§ 12.20 p.m.
§ Lord Allen of Abbeydale rose to move, That this House takes note of the Report of the European Communities Committee on Equal Treatment for Men and Women in Pensions and Other Benefits (10th Report, 1988–89, HL Paper 51).
§ The noble Lord said: My Lords, I should like to begin by congratulating the Minister on his appointment and to say that we look forward to his initial speech in his new capacity. I should not like to let the opportunity pass without saying a word of appreciation for the contribution which the noble Lord, Lord Skelmersdale, has made to our 1578 deliberations of this nature. I wish him well in his new appointment.
§ We are discussing today a report from your Lordships' Select Committee on the European Communities. Increasing interest is being taken in Parliament's response to proposed legislation emanating from the European Commission, but singularly little is said in public about your Lordships' contribution. Indeed a leader in The Times on this topic a day or two ago remained quite silent on that aspect. I make no special claim for the report we are considering today, but it is one of a whole series of detailed reports on proposals coming from Brussels, a good many of which have been debated, I think to good advantage, in your Lordships' House. I find it a little sad I hat the whole exercise is better known and more highly valued in Brussels than it appears to be in Wapping, or wherever newspapers now come from.
§ The topics covered by the report are not perhaps calculated to turn it into a bestseller, but they are topics of considerable importance which could affect the lives of a great many people. It is a somewhat complicated subject, so we thought it appropriate on this occasion to include in the published report the material on which we were commenting which had come from Brussels together with supporting information on various kinds. I hope that that has been of some help.
§ I should like to thank the members of the sub-committee and also our witnesses, especially perhaps the witnesses from Brussels. They bore out the comments that had been made on previous occasions that the officials who come to us from the European Commission to help our inquiries are hardworking people of the highest quality. The sub-committee was particularly fortunate in having Sir Alec Atkinson as its specialist adviser. As always we have been most efficiently served by our clerk.
§ The text of the draft directive is not in anything like its final form. The Commission will taking account of comments from other countries as well as from the UK. Perhaps the Minister will be able to tell us a little more about future prospects. My understanding is that during the Spanish presidency an attempt to produce a revised draft rather petered out. As France is one of the countries which sees especial difficulties, the topic may not feature among the highest priorities in the months of the French presidency.
§ Whatever the immediate prospects, the subjects raised by the report and the directive will not go away. It seemed to us most desirable that early progress should be made, as I shall seek to explain. Although the report makes various criticisms, we welcomed the proposal (as did most of our witnesses) as a further step to eliminating discrimination from the social security schemes of the member states. It is admittedly not easy to adapt a scheme such as that in the UK. which has its origin in a society in which the breadwinner is expected to be the man, but the effort must be made here as elsewhere.
§ There have been two relevant directives before this: one in 1979, dealing with statutory schemes and one in 1986, dealing with occupational schemes. 1579 The implementation of that second directive has recently been concerning us in what is now the Social Security Act. This third draft directive, dealing as it does with both statutory and occupational schemes, was intended by the Commission to fill in all the gaps and to complete the whole exercise. We for our part came to think that to regard this as the final provision was a vain hope, but I shall come to that a bit later.
§ The Commission witnesses explained that the directive was aimed at three main topics: survivors' benefits, family benefits and pension ages. As regards the first, survivors' benefits, Article 4 would require that widowers should become eligible for benefits on the same basis as widows. It seemed to us that that aim was justifiable with changing employment patterns, but there would be problems. In particular there would be difficulties about reproducing for widowers the pension which a childless widow can receive if she is 45 or more and might not find it easy to re-enter the labour market, when the widower of that age would usually be able simply to carry on working.
§ In the light of the risk that equal treatment might in the end result in a worsening of the position for widows, we thought that this was one area where a substantial period of years should be allowed for implementation.
§ In relation to the second topic, child benefit, the draft provides that parents living together should be given an option as to which of them should receive it. Our evidence was pretty well unanimous that the arrangements in this country, whereby the mother has the prior claim, were better and that we should not be obliged to change those arrangements. It seemed to us that this was one area where it was eminently justifiable to treat the two sexes differently. I hope I am right in thinking that the Commission is prepared to abandon this proposal.
§ The third topic, pension ages, is I suppose the most important of all the issues raised by the directive. I shall not attempt to rehearse the arguments or to speculate on the possible impact of such factors as the abolition of the earnings rule and the coming decline in the numbers of young people, but I shall content myself with stating the Committee's conclusion. Its conclusion is that there should be a decade of retirement where both men and women could choose their retirement age between 60 and 70. A pivotal age of 63 should be chosen. Those retiring at 63 would receive the equivalent of the current rate of full pension. Those retiring earlier would receive a smaller pension and those retiring later a larger one. As many women now expect to retire at 60, we thought it essential that the change should be phased in over a period of years and that women aged 50 or more when the legislation took effect should be able to keep their present rights.
§ I know that not everyone will agree with our conclusion. For example, the TUC would still like to see a common retirement age of 60 as in France. We are also conscious of the fact that the change would cost money; we are told some £700 million a year. I can only hope that that estimate is rather 1580 more accurate than the recent remarkable statistical invention of the Department of Social Security in quite another context.
§ But whether or not our conclusion is acceptable, it is essential that there should be an early decision. We pressed the then Minister, Mr. Peter Lloyd, about the matter. He accepted the desirability of reaching a conclusion but the most that he would say was that although the department would not have the report of the inevitable OPCS survey until 1991—and as we all know the department can never move without an OPCS survey—that did not mean that the Government would not come to earlier a conclusion. I hope that today the Minister will be able to go a little further than the double negative. The decision is certainly crucial for a whole variety of reasons.
§ There is a fourth aspect of the Commission's evidence upon which I must touch even though it did not relate to any mandatory requirement in the draft directive. I am referring to its hope that the directive will encourage greater individualisation in the sense that people should come to depend on their own individual entitlement and not on benefits derived from their spouse's insurance.
§ With the breakup of so many marriages one can see the force of that. This country took a step down that road when the married women's option to pay reduced national insurance contributions was taken away some years ago. But it was difficult to see how we could go much further down the road and, for example, put at risk of being left without adequate cover married women who are widowed after spending many years outside paid employment.
§ We were not greatly reassured by what we heard of experience in Denmark after it had, in effect, done away with derived benefits. I appreciate that there are cases of derived benefits which are not derived from a spouse. However, the point I have been making appears to me to be the most important.
§ There is the consideration that occupational schemes can hardly hope to make satisfactory provisions for survivors except by way of rights derived from someone who has been a member of the scheme. Indeed, the relationship between statutory and occupational schemes is in places somewhat blurred in the directive. Some employers, especially the big multi-national companies, can probably manage whatever the local state provision may be. But the CBI told us that many companies here fit their schemes into the state scheme and for their part the Government have been making something of a show of emphasising the increasing relationship between public and private schemes.
§ One particular problem which greatly exercised the noble Lord, Lord Mottistone, during the passage of the Social Security Bill, was the fact that some companies, such as Marks and Spencer, which have a retirement age of 60 give an additional bridging pension to their male pensioners who, unlike the women, must wait until the age of 65 for their state pension. We go along with the Government's view that the Commission is likely to confirm that under the last directive that is not permissible. However, we express the hope that if that is so the new directive 1581 will be amended in order to legalise what appears to us to be a perfectly sensible practice and which will be needed until the state pension ages are made the same. Perhaps the Minister will be able to tell the House whether a letter has been sent to Brussels and whether a reply has been received.
§ So much for the four main points raised by the directive and the witnesses from the Commission. There are two other particular areas on which the directive is silent but which in our view cannot be put on one side in perpetuity. The first relates to indirect discrimination. By "indirect discrimination" I mean a situation which on the face of it is neutral but which in practice means that one sex is treated more favourably than the other. We have a definition or indirect discrimination in three of our Acts of Parliament.
§ The outstanding example in the present context is the position of part-time workers. If they are excluded and given no rights the argument is that that amounts to indirect discrimination because by far the majority of those concerned are women. In its present form the directive makes no attempt to deal with part-timers, nor does it attempt to define "indirect discrimination". We believe that somehow specific provisions ought to be made.
§ Then there is the baffling problem as regards private occupational schemes and the fact that in their calculations the actuaries take into account that as a generalisation women live longer than men. It is sometimes put that our arrangements ensure that women are poorer far longer. The previous directive about occupational schemes allowed different treatment for men and women taking account of actuarial factors but the present directive is silent on that issue.
§ I shall certainly not go into the problem today. I recently chaired a whole day's seminar between representatives of the actuaries and the Equal Opportunities Commission. I can fairly claim to have a lively appreciation of the complications involved. However, I call attention to the problem as one requiring further thought. Appendix 5 of our report refers to it and the fact that the issue remains unresolved is one reason why we cannot regard the present directive as saying the last word.
