropriate time on reaching retirement age. It is a through-flow of contributions coming in at one end, remaining in the scheme, and then flowing out at the other end as pensions. In that plan, there is no place for a sudden demand for capital in the middle of the cycle.

My Lords, in effect, what it would mean is that the whole scheme would have to be reconsidered. Investment plans would have to be changed in order to take care of this contingency. In factual terms, I should have thought it would mean that more money would have to be kept on short-term call to provide for this contingency, in order to pay out capital sums every time an early leaver went and a premium had to be paid. This would necessarily mean a lesser income for the fund as a whole and higher administrative expenses. In other words, this form of provision to secure the right of those who leave would result in a worsening of the situation for those who stay with the scheme. You would have to make special provision for capital sums to be paid out at any time, and therefore the scheme as a whole is less able to earn money on a long-term basis. Those who stay with the scheme suffer at the expense of the early leaver.

It is for these reasons that I so much hope that the noble Lord will accept this Amendment. The Amendment avoids the need for a premium payment and provides for the pension to be revalued fairly. Only recently, those in the pension field have had a further shock, because it is said that improved pensions will count against the £6 a week wage increase under the anti-inflationary proposals. This would be tragic at a time when employers are being urged to contract out, and to improve their schemes. It seems quite farcical to discourage improved pensions at this time, because they are essential savings out of current income and are exactly what is needed to reduce inflation. I very much fear that this Bill will fail in its efforts at a partnership with occupational schemes, unless this Amendment or something like it is accepted. I urge the noble Lord to have the foresight and wisdom to accept this Amendment, and thereby at least allow another place one more chance to look at this matter.

7.5 p.m.


My Lords, I find the noble Lords, Lord Byers and Lord Aberdare, very persuasive, but let me say right at the beginning this is a matter upon which unfortunately—and I say "unfortunately" advisedly—the Government cannot meet the requirements of this Amendment. One has to recognise that, rightly or wrongly, this is a sticking point. There is abundant evidence that the Government have gone as far as is humanly possible to meet the number of criticisms which noble Lords have made from their own knowledge and experience—and I do not think anybody would dispute that for a moment. But on this particular matter we just cannot meet the terms of the Amendment. My right honourable rabic friend the Minister of State considered this personally until a late hour last night. As the noble Lords, Lord Byers and Lord Aberdare, know, since the very beginning of the proceedings on this Bill the Minister of State has gone out of his way, quite rightly, to do what he could to meet the wishes of the industry.

My Lords, it is true to say that the idea of a premium originated within the pensions industry, and this objection was never raised by them. If I may say so, this matter has been raised only comparatively recently. This was their idea and their concept. The overall effect of this Amendment would be that the employer had three options: revaluation in line with earnings generally; revaluation at 5 per cent. or the actual increase in earnings, if less, plus a premium; and, now, revaluation at a fixed rate.

For a wide variety of reasons, we feel that would not be possible, but perhaps I need give only one or two. This is a change on which, so far as we are concerned, the views of all the pensions interests have not been heard. But while it is not possible to be confident that the full implications of this proposal have been foreseen, the Government consider that it would introduce considerable new complexity and uncertainty into the contracting out arrangements. The effect would be that an employer could choose between three options for revaluing the guaranteed minimum pension of an early leaver—the two options already to be found in Clause 35(7) plus the new option under this Amendment.

Furthermore, this new option would vary from time to time, so that a different rate of revaluation was in force for early leavers, depending on the year in which they left the scheme. The impact of the Amendment, therefore, would be that neither employers nor early leavers would know where they stood. We should have created uncertainty, not reduced it. The employer would have to be ready to revalue at different rates, or he would have different leavers with different rates of revaluation in the scheme. An earner could have a different guaranteed minimum pension revalued at different rates, sometimes with a premium paid as well, while the Department would be faced—and we must take this into account—with record-keeping tasks of monumental complexity, with all the extra cost and room for error that this implies.

My right honourable friend the Minister of State has continued this discussion with pensions interest on this issue ever since the Report stage in your Lordships' House. I have to tell your Lordships that he is far from satisfied that this Amendment would provide any improvement on what is already in the Bill. I can only say—and I know the noble Lord, Lord Byers, will take my word for this, as will the noble Lord, Lord Aberdare—that this has not been brushed aside lightly. A good deal of consideration extending over an appreciable period since we got the Amendment yesterday has been given to this. With some reluctance, I have to say that we cannot accept this Amendment, and I must ask your Lordships to accept that this is the considered view of the Government—notwithstanding anything that has been said—after very careful consideration.


