HL Deb 15 February 1990 vol 515 cc1492-502

5 p.m.

The Earl of Caithness

My Lords, I beg to move that the Bill be now read a second time.

This Bill is the first Bill since 1975 to make changes to the existing statutory framework for public service superannuation provided by the Pensions (Increase) Act 1971 and the Superannuation Act 1972. The present system of public service superannuation has worked well since then and major changes are not needed. Nevertheless, we need to keep the system up to date and to make minor adaptations and alterations to meet new requirements and changed circumstances. We have to make such changes now to meet our EC obligations regarding equal treatment in occupational pension schemes and this Bill provides an opportunity for us to make other essentially detailed and technical changes to the statutory framework.

Until the 1970s the rules of public service superannuation schemes were generally contained in primary legislation and public service pensions were increased to compensate for inflation on an ad hoc basis by various Pensions (Increase) Acts passed between 1920 and 1969. The system was changed in 1971. In that year, the Pensions (Increase) Act provided for regular increases in public service pensions by statutory instrument. The Act was amended in 1972 and 1974 to lower the minimum qualifying age for pensions increase from 60 to 55 and to provide for all pensions paid to widows of scheme members to be increased. In 1975 the system was adapted by the Social Security Pensions Act to integrate public service and state pensions increase arrangements and allow for contracting-out by public service pension schemes.

In 1972 the Superannuation Act provided for the local government, teachers' and NHS schemes to be contained in regulations and gave the Minister for the Civil Service (now the Treasury) power to make, maintain and administer Civil Service pension schemes. No major changes to this Act have been made since then but similar provisions were made for the police pension scheme by the Police Pensions Act 1976.

The Bill is essential in order to meet the requirements of an EC directive on equal treatment in occupational pension schemes. Most schemes have traditionally operated on the now outdated assumption that women are dependants, and that men are breadwinners. The Bill provides for men and women pensioners to be treated the same so far as concerns the increase of their pensions under the Pensions (Increase) Act. The Bill also makes some other minor changes to the legislative framework for public service pensions. It does not make major amendments to the existing law and the Government see no reason to make any such changes at this time. That is because there is no longer any need to use primary legislation to amend the rules of most public service pension schemes. Regulations made under the relevant statutes can make most of the changes to scheme rules which we may want or need.

We also consider the existing statutory arrangements for public service superannuation to be generally satisfactory. That does not mean that there will not be individual grievances about pension schemes, the benefits they provide and how they are administered. That is inevitable; everyone would always like higher benefits; and we should all like to pay less for them. But we cannot settle these matters by changing the system. And public service pensioners also have the greater opportunities, which this Government have made available to occupational pensioners generally, to make personal pension provision or to pay additional voluntary contributions. There is less need, therefore, to make general improvements to public service pension schemes.

The days of large and technically detailed superannuation Acts are therefore long past. But this does not mean there will never be a need to legislate. From time to time there will be a need to update the statutory framework. This Bill fulfils that more modest ambition in three ways. First, it will rectify a few anomalies and minor unintended consequences of the law which have emerged since the early 'seventies. Secondly, it will make some small but nonetheless desirable amendments to the statutory framework, including some minor changes occasioned by the wider scope for making additional voluntary contributions introduced by public service schemes following the Social Security Act 1986. Thirdly, it will extend the powers of the Secretary of State in relation to the determination of employers' contributions in the teachers' and NHS schemes and the payment of injury benefits to teachers.

As I am sure the House will appreciate, many of the clauses are complex and technical. There will be an opportunity for detailed discussions in Committee. Today I shall briefly sketch the effect of each clause and the reasons behind the Bill. But I should begin with a general comment. The Bill does not alter the provisions of any pension scheme or whether a pension is paid. The provisions of the schemes concerned are given in the rules made under the Superannuation Act and those rules, not the Pensions (Increase) Act or the Social Security Pensions Act, determine whether a pension is paid.