§ Lastly, there is the timetable. The Commission believes that these matters have been under discussion for so long that it is not unreasonable to fix three years from the final approval of the directive as the period in which legislation should be passed and brought into effect. However, in questioning, it conceded that that might be a shade optimistic. For our part we believed that it would be right to aim at enacting legislation within three years or a little longer but then to allow a considerable time for implementation, particularly, for example, as regards equal retirement age and survivors' benefits. The Government may take a different view but we await the Minister's reply on that and other issues with great interest
§ After looking at the list of speakers I know that we can first look forward to some interesting contributions. Although I have spoken for so long I have only lightly covered the ground. However, I 1582 hope that I have said enough to start of the debate. I beg to move.
§ Moved, That this House takes note of the Report of the European Communities Committee on Equal Treatment for Men and Women in Pensions and Other Benefits (10th Report, 1988–89, HL Paper 51). (Lord Allen of Abbeydale.)
§ 12.40 p.m.
§ Baroness Lockwood
My Lords, I should like to join with the noble Lord, Lord Allen of Abbeydale, in congratulating the noble Lord, Lord Henley, on the new responsibilities which he has taken on. I should also like to thank the noble Lord, Lord Allen, for his very comprehensive introduction of this report and also for the way in which he steered the committee, of which I was privileged to be a member, through this very complicated and difficult subject.
As he said, the report is concerned with a third directive on equal opportunities in social security—a draft directive intended to fill the gaps left by the other two directives. Like the noble Lord, Lord Allen, while warmly welcoming the draft directive I very much doubt whether it will succeed in filling those gaps and completing the process of equality between the sexes in social security.
The draft directive raises some fundamental issues and, as the noble Lord indicated, leaves out three very important areas. First, it does not deal with part-time workers of whom there are an increasing number in the UK. The committee has recommended that part-time work should be included. That is an issue to which I should like to return later. Secondly, the draft directive covers both direct and indirect discrimination but fails to define indirect discrimination. A common definition of indirect discrimination, understood and applied throughout the Community, is in my view essential if we are to achieve equality in that important and complicated area.
The recommendation made by the committee that definition should be included in the directive is even more necessary now in the light of the fact that the draft directive on the burden of proof, which contained a definition acceptable to the committee and which would have applied across the board to all directives, has been blocked by the Council of Ministers. I hope that the Government will feel able to reconsider their position in relation to that in the light of the report by your Lordships' committee.
Thirdly, the directive does not deal with the problems raised by actuarial sex-based data. The 1986 directive covered the area of occupational pensions but specifically excluded actuarial considerations. That decision was made by the Council of Ministers despite the advice of the European Commission, which advised that unequal pensions for equal contributions calculated on sex-based actuarial data could be contrary to the equal pay provisions under Article 119 of the Treaty of Rome. However, in the light of the Council of Ministers' decision, the Commission thought it inappropriate at this time to return to the subject under this directive.
1583 Your Lordships' committee has taken a different view and has recommended that the Community should mount a further investigation into the practical implications of abolishing those exceptions. I should have thought that that was the least we could do. My view is that this nettle should be grasped as there cannot be equality or social equity if men and women have to live on different pensions for equal contributions. The fact that on average women live longer than men does not lessen the needs of individual women pensioners, nor does it relieve the state from having the responsibility of supplementing those pensions if they are inadequate.
The longer this issue is left unresolved, the more litigation will be resorted to. Already in 1986 the European Court of Justice ruled in the Bilka case that occupational pensions paid under a voluntary contributory pension scheme were "pay" as that term is defined in Article 119. Rather than chip away at the problem through the court's interpretations, surely it would be far better to include now a provision bringing in sex-based data to the provisions of legislation.
Those are the omissions which have not yet been resolved by the draft directive. As I say, however, included in the directive are, as we are already aware from the introduction of the noble Lord, Lord Allen of Abbeydale, some very fundamental issues. I should like to deal with two of those. The first is the question of derived benefits; that is, benefits to a spouse or a dependant accruing from another's contributions. The main recipients here are wives deriving benefits from husband's contributions. The draft directive favours individual benefits, although it provides for some flexibility to member states to choose between the two or to phase out derived benefits provided that whatever is proposed applies equally to both sexes.
I support the principle of individual benefits. I believe that it is right and necessary that each person should build up their own entitlements to both social security and pensions. Nevertheless, it will cause some problems and we have to treat this matter with care. However, the abolition of the married woman's right to opt out of national insurance and the introduction of the SERPS scheme were moves in the right direction. Some continuation of that sort of provision instead of, as we have recently had, a move backwards from those provisions would be going in the right direction.
I agree with the Commission in its explanatory memorandum that there is some insecurity created by the increasing breakdown of marriage. That creates very great insecurity, usually for women. There are also different family patterns emerging. All of those point to the necessity of women becoming self-supporting.
However, there are some difficult problems, as the noble Lord has indicated, which need to be resolved. Women who have relied upon or grown up in the expectation of benefiting from their husband's contributions must be protected, particularly in the short term. Therefore, a phase-in period would be necessary and, as the committee believes, a phase-in 1584 period of some considerable time. For example, we were told in evidence from the DSS that the consequences of women opting out of paying their own national insurance contributions will not disappear before 2020. Therefore, clearly there has to be a considerable bridging period.
There is also the question of part-time workers to which I should now like to return. This is largely a problem concerning women as regards the build-up of entitlement. Women who work part-time may not only not contribute to social security but could be prevented from doing so by the rules. The Bilka case and subsequent legislation has ensured that part-time workers have a right to be included in occupational pension schemes; but in 1983, according to the Government Actuary's report, some 2 million workers were ineligible for pension scheme membership because they worked part-time. There will still be problems arising from that situation for some considerable time. Moreover, many women in low pay are excluded from the state scheme by the lower earnings limit. In 1984, the latest year for which figures were available to the committee, some 2.75 million women were so excluded.
Women who leave the labour force for purposes of family formation or other family commitments, or even men who leave the labour force for domestic responsibilities, are covered by the home responsibilities protection, but women who work part-time or on a temporary basis and who might move up and down the lower earnings limit are in a very precarious position and have difficulty in maintaining their rights. Further to that, there is no incentive to increase pay above a certain point because once that point has been reached a person is obliged to pay national insurance on the full earnings and not just on the earnings above the limit. Such a person would find that, on coming into the scope of paying national insurance contributions, the take-home pay has dropped considerably. Therefore we must find an alternative method that covers all workers. The domestic commitments of women need to be examined also in terms of occupational pensions; otherwise there can be no financial independence for women on retirement in their own right.
The second area that I wish to comment upon is the equalisation of the pension age. Here your committee welcomed the fact that the draft directive is quite firm. While leaving it to individual countries to fix their own pension age or flexible age, the same conditions must apply equally to both sexes. As the noble Lord indicated, your Lordships' Committee recommended that there should be a decade of retirement between the ages of 60 and 70 where individuals can choose the date most suitable to them but that the pivotal age should be 63.
We recognise the difficulties here. Some of our witnesses recommended a pivotal age of 60; others 65. We also recommend and state in paragraphs 92(1) and 97 that there will be some financial implications. However, there are changes taking place which I feel make it difficult to forecast accurately what the financial cost will be. For example, the prospective abolition of the earnings rule is one of the new factors that has to be taken 1585 into account. The different patterns of retirement which are emerging is another.
According to evidence from the Equal Opportunities Commission the economic activity rate of men between the ages of 60 and 64 was 53.4 per cent. in 1986 compared with over 85 per cent. in 1975. That is a considerable fall, which indicates a clearly changing pattern. On the other hand, some women have made it quite clear through the cases that they have pursued to the courts that they want the right to be able to continue working after the age of 60. The committee would not want to see women forced to continue working beyond 60 because their pension is inadequate but it wants both women and men—here the point raised by the noble Lord, Lord Allen, about bridging pensions for men is important—to have an equal right to chose and to make that choice an effective one.
Therefore, the committee believes that the time has come for an early announcement by the Government of their proposals on the pension age. We know that for some considerable time there has been agreement on the principle of equalising the pension age, but your Lordships' committee would now like to know from the Government what their actual proposals are. If I may say so, irrespective of what might happen to this directive, that recommendation from your Lordships' committee, as well as some of the others, could be acted upon independently by this Government.
§ 12.56 p.m.
§ Lord Seebohm
My Lords, I too congratulate the noble Lord, Lord Allen of Abbeydale, on presenting the report so clearly and well. My own comments, which will be brief, are from the point of view of someone who has had to operate pension schemes in the past rather than someone on Sub-Committee C of the Select Committee.