My Lords, I am grateful to the noble Lord, Lord Wells-Pestell. I want to make it clear that this Amendment was meant to be helpful, because, whoever made the initial suggestion of a premium, we have discovered worry among employers particularly, and consultants to the pensions industry and the industry itself, about the open-ended compliment. I am very grateful to the Minister of State, Mr. Brian O'Malley, for having given personal consideration to this, which I know he did last night, and I am really very sorry that the Government cannot accept it.

But, my Lords, this reply simply does not stand up. I hope that the noble Lord will have another look at this, or at least get Mr. O'Malley to read what I have said and will say, when it is reported in Hansard. If you analyse that reply you find that the Government say, first, that it is adding a complexity to the Bill. It is adding a complexity, but only in the sense that a third alternative is given instead of two. I do not find that complex. Then the noble Lord says that it introduces uncertainty, and that the employer and the employee will not know where they stand and will not understand it. From the employer's point of view, it is easier to understand it, because instead of having to deal with a 5 per cent. revaluation plus a variable premium, he can opt for a definite fixed rate of valuation which he clearly understands. I appreciate the noble Lord's point that this rate will change from time to time, but so will the premium itself. That is exactly what will happen. This is far better for him than getting sporadic hills for varying amounts of premium from time to time, bills which he has to meet in addition to the cost of the 5 per cent. revaluation.

As for the employee, my proposals make things far easier for him. Under the present scheme, the employer has to tell the employee that his reserve pension will be revalued every year by 5 per cent. and that he, the employer, is paying to the State a premium which will increase his pension by something, but he cannot tell him how much that will be. Under my Amendment there will he a definite fixed rate. It may be 8 per cent., 9 per cent., 10 per cent. or 11 per cent. He will at least know where he stands. My Amendment, therefore, is less complex and less uncertain.

As to record keeping, I think the noble Lord has been in politics as long as I have, and we all know this argument of administrative impossibility. Everything is administratively impossible until the Government decide that it is a good idea and they take it up, and suddenly it becomes administratively possible and that is the end of it. We have had all this business about delay in paying old age pensions, all sorts of cases where it was administratively impossible one year and perfectly easy the next. These three alternatives deal only with people who leave service after five or more years' service. The computer has to deal in any case with changes in the premium calculation, and it is easy to calculate a fixed rate equivalent to 5 per cent. plus premium. It should not be beyond the ingenuity of computer programmers to solve that. If this third alternative which I have proposed proves to be so complex, it will not be used by employers; they do not want complexity. But if it proves to be popular, it will show that it is not complex and there is a need for it. I feel that it really is important that we should take this opportunity to improve the Bill in this way, and I shall ask the House to divide on it.


Clause 35, page 28, line 3, the Amendment is to insert the words as printed on the Marshalled List. As many as are of that opinion will say, Content.




To the contrary, Not-Content.




The Contents have it. Amendment No. 3, Lord Wells-Pestell.


My Lords, I am sorry, but there were two of us on the Front Bench who said "Not-Content" a second time.

Aberdare, L. Elton, L. Sandford, L.
Abinger, L. Ferrers, E. Sandys, L.
Amherst of Hackny, L. Grey of Naunton, L. Strang, L.
Auckland, L. Hampton, L. Strange, L.
Balfour, E. Henley, L. Strathcylde, L.
Banks, L. Hives, L. Stralhcona and Mount Royal, L.
Beaumont of Whitley, L. Hornsby-Smith, B.
Belstead, L. Kemsley, V. Sudeley, L.
Boyle of Handsworth, L. Killearn, L. Terrington, L.
Bridgeman, V. Lauderdale, E. Thurlow, L.
Brougham and Vaux, L. Long, V. Thurso, V.
Byers, L, Lyell, L. Trefgarne, L.
Campbell of Croy, L. Masham of Ilton, B. Trevor, L.
Colville of Culross, V. Orr-Ewing, L. Vickers, B.
Colwyn, L. Rankeillour, L. Wade, L. [Teller.]
Denham. L. Rochester, L. Ward of North Tyneside, B.
Drumalbyn, L. Elles, B. St. Aldwyn, E. Wigoder, L. [Teller.]
Bacon, B. Houghton of Sowerby, L. Phillips, B.
Balogh, L. Hoy, L. Pitt of Hampstead, L.
Bernstein, L. Hughes, L. Rhodes, L.
Blyton, L. Jacques, L. [Teller.] Ritchie-Calder, L.
Bowden, L. Lee of Newton, L. Slater, L.
Brown, L. Llewelyn-Davies of Hastoe, B. Strabolgi, L. [Teller.]
Champion, L. Lovell-Davis, L. Wallace of Coslany, L.
Davies of Leek, L. Maelor, L. Wells-Pestell, L.
Douglas of Barloch, L. Melchett, L. White, B.
Elwyn-Jones, L. (L. Chancellor.) Paget of Northampton, L. Willis, L.
Feather, L. Peddie, L. Wynne-Jones, L.
George-Brown, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