Clause 1 is the main clause in the Bill. Public service pensions are increased to compensate for inflation provided certain qualifying conditions are satisfied and this clause amends those conditions. There are three separate changes. First, the clause provides for the phasing out from 1st January 1993 of a condition under which retired female scheme members with dependent children qualify for pensions increase even if they are below the normal qualifying age of 55. This concession does not apply to male pensioners and the proposed change is needed to comply with EC Directive 86/378 which requires member states to introduce equal treatment for men and women into occupational pension schemes. This provision is very rarely used. We know of only eight women who benefit in the centrally administered pension schemes for which data is available.

However, if the provision were applied to men, the picture would be very different. It is thought that approximately 7,000 police pensions would have to be increased, and the cost in the long run would be about £14 million per annum at today's pension levels. In the armed forces if analogous arrangements were made for those schemes it is thought possible that some 50,000 pensions would have to be increased at a long-run cost of about £100 million per annum at today's pension levels. The Government do not consider that it would be appropriate to make a major extension of this kind to the conditions for pensions increase. We must therefore repeal the relevant provision to introduce equal treatment into the Pensions (Increase) Act. The Bill does this but ensures that the accrued rights relating to service rendered before 1st January 1993 of the very few current and future female pensioners who benefit from this provision are fully protected.

Secondly, the clause provides for all pensions paid to survivors of scheme members to be increased in line with prices. At present, widows' and children's pensions are increased but pensions paid to widowers and other adult dependants are only increased if the survivor is over 55 or physically or mentally incapacitated or, if a woman, has a dependent child. Most public service schemes have now aligned their rules on widowers' pensions with their rules on widows' pensions and it is appropriate therefore that widowers' pensions should now be increased under the same conditions that apply to widows' pensions. The clause also provides for the very few adult dependants' pensions not currently increased to be increased irrespective of the pensioner's age or state of health.

I should stress that these provisions will affect very few women and men receiving or expecting to receive public service pensions. No one will lose any accrued rights. There is little extension of existing provisions. This is a practical, cost-effective and reasonable solution to the problem of equal treatment and the requirements of the EC directive.

Thirdly, two minor extensions have been made to the conditions under which injury benefits paid by pension schemes are increased to ensure that pensions increase in these cases is covered by the Pensions (Increase) Act.

Clauses 2, 3 and 10 make changes to the Acts to rectify some problems which have emerged since the early 1970s. Clause 2 amends the Pensions (Increase) Act 1971 to make the law on two small technical aspects of pensions increase what it was always thought to have been since 1965. Clause 3 amends the Pensions (Increase) Act to end a provision which gives rise to extremely small payments to pensioners but with a disproportionate administrative burden for scheme arrangements. Clause 10 amends part of the Superannuation Act 1972 to clarify the protection given to re-employed scheme members if changes which are potentially detrimental to them are made to regulations for the local government, teachers and NHS schemes.

Clause 4 enables the Secretary of State to make regulations for the teachers' and NHS schemes under which the costs of pensions increase may be recovered from employers through the contributions which they already pay towards the cost of basic benefits. Employees' contributions will not be affected.

Clause 5 amends a provision in the Social Security Pensions Act 1975 under which some widows have had part of their pensions unintentionally indexed by both the public service pension scheme and by SERPS.

Clauses 7, 8 and 9 make some minor technical amendments connected with the wider scope for making additional voluntary contributions introduced following the Social Security Act 1986. Clause 7 makes sure money purchase benefits arising from additional voluntary contributions paid by scheme members are not indexed by public service pension schemes. Clause 8 relieves certain schemes of a responsibility to pay annuities purchased by scheme members where the scheme member himself has chosen the company which will provide the annuity. Clause 9 brings money purchase pension schemes for civil servants within the scope of the existing arrangements for agreeing amendments to civil service pension schemes which may adversely affect the accrued rights of scheme members or nensioners.

Clause 11 allows the Secretary of State to make regulations under which injury benefits can be paid to teachers by their employers. This clause also allows existing arrangements made by some local education authorities to continue until such time as any regulations are made.

That concludes the majority of what is in the Bill. I should just add that in Committee the House will also have to consider a small number of technical drafting amendments which the Government will table shortly. It is almost inevitable that legislation on superannuation, even enabling legislation such as the existing law, is detailed and highly technical. The House will be performing a useful role by helping to dot the "i"s and cross the "t"s during its passage.