The fact that people are living longer and that the number of those living in retirement seems to be ever increasing as a proportion of those in work means that the provision of pensions is becoming more and more a social problem as well as a financial problem. I say it is a social problem because a comfortable and secure standard of life for the ageing is accepted as a national policy; financial, because it is immensely expensive and will become an increasing burden on those still in work and therefore on the rate of tax.
The first point I wish to make is that state pensions and occupational pensions are quite separate problems. I know that they interact, but they are separate and should be dealt with in separate ways. The former is in fact a universal safety net and the latter is a form of top-up of considerable flexibility and variety. I start by looking at the state pension system. As the report clearly points out, the present arrangements are by no means equal between men and women. As the CBI stated in its evidence to the committee, it is high time that the Government came out clearly that they are committed to the principle of achieving a common state pension for men and women.
1586 The question of bridging between the ages of 60 and 65 affects many companies for the simple reason that many more people of both sexes are retiring at 60 and therefore women have the advantage of five years of having a larger income than men. That is what one normally calls discrimination in reverse. In Barclays Bank, and in many others, an advance pension is paid to men aged 60 to 65 and this will presumably be impossible to do if this directive becomes a regulation.
The committee came down on the age of 63 for both men and women, and that would incur a manageable increase in costs. The worry here is that too many men will take advantage of that and the labour force could be reduced at a time when there will undoubtably be skilled labour shortages. However, the recent government decision to allow earnings to continue without pension deduction will have the opposite effect and encourage employees to remain longer in work.
This new dispensation encourages the idea of a retirement decade in which people can have their pension entitlement increased each year of deferment. This form of flexibility could be of considerable social benefit, particularly for those who married late and have family responsibility. It would not add to the financial burden on the state. On the whole, therefore, I agree with the committee's recommendation as regards state pensions, although considerable flexibility will be needed as to its full implementation over time.
I now come to occupational pension schemes. Broadly speaking, I believe that interference from Brussels is highly undesirable apart from the general principle that they must not offend basic equal opportunities concepts. I very much agree that the directive is badly drawn up, lacks definitions and does not make it clear in many places whether it is talking about state or private pension schemes. At best some guidelines might be acceptable, but businesses must be able to frame pension schemes appropriate to their earnings and general terms of service.
I say "earnings" because during a period of high inflation which took place early in this decade, and particularly in the decade before, pension funds became completely insolvent. In fact, if your company was making adequate profit it could perhaps put the matter right. In one case concerning my particular bank we had to add 27.5 per cent. to the salary bill in order to keep the pension fund solvent. So from the point of view of business, the position is very much more complicated than one might think by sitting in Brussels.
Mr. Langham of Unilever pointed out that most companies have already modified their schemes to meet many of the points made in the directive. I saw hints in the evidence. He said that he took a rather relaxed attitude to the whole subject. In the case of Barclays Bank the same applies. For instance, the bank already grants widowers pensions and includes all those part-time workers who do more than 14 hours a week. The time factor on implementation that has been mentioned is another very important aspect. Mr. Langham said that the scheme will take 1587 three years to get ready, but many more years before full implementation.
As concerns having a retirement decade, difficulties will arise among the higher echelons because of the necessity to plan ahead for succession. For the more clerical grades in the bank, for instance, this concept is probably quite acceptable; but in the 1990s it is desirable for the demographic reasons that I have mentioned. As regards part-timers, I believe all those above a minimum income or number of hours worked should be included in the pension scheme. Experience in my own business so far shows that where the pension scheme is non-contributory staff will naturally join, but where it is contributory very few part-timers opt to join as they prefer money in hand. Inquiries having been made in the bank, it is extraordinary how few part-timers were interested at all in pensions. Many of them are also short-timers in terms of years and their pensions would be trivial.
To sum up, I believe that guidelines should be issued and they will be useful. Certainly, regulations as regards equal opportunities should be made. I am quite certain that there must be considerable flexibility in the implementation of all these matters. I support the Motion.
§ 1.3 p.m.
§ Baroness Phillips
My Lords, I am the first speaker in this debate who was not a Member of the committee. I congratulate it on preparing this very comprehensive report, but I am not sure that I should congratulate the Minister. I once had the task of having to answer questions concerning pensions. Therefore I wish him good luck in his office. It is not the office that one enjoys most of all.
I was recently at a women's conference at which a worthy civil servant attempted to explain why women could not receive certain pensions. He was practically howled down. I suggest that attempting to explain the logic of the pension system is not the most popular role because it has no logic. Anyone who has ever tried to work through how a pension is collected knows that the system has no logic.
I say to the noble Lord, Lord Seebohm, that we must be very careful never to regard pensioners as a social problem. Quite recently a book was published which made reference to the grey generation. The book more or less implied that the grey generation will have a stranglehold on young people entering the pension scheme. The next provision to be introduced will be voluntary euthanasia and possibly compulsory euthanasia because pensioners are a charge on the state. We created that pensioner as a charge on the state because we have forced people to retire at a certain age simply because the retirement age was declared a long time ago.
I shall use my few minutes to sound my drum and say that we discriminate on the ground of age. This directive is a small move in the right direction although it has yet to be approved. A fixed state pensionage has very little relevance in today's pattern of retirement. When the retirement age was first introduced many years ago workers were played 1588 out at 60. They worked 12 hours a day and six days a week. They had very poor food and they certainly did not have modern medicines which have made spectacular advances. In all probability the workers were played out at 40 but they had to struggle on.
I have done a lot of work in connection with pre-retirement courses. At these courses there are many people who are absolutely fit, healthy, and mentally and physically right. We are saying to them that they have to retire. Many of them do not want to retire partly because they feel that they still have something to give. However, we force them to retire and then we say to them that they are a charge on the state. This state of affairs stems from a most curious idea the basis of which is that we base everything either on sex or on age. People are people. If an employer wishes to employ someone, he employs the best person to do the job if he has any sense.
When I introduced my Bill on age discrimination, I said that if gorillas can do the job better I suspect that we would employ gorillas. At least they would not answer back. There is no doubt that we have based the whole structure on the most complicated arrangements so that when people claim their pensions they find that they have to sort through a form to decide whether they are eligible for this, that, or something else. One day we shall produce a human being of the right sex, the right age, the right colour and at the right time in order to collect the maximum from the state, wherever he lives.
I support the idea of a flexible retirement system. It is a slight move in the right direction. There never was any real logic in women retiring at the age of 60 and men at 65. There is certainly no logic for a woman as a housewife or homemaker to claim through her husband, still on retirement pension, as a dependant. This particularly irritates women. The assumption is that because they have not worked in paid employment they have not worked. In fact they have made a great contribution to society and they merit a full pension. That is one of the more ridiculous aspects of the whole pension system.
I am delighted that many people of my generation, when looking around for a second mate—one is hopeful to any age, I suppose, and preferably one would wish for a younger mate because he or she will outlive you—sensibly do not marry because they can continue to claim separate retirement pensions whereas collectively they would get less. It is a totally ridiculous system which human beings usually find some way round. This directive is a start in the right direction for a flexible retirement system. I like the fact that the report states that the pension should be equal. I am not enamoured of the decade of retirement, but I suppose it is the only method by which this system can be brought into being. I imagine that employers will make a meal of it even if the Government do not.
All these systems cost a lot of money to operate. If there is not simplicity of administration there is need for a much larger staff. The great advantage of the child benefit system when it was first introduced was that it was paid to everybody who had children. I can remember the arguments against that—that some rich people would get it—but I pointed out 1589 then as I have pointed out many times that there is no danger of anyone getting too much money out of the state. It is all tied up. There is even the rule that one cannot get two state benefits. This was raised in connection with widows who happened to want to collect the maternity allowance. Although they were mothers as well as widows they could have only one benefit. The state has it all tied up. Simplicity of payment is the first rule for any sensible arrangement. It is unbelievable how complicated it has become. I often think that Lord Beveridge must turn in his grave. His was a simple concept which has been made unduly complicated.
The report goes on to say that demographic and other factors make it desirable to give people further encouragement to remain in employment. That is splendid. I could not endorse any statement more, but that must not be allowed to cloud the idea. We still have to look at age discrimination, because that can change. When there is a war, suddenly the poor weak women who are supposedly incapable of physical labour can drive lorries because there are no men to do it. The same applies to the question of age. If there is a shortage of young people, one has to have the older ones. As I have said before, suddenly the dear old 50s are the best thing since sliced bread. Long may that continue, but we do not know that it will continue. How can we forecast how many people are going to be born? We do not know. We are not even sure how many people are going to die, so we certainly cannot work out how many people are going to be born. So the demography can change, and we must have all this in legislation.