Clause 40 [Financing and assurance of benefits]:

7.24 p.m.

Lord WELLS-PESTELL moved Amendment No. 3: Page 33, line 27, leave out from beginning to ("does") and insert ("under the scheme in respect of benefits attributable to any period of service after the rule has taken effect.


The noble Lord said: My Lords, in view of the action of the noble Lord, Lord Byers, just now, I do not feel disposed to be very generous to his noble friend Lord Banks, but the fact is that during the Report stage the noble Lord referred to difficulties which trustees of occupational pension schemes might have in modifying their scheme rules to comply with the priority rule in what is now


My Lords, I am sorry. I did not hear them they were very faint. I will put the Question again.

7.15 p.m.

On Question, Whether the said Amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 51; Not-Ccntents, 34.

Clause 40(3)(c). The Government have now been able to give further consideration to the difficulties mentioned by the noble Lord. Lord Banks. We concluded that it would be possible to resolve these difficulties by amending Clause 40(3) without in any way diminishing the central importance which we attach to the priority rule. Accordingly, we have decided to move this Amendment, the effect of which is that the items listed in Clause 40(3)(c) only need to have priority over benefits arising after the rule comes into force. I believe that I can commend the change we are proposing as a satisfactory solution to the matter raised by the noble Lord, Lord Banks. We hope that the noble Lord, Lord Banks, will feel that this goes a long way, if not the whole way, to meeting the point which he raised on Report stage and not at the 11th hour and 59th minute, and we hope that it will meet what he had in mind. My Lords, I beg to move.


My Lords, I should like to welcome the Amendment. It goes a long way towards removing the anxieties which I expressed at Report stage. The latest difficulty, which I foresaw in connection with the clause as it stood, was concerned with the entitlement of those who were no longer active members of the scheme. The change in priorities was bound to affect them adversely, and it would be difficult to obtain their consent to any change. This would have put the Occupational Pensions Board in a difficult position when exercising their powers under Section 64 of the 1973 Act. By excluding entitlement built up before contracting out, that problem is solved. I should like to thank the noble Lord, Lord Wells-Pestell, for taking note of our objections and taking steps to meet them.

Clause 44 [Premium on termination of contracted-out scheme]:

Lord WELLS-PESTELL moved Amendment No. 4:

Page 38, line 2, leave out ("if the person liable for the premium so") and insert ("unless the person liable for the premium otherwise").

The noble Lord said: My Lords, in moving Amendment No. 4, perhaps your Lordships will allow me to mention Amendment No. 6 at the same time. These are technical Amendments to save employers from having to make an election to take advantage of the provision for guaranteed minimum pensions to be revalued by 12 per cent. a year for the last five years of contracting-out. As a result of these Amendments, the amount of the premiums under Clauses 43 and 45 will be calculated on the basis of the 12 per cent. revaluation for each of the last five years unless the employer elects otherwise. My Lords, I beg to move.

Clause 45 [Premium where guaranteed minimum pension excluded from full revaluation]:


My Lords, I beg to move Amendment No. 6, having spoken to it with Amendment No. 4.

Amendment moved—

Page 38, line 43, leave out ("if the employer so") and insert ("unless the employer otherwise").—(Lord Wells-Pestell.)

Clause 46 [Provisions as to actuarial tattles]:

7.30 p.m.

Lord WELLS-PESTELL moved Amendment No. 7: Page 39, line 33, after ("embodying") insert ("whatever appeals to the Secretary of State to be").

The noble Lord said: My Lords, this Amendment is to make it clear that it is for the Secretary of State to decide what is the best practical estimate of the average cost for the purposes of Clause 45(2)(a). I beg to move.

Clause 62 [Other provisions about regulations and orders]:

Lord WELLS-PESTELL moved Amendment No. 8: Page 53, line 28, after ("5(6)") insert ("or (7)").