The Bill is almost wholly concerned with making minor, largely technical, adjustments to the existing legislative framework governing public service pension schemes. That framework has stood the test of time very well but we need now to make sure that it can continue to do so in the future. This short Bill will do that and I commend it to the House.

Moved, That the Bill be now read a second time. —(The Earl of Caithness.)

5.14 p.m.

Baroness Turner of Camden

My Lords, I thank the Minister for the way in which he introduced the Bill. At first sight it looks very uncontroversial. It is about public service pensions and such schemes have a record of leading the way in pension provision for employees. Public sector pensions, for example, are index-linked in payment, as the Minister indicated. The private occupational pension sector is still far from achieving that desirable objective. I believe that in 50 years' time, perhaps even sooner, our successors will not understand how we could tolerate a situation in which the worth of a pension steadily declined from the day it started payment. We shall have an opportunity of debating that issue when the Social Security Bill is before your Lordships in the near future. I will therefore say no more about it at this stage.

The present Bill is said to be necessary because of the demands of the equality provisions which are being made in the EC. No one objects to that and, indeed, I very much welcome any steps in that direction because I believe completely in equality in pension provision. I welcome the proposals in that regard which are contained in the Bill.

One of the problems, as I see it, in looking at the government propositions is that in one specific area there seems to have been a tendency to level down rather than up. If one sex has an advantage, however minor, over the other the situation is remedied by doing away with that small advantage. That is what we appear to have in the Bill when we look at the abolition of the pension increases hitherto available for retired women under the age of 55 with dependent children. As was explained, this is not currently available to men and therefore the intention, in the name of equality, is that this should go altogether.

We heard this afternoon that there are very few women in that position, and I welcome the assurance that those who are are apparently to have full protection. I was very surprised to hear from the Minister that extending this arrangement to men would be too costly an exercise and cover very many men. I had intended to ask precisely what the situation was in that regard because ideally when there is an advantage with one sex I should like to see it extended to the other as a way of achieving equality. However, I note what the Minister said about the very large number of men affected if we extend that provision to men as well as to women. Perhaps we can explore that a little further in Committee.

I am informed by the local government pensions advisers that they expressed particular concern about Clause 10 of the Bill. As I understand it, it restricts the cases in which re-employed members of the local government superannuation scheme and the national health superannuation scheme may claim that regulations which are detrimental to them should not apply. I am informed that this change effectively nullifies most of the advantages previously conferred on such persons under the Superannuation Act 1972. The effect of the clause is to apply such advantages only to previous service. I am informed that there was no consultation at all about that although the mechanism for such consultation exists.

In this House we have repeatedly referred to demographic changes which will result in a declining labour force, particularly affecting those with skills and experience. The current need is for greater involvement of older people. It seems illogical to impede the re-employment of skilled persons who can best be employed in jobs in which their previous skills and experience could be useful.

The treatment of employees under Clause 10 is contrasted with that of civil servants under Clause 9. Under that clause any alterations to a money purchase pension scheme can only be made with the consent of the representatives of those civil servants affected. In Clause 10, however, an existing right is removed without the consent of the representatives concerned, the employees or, as I understand it, even the employers. I should be grateful if the Minister could explain the reasons for that. On the surface it appears rather unsatisfactory.

I should like to make a brief reference to Clause 7 of the Bill which amends Section 8 of the Pensions (Increase) Act 1971 to exclude any money purchase benefits from the definition of "pensions" which may be increased under the Act. I understand the reasons for this clause. The point I should like to make is that the Government appear to be encouraging the growth of money purchase schemes, which are calculated not by reference to salary and years of service but simply by reference to the performance of the investments made on the member's behalf. The member thus has no real way of knowing what the ultimate pension will be, unlike salary related benefits.

I do not think that money purchase schemes should be encouraged in the way that the Government have done. Neither do I think —I have said so before in other contexts in this House —that they should encourage personal pension schemes. I hope that there will be very few people in public sector schemes who opt for personal pensions since the occupational schemes that they are currently covered by are very much better than anything they are likely to get by way of a personal pensions route.