Age must never be used any more than sex or race as a reason for doing or not doing something. Human beings are people with all their own feelings, dignities and capabilities. That is how they should be considered. It sounds so simple but we have made it complicated.
There is the interesting matter of the new Ministers. The Prime Minister is creeping towards that terrible age when she should be forced to retire, but of course Prime Ministers never retire; they make everybody else retire. What were the qualities of the new Ministers according to the newspapers? It was not that they are highly intelligent, not that they are going to be capable of doing the job, but that they are young and bring in a breath of fresh air. I have encountered breaths of fresh air. I recall a certain council from which somebody was asked to resign because he was too old and fresh blood was needed. The fresh blood turned out to be a man five years older! That could be a way of bringing in fresh blood, but it is all nonsense.
If we are to move into the next century with common sense, do not let us take three years on a matter such as this and then produce nothing. People are people and that is how they should always be considered, whether we are talking about employment, retirement, or our general contribution to the community.
§ 1.15 p.m.
§ Lord Hunter of Newington
My Lords, I too should like to congratulate the noble Lords, Lord Allen and 1590 Lord Henley, who sit confident to reply to not the easiest debate in the world.
Miss Joan Brown, giving evidence to the committee, concluded her comments by saying:The goals are worth pursuing with vigour, but now that we have reached a most difficult part of the path to equal treatment we should proceed with the greatest caution lest the cure be worse than the disease".The committee is clear in its mind that the objective of equal pension age for men and women should be pursued in this country. Of course a substantial difference in life expectancy is long-standing and universal. In recent years some changes have occurred because of medical improvements, elimination of infectious diseases and matters of that kind which affect both sexes. Smoking raises an interesting situation because in personal pensions the companies have had no difficulty in introducing special rates for smokers and ignoring the sex differential. It is obvious that no person taking out a private policy would be prepared to pay to subsidise men or women who were smokers.
Other geographical and occupational variations exist, but the most important factor is that it is not often clear what the real causes of differentials are, and often insurance companies do no: know what factors to rate for. Neither do the policy holders know how their prospects compare with the general average. There are exceptions. I have mentioned smoking; another exception is the risk of accident.
It has been said that unequal pension ages create a variety of anomalies, some of which disadvantage men and some of which disadvantage women. From the point of view of the acquisition of an adequate income for retirement, women's lower retirement age gives disadvantages under the present United Kingdom system which is based on a flat rate national insurance penion plus a second pension from SERPS or an occupational scheme, or a personal pension. But because the national insurance pension is so low it is the second pension which can free the elderly from the need to claim means-tested benefit in retirement to cover basic needs. Its level will depend on the number of years of contribution and on the wage on which it is based.
Raising women's age to 65 for the national insurance pension has been seen as politically difficult. Not all women would welcome that. There is a clear trend towards earlier retirement for men, but equalisation by lowering men's pension age to 60 is seen as far too costly. Both the Equal Opportunities Commission and the House of Commons Social Services Committee have suggested a compromise age of 63, with transitional provisions for those coming up to the present pension age and who have planned their retirement accordingly. The Government have seen this as too costly and point out that the only possible nil cost change would be to equalise at 64½ years. The Government offered an alternative in 1985 but that produced more problems than it solved. The suggestion was for more flexible retirement through a retirement decade.
Not only are there complications of the kind that one has referred to but there are further complications in relation to Europe in the differences existing between various countries. 1591 There are five member states where pension ages are not the same and where there will be a huge financial problem in trying to align them. The Government Actuary has clearly stated that unisex rates and conditions can be offered only by giving up other advantages in personal pensions. The loss is freedom of choice. Another loss is that some minority groups, particularly single men, do rather badly out of the deal.
One comes to personal rather than derived rights. If we are to move from derived to personal rights, before the move has begun it is essential to address the factors which still prevent women, in particular married women, from acquiring personal rights. Of those, the two most important are low paid part-time work and the income support roles. Women who work for wages below the lower limit of national insurance contributions do not acquire rights to national insurance even if they work regularly for a number of years. Wages at this level clearly cannot tolerate even the lowest rate of national insurance deductions of 5 per cent.
On the other hand, while neither the employee nor the employer are making contributions to the National Insurance Fund, it is difficult to propose that, in spite of this, benefits should be paid. It may be necessary to consider the introduction of a very low contribution rate, perhaps 1 per cent., for very low earners in order to give them a place in the national insurance scheme and the rights to benefit even at a reduced rate.
It seems likely that at some stage women will wish to extend their hours and increase their wages and therefore their contribution liability. They could then have full rates for work absence and build on the contribution years so that they acquire pension rights. Some means need to be found to overcome the exclusion of these women from the opportunity of building up future rights; and, indeed, the same applies to any man in the same position.
§ 1.21 p.m.
§ Lord Stallard
My Lords, speaking as I do almost at the end of the debate, I can probably dispense with some of the remarks I intended to make. However, I should like to begin by congratulating the Minister on his promotion and paying tribute to his predecessor, the noble Lord, Lord Skelmersdale. He took much flack from this side of the House and no doubt the new Minister will take just as much—hopefully. We try to be constructive and we know that he will try to be helpful, but I congratulate him all the same.
I should also like to congratulate the noble Lord who introduced the debate and who also steered the matter through the committee. I pay tribute to all the committee members and to all the people who gave evidence. The committee has done a tremendous job in producing a report which is as comprehensive and constructive as this one.
I must say that I am a little saddened at the timing of the debate, coming, as it does, right at the very end of the Session; indeed, the last day before the Summer Recess. It comes before us following a 1592 welter of Bills and everyone is punch drunk after having discussed, read and considered those matters. Therefore, it has been a most difficult task for us. I must confess that I have not finished my detailed study of this report for those reasons. We need more time and this is not the best time for such a debate. It would have been much better had it been tabled during prime time in the Session because it is a matter of great importance.
As I said, I think that the Committee did a great job in bringing together so many views, many of which were critical but most of which were constructive. That is another aspect which stands out from the debate: although members of the committee made some criticisms, they also added something constructive and at least tried to put on record something of their experience. Indeed, most of them have a record of years and years of experience in such matters. The result has been the production of the report which we have before us.
The report is a very comprehensive review of the current attitudes to many of the questions raised in the draft directive. The noble Lord who opened the debate summarised the provisions of that directive and, for me at any rate, made it much more readily understandable in view of the fact that I have not been able to study the document as deeply as I should have liked.
I happen to have been involved for many years one way or another with the provision of pensions, the retirement age, the adequacy of the pension, the discrimination against men and many other aspects as regards retirement. For the past 15 to 20 years I have been closely connected with Age Concern and its work in this field. I supported the evidence given by Age Concern to the committee, which naturally I read at an early stage.
Having said that, I welcome the draft for all the reasons which have been stated by previous speakers. However, I must say that I am not opposed to the necessary legislation—social security Bills and so on—being handled by the Government of the United Kingdom. But I am a little worried that this may follow the usual procedure; in other words, there is a danger so far as I am concerned that if this Government, or any other UK government, follow the pattern of the last 10 years, they will say, "We will deal with this on a nil-cost basis". That is the big danger. If there is an attempt to deal with the matter on a nil-cost basis, it will make an already grim situation in many fields of social service in this country even worse. Therefore we must guard against that possibility.
I support the cautionary note entered by Mr. Jacques. He was one of the TUC witnesses. His evidence is reported on page 71 of the report and I thought that what he said was also apposite:past experience has shown us that they"—that is, the Government—are very reluctant to take steps in this direction. Thus far, much of UK equality law has come about due to events in the European Parliament and the European Court. It appears far more likely at this stage, therefore, that any positive action will emanate from the European Commission, as it has in the past".I think that he was wise to enter that precautionary note, because nothing here of any real moment has 1593 really happened, unless it has been forced upon us by a directive from Europe; for example, a court case which has gone against the Government, whereupon things have changed. Indeed, as regards legislation just passed, a great chunk of that was a direct result of a European Court case and European directives. Therefore I agree with Mr. Jacques from the TUC. With his views I include my own precautionary note as regards nil-cost arrangements.
I have also been closely concerned with many organisations which are worried about the position of carers. I think that that aspect comes out in many of the comments made by witnesses. This is a particular concern which we all have for family carers who are looking after elderly parents. A recent OPCS survey reported on informal carers. It found that nearly two-thirds of those who devote a significant amount of time to caring for others are women. That of course is a fact already known to us and the figure is probably more than two-thirds by now. Nevertheless, it is a huge percentage. That is likely to reduce, or completely shut out, their opportunity to work and earn money and thereby to qualify for the various benefits.