The noble Lord said: My Lords, this is also a drafting Amendment, consequential on an Amendment to Clause 19 at the Report stage in another place. In the Bill as published all regulations relating to treating contribution conditions as satisfied during periods of home responsibility were required to be subject to the Affirmative Resolution procedure. As a result of Amendments to Clause 19, this requirement does not now extend to all such regulations, but this Amendment will have the effect of restoring the former comprehensive provisions. I do not think there is need to say anything more. I beg to move.

7.33 p.m.


My Lords, I beg to move that this Bill do now pass. In doing so, I should like to express my gratitude to your Lordships and, if I may be permitted to do so, particularly to the noble Lords, Lord Byers, Lord Banks and Lord Aberdare. It is always invidious to select individual noble Lords, but the Government—and I say this with sincerity—are grateful to them for the contribution which they have made. I think it was said earlier that this Bill was non-political, and our only object was to send it away from this House in the best possible form.

I know that certain noble Lords, particularly the noble Lords, Lord Byers and Lord Aberdare, in view of the Government's White Paper on the question of the limitation of increases, are concerned with occupational pension rights. I wondered whether I could say something tonight that would in some way be useful, but in fact I cannot do so. Discussions have been going on since Monday last. The Minister of State for Employment said that he hoped shortly to be able to give some guidance on the question of occupational pension rights, and in view of that I do not think I can say anything. Some noble Lords may have seen an Answer to a Question for a Written Answer in another place on 21st July, when Mr. Booth said that the question of occupational pension rights is still under consideration. I hope to be in a position to give some guidance on this matter very shortly.

In view of the situation, there is not a great deal more that I can say except to renew my thanks to noble Lords who, by virtue of their expertise, have been of considerable assistance to the Government. If I may be permitted to do so in your Lordships' House, I should also like to extend my grateful thanks to my officials who, as everybody knows, have been extremely valuable to one who has had the responsibility of handling this Bill in your Lordships' House. I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(Lord Wells-Pestell.)

7.35 p.m.


My Lords, I should like to reciprocate the very kind words of the noble Lord, Lord Wells-Pestell, and to say that nobody could have been more helpful in considering our points. A number of points have been taken by the noble Lord, and by the Department. Various conferences and conversations have taken place with those who represent pension interests, and we certainly have received every co-operation. May I also express my thanks to my noble friend Lord Sandys who has helped me throughout with this Bill. May I say, in conclusion, that this is a Bill of vital importance to the future of pensions in this country and, in particular, to the future of occupational pensions.

My Lords, we are very nearly there; we have very nearly got that partnership which the noble Lord wants as much as we do. But we are not quite there. I hope most sincerely that the noble Lord will request his right honourable friend once again to be patient and to have one more look at this incredibly important Amendment which we have put into the Bill tonight. If he could just look with sympathy on that, I believe we might be there in the sense of a real partnership.

7.36 p.m.


My Lords, I should like to thank the noble Lord, Lord Wells-Pestell, and to reciprocate the thanks which lie expressed to us. He has done a very fine job on this Bill and, as usual, we all appreciate the very great courtesy which he has brought to bear on this particular measure. I should like to be associated with the tribute which he, quite rightly, paid to officials in the Department. I have seen them at work in another place as well as here, and I am sure they now look forward to a little rest.

My Lords, when the Government first announced plans for pensions great emphasis was laid on the need for a partnership, and they undertook to consult the various pensions interests. I should like to put on record that I think they have done this in a fine manner. The fact that the pensions industry is not totally satisfied with the Bill does not in any way deprecate the tremendous way in which particularly the Minister of State set himself out to consult everybody who had to be consulted.

I should like to make one other point. The frustration of everyone concerned with pensions at the chopping and changing which has occurred over the last 15 years led to a genuine desire for consensus on a basic pensions structure which would last. It was recognised that such a structure would need to encourage employers to contract out of the State scheme in favour of providing their employees with something better—certainly nothing worse. I must say that this desire for consensus was generally favoured in the pensions world, with a few dissenting voices here and there. I believe that the achievement of this consensus represents an historic milestone in pensions legislation. I think it is a great achievement for which much credit can be taken, and I only hope that the noble Lord will ask his right honourable friend not lightly to dismiss or try to remove the Amendment which we passed in this House tonight—certainly not without putting something else of a similar character in its place. I endorse everything that the noble Lord, Lord Aberdare, has said. We are very nearly there, and it will be a marvellous achievement if we can make it.

On Question, Bill passed, and returned to the Commons.