A caring situation should be covered by a general statement in Article 2. It is not covered specifically enough for most of us. It should be covered and it should be reaffirmed in other articles where appropriate. That factor should be borne in mind whenever we discuss any of these directives. For example, it has been suggested that member states may look to equalise pension receipt on the basis of contribution years, which must be identical for both sexes. That should be accompanied by a clause which requires protection for years spent bringing up children or caring for chronically sick or disabled dependants. Indeed, the noble Baroness, Lady Phillips, touched upon that aspect of the matter. Moreover, similar provisions should be included in other clauses in the directive.
As I said, in the past I supported many campaigns. This is not a new issue. I am reminded of the Philips Report.
§ Lord Stallard
It is nothing to do with my noble friend, thank goodness otherwise I should have to scrap my quote. However, that committee was set up 30 years ago. It produced a report which contained some ominous warnings about the growing burden of caring for the elderly. But that comment could have been made 30 days ago because the same kind of findings emerge from bureaucrats who are now involved in such situations. The majority of members of the committee proposed that the pension age for men should be ultimately raised to 68 years of age and for women to 63 years.
In those days, I was actively campaigning for a reduction in the men's retirement to the age of 60. I have not budged on that issue; but I hope that not many people are following the recommendations of the Philips Report. I am still in the same position as I was all those years ago. I support the campaigns and I support the proposition that the retirement age should be equalised to 60 years.
1594 Following the comments made so far in this debate, I think it can be said that there are a number of new circumstances to be considered. For example, the increase in occupational pension schemes, with the many different age qualifications; the early retirement schemes; the early redundancy schemes; the increased unemployment; the increased part-time working; and the abolition of the earnings rule. The latter is a brand new factor and has never been discussed in any report. However, it certainly merits a little discussion in this instance.
A number of other countries have moved in the direction of flexibility. We face a completely different set of circumstances, which means that we should not wait for years to make the decisions but should make them fairly soon. The point was wrapped up neatly by Age Concern, which said:Age Concern would like to see the introduction of a flexible retirement system, creating for example a wide band between 60 and 70, with entitlement of the state pension at age 60 for men and women, and with legislative safeguards precluding the dismissal of employees on grounds of age up to the higher end of the scale. We also see a need for the introduction and encouragement of schemes for gradual retirement, and for investigation into the possibility of half-work, half-pension schemes for people wishing to opt for part-time employment before retirement without loss of income".That is a perfectly constructive proposition and proposal which could be included in any submissions we make on this draft directive.
Whenever we have mentioned this issue before we have been told of the colossal cost that would be involved. I first raised the matter almost in my first month as a Member of the other place and I was told about the colossal cost. It was estimated to be millions of pounds in those days. Now the cost would be billions of pounds. If it had been accepted then it would not be so expensive now. There will always be a cost. That is recognised by everyone. A great deal of work has been done on this issue by the Campaign for Equal State Pension Ages. It also produced a report which is well worth reading.
It estimates the first year costs as £3.4 billion. That is not a great deal of money for the end product when compared with other expenditure. It can be argued that the actual costs will be lower as not all men aged over 60 would draw a pension and cease to work. Many would carry on working if 60 was the age at which they could draw the pension. Many more will be entitled to do it because of the abolition of the earnings rule. I say that the estimate is excessive because these new factors were not taken into account.
If this report receives the publicity which it thoroughly deserves, the whole question will be opened up for public debate. I for one look forward to further participation in that debate.
§ Lord Monson
My Lords, before the noble Lord sits down perhaps I may put one question to him. He favours a common retirement age of 60. Let us suppose that the average life expectancy for both men and women increases by five years over the next 50 years, which on past patterns may be something of an underestimate. Would he still then be in favour of the retirement age being as low as 60?
§ Lord Stallard
My Lords, I might not be here then. One would have to look at the new circumstances. I have not based my view on equality of age on the premise of the noble Lord. I am not basing it on the fact that there will be a shorter or longer life expectancy. It is a question of justice. It was never based on that to begin with. I am basing it on justice in the present circumstances. Given a completely new set of circumstances, I would not be totally inflexible. In fact I have stressed that I am for flexibility in this issue as in many others.
§ 1.34 p.m.
§ Baroness Seear
My Lords, I should like to congratulate the noble Lord, Lord Henley, on his promotion to this present position. With the agreeable inconsistency of your Lordships' House, we wish him the very best of luck and we intend to give him a very bad time. I should also like to congratulate the noble Lord, Lord Allen of Abbeydale, on the brilliant lucidity with which he explained this report. On the face of it, it looks a relatively simple matter but it is simple only to those who have not tried to understand it. It is full of complex and difficult issues which will have to be thought through and worked out very carefully indeed if we are to achieve the results which we all want to achieve.
I should like to start by taking up one or two of the omissions in the draft directive. I start with the omission of adequate references to part-time work. In the past part-time work has been seen as a collection of low-paid ghetto jobs for women whom it is hoped will not be there very long. Part-time work is completely changing its character. It is important that our social security system should recognise the way in which part-time work is changing in character and the way in which it is highly desirable that it should. If we are to believe the obvious evidence of trends and the writings of some of the best informed people, the labour market of the future will require that a great many people, both men and women, at a variety of levels, not merely at the level of an unskilled job (which was previously the area in which part-time work was undertaken) will take on part-time work. This will have economic and certain social benefits.
Part-time work will not be acceptable unless it is seen to be on all fours with full-time work pro rata for time spent. That means that all the benefits which go with full-time work should be available to people in part-time work. It is a pity that this draft directive has not come to grips with the implications of the changing nature of part-time work, the people who are going to do it and the desirability in the labour market that it should be established as a desirable form of employment with all the advantages attached of the jobs which previously could be done only on a full-time basis.
I should like also to take up the issue of the failure to include an adequate definition of indirect discrimination. In this country—I have never explored the matter elsewhere—I find that after 14 years there is still an extraordinary misunderstanding about the nature of indirect discrimination. Most people think that it is a 1596 particularly devious and underhand form of discrimination. On the contrary, it is a discrimination in which a great many people indulge but without knowing that they are doing it. That makes it far more dangerous and far more difficult to deal with. On the whole, in this country, and for all I know, also in the other countries of the Community, straight, direct, really open, blatant discrimination occurs very rarely. It has to a large extent been eliminated. But indirect discrimination is rampant. Unless we recognise it and get a good definition applicable throughout the Community, attempts to halt discrimination will not go far. I hope that in discussing this draft directive the Government will make the point that this is much the most important aspect of discrimination and that we need to understand exactly what it means and how we are to interpret it.
That said there are in this draft directive a number of issues which one welcomes. I much welcome the individualisation of benefits. This is one of the areas as regards which the objective is easy to welcome, but one must at the same time accept the complexity and difficulty of moving to its full implementation. What is behind this is a fundamental social change. It is true that not only here but in most other countries the man has for centuries been the head of the household and the breadwinner. That is changing. It is no longer the case for a whole variety of reasons into which I shall not go today and of which I think most people are fully aware.
This is a huge change. The dependence of the woman on her husband for maintenance and provision for old age is passing. The divorce rate is one element of the situation but it is only one of a number of reasons why this is happening. Therefore we need to move towards the individualisation of benefits, the ability for individual women—married, single, divorced or whatever their marital status may be—to build up their own rights and to be able to be certain that they have financial resources, whatever changes may take place in their marital status.
We are moving slowly in that direction. We need to explore fully and in depth what all the problems are and how we can best cope with them. That is something which I should have thought could be done with great advantage in collaboration with our partners in Europe, to see how this can be worked out in the best possible way. As regards application throughout the Community, the fact that we start from somewhat different bases does not make it any easier.
Secondly, like the noble Baroness, Lady Phillips, and other speakers—but I think that she was the most emphatic—I greatly welcome the suggestion of flexible retirement ages. Unlike the noble Lord, Lord Stallard, for the life of me I cannot see why we should encourage people to retire at the age of 60. The demographic figures speak for themselves, with the great increase in the number of people in the older age groups. I suppose that most of us—but certainly not the noble Lord, Lord Henley—have a bias towards old age in your Lordships' House. I do not think that that blinds us to the facts of the situation which are that today a great many people 1597 can and like to carry on working. They do not wish to be discriminated against on grounds of age. Some people want to retire earlier for a whole variety of reasons, not least because in many jobs a retirement from full-time employment is particularly attractive if people have a number of other interests or money-earning activities which they can develop if they retire early. But if they leave it till the formal retirement age, it is too late for them to take up those activities.
This is a highly desirable way of handling retirement. I suppose what most of us wanted when we neared retirement and what most of us in your Lordships' House have been fortunate enough to have is gradual retirement (It does not seem to be very gradual as regards your Lordships' House.) By that I do not mean carrying on working full time; I mean carrying on being usefully, and preferably profitably employed—which does not always apply in your Lordships' House—after formal retirement has taken place. That is what I see as the pattern for the future.
§ Lord Stallard
My Lords, I am grateful to the noble Baroness for allowing me to intervene. I think that she misquoted me, or I hope so. I certainly did not think that people should retire at 60. I am in favour of a flexibility in retirement, but the pivotal age should be 60. The basic pension should be payable at 60. There should be an adequate pension at 60 for those who need it or require it or who must retire. But for the rest of us I agree entirely with the noble Baroness.
§ Baroness Seear
My Lords, I am glad to have that explanation from the noble Lord, Lord Stallard, and I apologise if I misunderstood him. However, I disagree with him in that full retirement pensions for everybody at 60 at what would be an acceptable and adequate pension would be pretty costly. I believe that the retirement pensions, like retirement age, should be graduated. Personally—and this is purely a personal view—I would drop the flexibility to a point lower than 60. For quite a lot of people, I believe that a small pension at 55, with the opportunity to earn money in other ways, might be very acceptable. If people go on working for a much longer period, their pensions should be correspondingly enhanced.
However, flexibility is undoubtedly the key and it is a very good thing indeed that this is proposed. Personally I go along with the suggestion that the pivotal age for what we regard as a full pension should be 63, but that is a matter for discussion. We need to look at the figures very carefully indeed before we finally decide what is exactly the right age and exactly the right amount of money that can be guaranteed at different stages.
I should like to stress only one other point. We in this country—I think with some justice—have been seen by at any rate some of our partners in the Community as dragging our feet in the face of suggestions coming from the Community. We are seen as resisting changes, making it difficult, particularly in the field of equal opportunities, where our development and changes in equal opportunities 1598 have come all too often only because we have been taken to the European Court. We have then been forced to make changes. It would have been very much more satisfactory if we had made: them before. The delay has not been for any want of pressure put on the Government by many speakers on this side of the House and indeed from some on the Government Back Benches.
Given that 1992 is just around the corner—despite the resistance in high quarters to the acceptance of some of the social policies coming from Brussels—would not the following be highly desirable? Instead of the Government waiting for directives to come from Europe and then fighting, inch by inch, against the proposed changes, the Government themselves should think about ways in which these issues could be advanced, taking the initiative in Brussels. In that way some of the directives would come as a result of the previous thinking and input from this country. We should be seer as taking an active role in promoting equal opportunities rather than taking a role in which we fight against them and then reluctantly have to agree to conform.
I have now spoken for 12 minutes. I very much hope that the Government will accept the major recommendations and will take initiatives on the omissions to which your Lordships have drawn attention.
§ 1.47 p.m.
§ Baroness Turner of Camden
My Lords, at the risk of sounding repetitive may I also from these Benches welcome the noble Lord, Lord Henley, to his new post. We wish to say, as others have said this morning, how much we on these Benches appreciated the unfailing courtesy with which the noble Lord, Lord Skelmersdale, dealt with the often critical and hostile comments on social security from this side of the House.
I welcome the report of the Select Committee. I myself was a member, along with my noble friend Lady Lockwood, who has already spoken in the debate, and other Members of your Lordships' House. I should also like to thank cur chairman, the noble Lord, Lord Allen of Abbeydale, for the comprehensive way in which he has dealt with a detailed and to some degree difficult report.
I commend the report, not only because of its conclusions, which I hope the House will find entirely acceptable, but because of the nature of the report itself, which brings together a large amount of evidence on what is admittedly a tricky and difficult subject. Of course it ought not to be a tricky and difficult subject because nowadays everybody is in favour of equal treatment of men and women and opposes sex discrimination. It is difficult and tricky because of what we have inherited from the past when there was a very different perception of work patterns and family life.
The Committee has had to have regard, in compiling the report, to the expectations that already exist. Some of them are based on past experience. In particular, we must be careful in endeavouring to secure formal equality that we do not end up actually worsening conditions for the vulnerable people 1599 whom we wish to help. Nevertheless, I welcome the draft directive which I regard—as did the committee—as evidence of the European Commission's continuing commitment to the elimination of sex discrimination throughout the Community. There are some particular problems for us in the UK, largely arising from the way in which we have traditionally made provision. In my view these are dealt with very well in the report.
Probably the most difficult issue facing us is the equalisation of state pension ages. No one wants to continue with a system in which women may retire on full state pension five years earlier than men. The ages in the state system were set many years ago when family patterns and expectations were entirely different. Far fewer women went to work outside the home, except of course during the exceptional conditions of wartime. It was quite normal for female employment to cease upon marriage.
The five-year difference was originally thought of because in general men married women five years younger than themselves and it was felt that in this way married people would qualify for retirement pensions together. However, as we all know—this has been referred to many times in the debate—things have changed. One in three marriages now ends in divorce. Most women expect to continue in employment outside the home after marriage, returning to work after a break for child care. This is now officially encouraged, as we have seen from the Government's White Paper Employment in the 1990s. The earlier retirement age is by no means an unalloyed blessing for women. However, it is true, judging from the report, that some of the organisations seen by the committee believe it to be so.
The Marshall judgment, when a woman succeeded before the European Court in establishing that she had the right to continue in employment until age 65 if a man had that right in the same employment, led to some rethinking about pension provision. Some women, particularly those in interesting and satisfying work, wanted to emulate Miss Marshall and stay on after age 60. They also wanted the opportunity to earn more pension to cover those extra years, although that was not provided for in the legislation introduced in the wake of the Marshall judgment. At the same time, some pension schemes introduced a common retirement age of 60 for both sexes. In order to make this acceptable to male employees who would have to wait until age 65 for a full state pension, such schemes introduced bridging pensions for men until age 65. This, as we know, has been held to be contrary to the directive. Indeed, during the debate on the recent social security legislation in this House, amendments to try to protect bridging pensions were opposed by the Government on the grounds that the directive would render them illegal.
It will be seen from the report that the committee regards it as anomalous that by seeking to offset inequality between the sexes in the state scheme, occupational schemes should themselves be made vulnerable to the charge of unequal treatment. The committee recommends that such schemes should 1600 be allowed to pay bridging pensions until the pension ages of men and women are equalised in the state scheme, and that the directive should be amended to include the necessary transitional provisions. Surely this is sensible, and surely this is something which the Government should take on board.
The problem is of course the failure to introduce equal ages in the state pension scheme a great deal earlier. The Occupational Pensions Board recommended equalisation as long ago as 1976, identifying this as one of the main causes of inequality in pension provision. While everyone now appears to be in favour of doing something, there has not been agreement on the methods to be adopted. The TUC and EOC wanted to equalise at age 60, as will be seen from the report, although both accept that there will be substantial costs involved. However, others have drawn attention to demographic considerations. In today's debate we have heard a great deal about that, notably from my noble friend Lady Phillips.
It now appears that while a few years ago older workers were being persuaded to take early retirement, often when they really did not want to do so, it is now being discovered that their skills are needed. Lowering the male retirement are to 60 is felt by some to run counter to the present trend, which is to retain those with skills in the workforce.
The committee's report is absolutely clear, and commendably so in my opinion. The Government must grasp the nettle. Pension ages must be equalised. The committee favours the idea of a decade of retirement, between the ages of 60 and 70, when men and women may choose when they want to retire. In such a system there has of course to be a pivotal age at which the full state pension would become payable. The committee believes this should be 63, and sets out its reasons for this belief. Clearly this is a compromise between the various submissions that were made, but it represents a way forward which I hope will commend itself to the House and upon which I hope the Government will act. It is accepted that this will cost money—around £700 million in a full year—and of course there must be protection for those whose expectation is different. Transitional arrangements must be made. Those are also referred to in the report.
Another particularly difficult area for the UK is the matter of derived benefits. This is also dealt with in the paragraph of the report dealing with the individualisation of benefits. Clearly in a situation of marriage breakdown, derived benefits are vulnerable. However, derived benefits are a common feature of provision in the UK. As is pointed out in the report, one effect of the operation of the directive would be the abolition of the married woman's pension payable on the husband's contributions. Provision for women in this category would have to be made until well into the next century—that is, transitional provision.
Clearly the committee is right to say that the whole matter of derived benefits must be re-examined by the European Commission. There is evidence that in Denmark, for example—this has already been referred to by the noble Lord, Lord Allen of Abbeydale—where there has been a switch away 1601 from derived benefits, considerable hardship has resulted with large firms now making ad hoc provision to overcome this hardship.
As regards family benefits, I am sure that everyone in this House will welcome the view of the committee that child benefit should continue to be paid to the mother. Everyone making representations on this subject felt the same way although the EOC could, it is true, see some difficulty in that. It suggested that it might be paid to the parent with the care of the child.
I particularly welcome the committee's comments about part-timers. This is a growth area of employment. That is more the cause in the UK than anywhere else in the Community. Part-time employees are mostly women. For obvious reasons many find it easier to combine work outside the home with domestic responsibilities. The committee found that many employers were uncertain about their obligations to part-timers, and in particular whether or not they should be included in pension schemes. Many of the better schemes now offer membership to part-timers, usually at reduced rates. This is surely a development to be welcomed, as is the committee's recommendation that Draft Article 2(a) should be expanded to include part-time workers.
Despite the difficulties, the committee recommends that survivor's benefits, if paid, should ultimately be made available to men and women on equal terms. This is surely right, given the changing family circumstances to which reference has been made by most speakers in this debate. If, as the report says, it becomes the norm for couples to be dependent on the earnings of both partners for most of their lives, then equal survivor's benefits make sense.
Finally, I wish to say how much I agree with what has been said in the debate by the noble Baroness, Lady Seear, on the issue of indirect discrimination. Clearly there has to be some definition which is acceptable throughout the Community as to what constitutes indirect discrimination. I agree absolutely that that is the kind of discrimination that takes place without people realising that they are indulging in it. It would be helpful to everyone, and would certainly assist very much the cause of equality throughout the Community, if there were to be further work on this matter and if eventually a definition were drawn up that was acceptable throughout the Community.
I commend the report to your Lordships' House. It is clearly the product of much careful thought and follows consideration of representations made by a wider range of organisations and individuals. In particular, I wish to emphasise again the importance of equalising pension state ages as that is the root cause of many of our past difficulties and anomalies. I now think the time has come for the Government to take action to end this outdated provision.
§ 2 p.m.
§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, I start by thanking the noble Lord, Lord 1602 Allen, and other noble Lords and noble Baronesses for their very kind words directed both towards myself on starting in this post, and towards my noble friend Lord Skelmersdale, who has left this office. I hope I shall be able to follow in his footsteps. I should also like to thank the noble Lord, Lord Allen, and congratulate him and his committee on producing this report.
Noble Lords alleged considerable lack of interest in the press with regard to the Select Committee's reports on European legislation. I can assure the noble Lord that Her Majesty's Government take them very seriously. The committee's report will play a major part in helping us to Formulate our approach to these issues.
Like the committee, I consider that the central issues covered by this draft directive are of significant importance to our social security system. This third directive builds on the two earlier ones—Directive 79/7 covering state social security systems and Directive 86/378 covering occupational schemes. Each of those earlier directives allowed for specific exceptions from the application of equal treatment between men and women.
The draft third directive seeks to end all those various exclusions and "complete" the process of equal treatment for men and women in both state social security systems and occupational schemes. It is thus of special significance, since its effects could have a direct impact on every man, woman and child in this country.
However, a word or two of caution may be helpful lest we rush headlong into trying to complete the process of equal treatment in social security. The Government agree wholeheartedly with the committee in voicing their strong reservations about a number of aspects in the draft directive. Total equality implanted into social security systems in advance of similar equality in social and economic patterns can be mischievous and damaging.
I should like to illustrate this point with a straightforward example which will be familiar to your Lordships. The draft of the directive which the committee considered would have required that the principle of equal treatment should be applied to the payment of child benefit. However desirable the principle of equality may be, there is a strong tradition in this country, which has been reaffirmed by both Houses of Parliament, that child benefit should in the first instance be paid to the mother. There are provisions which enable the mother and father to agree jointly that the benefit may be paid to the father, but that is a second stage extension of choice.
The Government have consistently opposed this rote application of the principles of equal treatment to the payability of child benefit. It is with considerable gratification that I noted that the committee has agreed with that position in its conclusion in paragraph 115 of the report. I can assure the House that the Government would have had no intention whatsoever of giving agreement to any piece of Community legislation which did not preserve the continuing payment of child benefit to the mother.
1603 I am pleased to be able to inform your Lordships that subsequent negotiations have produced a change on this issue. The United Kingdom and the majority of member states insisted on the change. As a result, the latest draft text now permits each member state to decide on matters of payability of child benefit, providing the conditions for eligibility conform to the principles of equal treatment.
Perhaps I should add at this stage that, while the noble Lord, Lord Allen, and his European Communities Committee were considering this draft directive, the outgoing Spanish Presidency instituted a flurry of continued negotiations. These resulted in a number of redrafted versions of the text. However, these negotiations were by no means sufficient to enable member states to give unanimous agreement to the directive. Consequently, while it was an item on the agenda for the Council of Ministers in Luxembourg last month, the issue was referred back for continuing discussions under the new French Presidency.
This draft directive has as its aim the completion of the process of equal treatment in social security and thus touches on matters of considerable significance and importance. Later in the year the Government will be responding in detail to all the points raised in the House. As I have said, I can assure your Lordships that, in the current deliberations on the directive, the Committee's report will play a major part in helping the Government to formulate our approach to the issues.
The Government's overall view can be summarised quite simply. Because this draft covers issues of fundamental importance, we do not wish to be rushed into judgment. We do not desire to conclude negotiations until we are completely satisfied with the legal soundness of the provisions. We must be as sure as we can be that the judgments of the European Court between the adoption of a directive and the date for its implementation will not radically transform the requirements placed upon us from our initial understandings. We do not accept that the time is ripe for all the issues under discussion to be finalised.
Two major issues are covered by this directive. The noble Lord, Lord Allen, mentioned a third: child benefit, about which I have already spoken. I shall therefore concentrate on the issues of the equalisation of survivors' benefits and the equalisation of pension age, which were touched upon by every speaker.
In the conclusion in paragraph 114 the Committee consider that: "Eventually, men and women should have to be provided with survivors' benefits on the same terms, but Member States should be allowed at least 15 years to achieve this provision".
As the House will be well aware, the 1986 Directive 86/378, on equal treatment in occupational schemes, followed its 1979 state scheme predecessor in specifically incorporating a derogation in respect of survivors' benefits. That is why the equal treatment requirements in Schedule 5 to the Social Security Act which received Royal Assent last week similarly did not extend to survivors' benefits.
1604 That is not to say that we consider provision of widowers' pensions in occupational schemes as a matter of low priority. The 1986 Social Security Act made it a condition for an occupational pension scheme to be used for contracting out of the State Earnings Related Scheme (SERPS) that it should provide a widowers' pension at a guaranteed minimum on the same basis as required for widows. The new contracted-out money purchase schemes and appropriate personal pension schemes are also each required to provide widowers' pensions.
This year's Act, although taking account of the derogation in the 1986 directive, made certain specific reforms in respect of widowers' pensions. Occupational schemes will, from 1st October this year, for the first time be under a statutory obligation to preserve and revalue the rights of widowers' pensions accruing to women who leave an employment. Equally, women who leave their pension scheme before the scheme's normal pension age may, from 1st October, choose to commute part of their pension to provide for their widower.
The noble Lord, Lord Seebohm, among other noble Lords, mentioned the issue of bridging pensions and the Select Committee's recommendation in paragraph 19 that the directive should be amended to allow occcupational schemes to pay bridging pensions to men to compensate for the lack of state pension during any period when women of the same age were entitled to state pension. Transitional pension provision would no longer be applicable once the state pensionable ages of men and women had been equalised.
The House will recall that we had a full debate on the issue when we discussed the amendments of my noble friend Lord Mottistone at both Committee and Report stages of the Social Security Bill. I can assure the House that we shall be writing very soon to the Commission to seek clarification of Directive 86/378, as my noble friend Lord Skelmersdale announced during our debate at the Report stage of the Bill. My noble friend also undertook to consider whether, should the opportunity arise, we must negotiate an amendment to the draft directive to permit bridging pensions to continue. Like my noble friend, I cannot hold out much hope of success.
Turning from the provisions in occupational and private schemes to the question of the provision for widowers' pensions within the state social security scheme, I have to say that the Government have serious reservations as to whether the provision of survivors' benefits for men within the state scheme equivalent to those existing for women could sensibly be justified. Such benefits would be expensive, costing at the moment some £200 million a year.
I need not remind the House that the Government have undertaken a programme to restructure the social security system to provide better targeting of benefits towards those who need them most. The provision of a universal insurance benefit for widowers on a par with those provided for widows would represent poor targeting. The available evidence indicates that widowers are more likely to be in full-time work than widows and to have higher earnings than widows and are less likely to have 1605 dependent children. The Government consider that it would be poor value for money to introduce a universal insurance benefit for widowers. Consequently, however persuasive the theoretical arguments may be for equal treatment for men and women following the death of their spouse, the practicalities of the situation would seem to rule that out for the foreseeable future.
The Select Committee has recognised the problems and argued that member states should have at least 15 years to bring about equality. The Government do not think it right to agree to a proposal where it is doubtful whether there will be a justifiable practical case (as against a theoretical case) for change within two decades. As a consequence, the Government have made it clear to the Commission that, having reflected on the issue, we consider that equalisation of survivors' benefits within the state social security system should be entirely removed from the directive. That is not to say that we shall not continue to reflect on the position and keep it under review. But we do not want to be forced by a directive into something that we may decide against.
It follows that the Government consider that the Third Directive is too ambitious and not suited to the times. It should thus be retitled so that it seeks to "continue the process of equalisation" rather than "complete" it. In that, we are in full agreement with the committee's conclusion in paragraph 121.
That brings me to the second major issue, which was mentioned by every noble Lord who spoke; namely, the equalisation of pension age. In paragraph 116, the committee has made a series of bold recommendations.
The question of equalising state pension age has been a live issue for a considerable number of years in this country. The case for an equal pension age is well recognised, but there are major issues to be considered, notably the direction of change and the practicalities involved in moving to a changed and equalised position. The Government have highlighted that issue on a number of occasions, most recently in the 1985 White Paper on the Reform of Social Security.
The committee has favoured a decade of retirement with full pension becoming payable at age 63 for both men and women, while recognising that women at present aged 50 or more would need to have their position protected. While equalising at the age of 60 would undeniably place very considerable additional burdens on the working population, equalising at the age of 63 would add substantial extra costs to the large sums already spent on state pensions. In addition, a decade of retirement might also add significant complication to pension arrangements. To date, no satisfactory solutions have been found to those problems.
Moreover, as the pattern of economic activity in the country develops and as the demographic trends into the next century emerge, so the relative and absolute costs of options for change are likely to alter. A further factor is the aspirations, expectations and plans made for retirement of the working population, especially those approaching retirement. 1606 As a consequence, the Government consider that further estimates of costs and consequences, based on the latest information and projections, should be made to provide a benchmark for public discussion. Revised financial costings are therefore currently being undertaken with that end in view. Once they have been completed, they should provide a surer basis for appraisal of options.
I am in no doubt that we would all agree that any decision on equalisation of pension ages or the creation of a decade of retirement would need to be based on the best and most up-to-date estimates of costs and effects. Any change in pension age could have an effect on millions of people, of whom many will already be approaching retirement and will have made plans appropriate to their circumstances. Not only must reasonable expectations be respected, but time needs to be allowed to enable people to respond to changed needs and to enable occupational schemes to make adjustments in good time. Until an informed decision can be made, and has been the subject of debate, it would not be responsible to reach conclusions as to likely outcomes.
Those member states which do not already have equal pension ages for men and women jointly face problems of when and how to equalise. Further negotiations will undoubtedly help to clarify the outcome of these problems and the timescale for change. Given the need to protect the aspirations and expectations of those currently approaching retirement, it is hard to envisage any actual change in state pension age for those retiring in this century.
The draft directive and the committee's report touch on other significant issues and I should like to bring the House up to date on some more recent developments and, in so doing, respond also to some of the points which have been made in our debate. First, I can tell your Lordships that we have apparently been successful in a number of important respects. For example, in the latest working text, the period required for legislation in Article 14 has been increased from three to six years. We regard this as important so that any necessary legislation is not rushed but can be introduced with full consideration and consultation.
The noble Lord, Lord Allen, and the noble Baronesses, Lady Lockwood and Lady Seear, spoke of derived entitlements and individualisation of benefits. Again, I can assure the House that in the latest working text of the directive reference to derived entitlements has been omitted altogether. In its report the committee concluded that, providing that derived rights were not withdrawn altogether, there was no objection to reference to them being progressively replaced by individualised entitlements.
The noble Baroness, Lady Lockwood, raised the question of the application of the judgment of the European Court of Justice in the case of Kaufhaus v. Karin Weber von Hartz. The full effect of that judgment is by no means clear. The question of whether Article 119 of the Treaty of Rome applies to occupational scheme benefits is at issue in two cases that are currently before the European Court 1607 of Justice. One is the case of Barber v. Guardian Royal Exchange and the other is Clarke v. Cray Precision Engineering.
The noble Lord, Lord Allen, and the noble Baroness, Lady Lockwood, raised the issue of calculating pensions on sex-based actuarial considerations. It seems fairly clear that actuarial considerations of differences between the sexes are a legitimate factor for any insurance type of transaction. There is an empirical difference between the life expectancy of men and of women at specific ages, as is clearly indicated by the table supplied by the Government Actuary and shown on page 89.
However, it is also clear that there are other factors which could be introduced—for example, whether or not the individual is a smoker. Equally it would be a simple matter to eliminate actuarial differences providing that the will to do so was there and that the resulting disadvantage to men was accepted by all.
The experience of the state of Montana, which I believe the Select Committee studied, as well as the other illustrations cited by the Government Actuary, indicate that the general effect of operating unisex calculations is that the rate for women is applied universally. It remains an open question whether or not that is desirable or necessary.
The noble Baronesses, Lady Lockwood and Lady Seear, argued that part-time workers should be brought within the scope of this directive. The Select Committee concluded the same. Article 2(a) specifies the groups in the working population who would be covered by the directive. The pattern of part-time work varies widely between various member states. Given that it did not prove possible for member states to reach agreement in 1982 on this issue, I have to say that it would seem most likely that the problems of definition and coverage would be magnified were an attempt made to include part-time workers in this directive. As to the question of the proper place for a definition of indirect discrimination, it remains the view of the Government that agreement on the definition of a part-time worker would more usefully be left to another instrument.
In conclusion, I should like to thank the Select Committee for its thoughtful and constructive report. It is informing the thinking of the Government on the issues, as I said before and as I trust will be apparent when our formal response is published in the autumn. Some of the issues involved are not easy. Many practical difficulties lie in the path of the purist quest for complete equality of treatment between men and women. My view is that the Select Committee have trod this path with clarity and common sense. I have no doubt that, as further negotiations are progressed in Brussels, this report will provide an invaluable source of information and observation with which to progress continuing negotiations.
§ 2.20 p.m.
§ Lord Allen of Abbeydale
My Lords, I shall not detain your Lordships for very long. I do not propose 1608 to traverse all the ground again. However, it is worth saying that from the contributions made to the debate it looks as though among the variety of issues raised by the draft directive there are four which attract particular attention. They relate to part-timers, individualisation, indirect discrimination and pension ages. On indirect discrimination, as I understand it, the Commission has not yet given up the struggle for including something in the burden of proof directive, which would, if implemented, apply to this directive in due course.
I have listened with care to what the Minister has said. I am glad that he confirmed my impression that the Commission had given up its efforts to deal with child benefit on the basis set out in the draft directive. Although I shall read with great care what he has said, I must confess to some slight feelings of disappointment. It is not a unique experience in listening to a Minister from his department answering one of these debates, but there it is.
I am sorry that the Government have not yet written to the Commission about the point on the Social Security Bill that concerned the noble Lord, Lord Mottistone, and others, about bridging pensions. I hope that we shall be informed when some information is available.
I include among my disappointments what I understood the Minister to say about survivors' benefits and pension ages. I cannot claim to have taken it all in but it sounded distinctly like some of the pieces that I used to write when I was a civil servant when I had not the slightest idea what to do and could only write something which I hoped would put off the decision to some distant date in the future. I may be doing the Minister an injustice. I shall certainly read what he has said.
Although he said with perfect propriety that these were complicated matters involving expense and the interests of a great many people, and that it was necessary to move with caution, I hope that he does not overdo that. I should like to see the Government taking a rather greater initiative in coping with the problems that are involoved in the directive.
I rub in the point that the noble Baroness, Lady Lockwood, made. There are a number of issues here on which action ought to be taken by the Government quite apart from what happens to the directive. They are matters that are of great interest and importance. That leads me also to this reflection. I find it rather sad and disappointing that there was not a single Tory speaker in this debate. Looking at the Benches opposite, during a considerable part of the debate, one found it difficult to believe that that great party takes a great interest in social matters which affect many millions of people in this country.
Having said that, I should like to thank all those who have taken part in the debate, which I found of great interest. I can only say that it is not the end of the story and that there are issues to which we shall be returning in due course. I commend the Motion standing in my name.
§ On Question, Motion agreed to.