I am glad to say that during the 1970s there was a switch away from money purchase schemes largely, I believe, as a result of union pressure and that pressure was to some extent led by the public sector unions. There was a switch over to final salary schemes. I still think that the final salary scheme, based on years worked and related to salary at the point of retirement, is really the best way of making pension provision for employees.

As regards teachers' pensions, I am advised by both the NUT and the Assistant Masters and Mistresses Association, that there has been no consultation by the appropriate procedures on the provisions of this Bill. I should like to ask the Minister about that and why that is so, if that is actually the case. The AMMA makes the point that Clause 4(1) contains provisions for charging the cost of pension increases to employers' contributions which they maintain must only be activated as part of a set of changes agreed with the teachers' trade unions. The NUT says that both teachers and local authorities have long been dissatisfied with the present notional funding arrangements of the teachers' superannuation scheme. That dissatisfaction centres principally on the inadequate rate of investment return provided under the present arrangements.

As I understand it, in the past two years there have been discussions within the teachers' superannuation working party on a reform of those issues. The deliberations of the working party have centred around two particular ponts: first, identifying a means of ensuring realistic returns on future excesses of income over expenditure and, secondly, arriving at a method of determining the initial fund which takes account of the views of the three parties concerned. The third element of the proposed packet of changes from the working party is that the cost of pension increases, which is currently a direct charge on the Exchequer, should be charged to the teachers' superannuation scheme. I am advised that this extra financial burden could be carried by a larger notional fund enjoying better returns. I would like to have the Minister's comments on that.

I believe that all these matters are currently under consultation and discussion. The teachers' unions are anxious that decisions on this Bill should not pre-empt the outcome of these consultations and discussions. I ask the Minister: what is the current position and how is it intended further to proceed? Having said that, there are many aspects of this Bill which are to be welcomed. I hope that public sector schemes will continue to lead the way in the pensions field by setting standards to which the rest of the pensions industry should look for guidance in the future.

5.23 p.m.

Lord Rochester

My Lords, from these Benches I join in thanking the noble Earl, Lord Caithness, for the clear way in which he has introduced this Bill. The matters with which it deals are in some respects complicated and I am certainly not expert in them. However, it is plain that the main provisions are in Clause 1 and that many of the other clauses are concerned merely with matters of a technical nature or designed to tidy up existing legislation.

Therefore, it is on Clause 1 that I propose to concentrate most of my few remarks. As has been said, the clause provides for the phasing out from 1st January 1993 of the present arrangement under which retired women members of public service pension schemes who have dependent children, qualify for a pension increase if they are below the age of 55. It also ensures that accrued rights relating to service before 1st January 1993 are protected. Because the present provisions do not apply to men, we are told that the proposed change is needed to comply with the relevant EC directive requiring member states to introduce equal treatment for men and women into occupational pension schemes.

It is further claimed that very few women qualify for a pension increase under present conditions in this country —I believe the noble Earl mentioned that there were only eight to his knowledge —but if those conditions were applied to men, that would mean that the pensions of thousands of people in the police and armed forces' schemes would have to be increased. The Government do not consider that it would be appropriate to make such a major change because it would involve giving pension increases to men retiring at a comparatively young age who are then able to enjoy second careers.

The Minister said that it would also result in unacceptably high expenditure amounting, I think he said —and perhaps he will confirm this —to £100 million a year after 20 years. In this case I am prepared to accept that argument and, largely for the same reason, along with my noble friends, to express my agreement that the Bill should be given a Second Reading. Nevertheless, we must recognise that the elimination of discrimination, removing the benefits now enjoyed by women, amounts (the noble Baroness, Lady Turner, has said as much) to a levelling down rather than a levelling up.

Therefore, in accepting the proposal in this case it should not be thought that the Government will have our agreement if they seek to use this Bill in any way as a precedent for further legislation stemming from EC directives and covering other aspects of social policy. In that connection I would like to take this opportunity to remind the House of one of the conclusions in the report of your Lordships' European Communities' Committee on Equal Treatment for Men and Women in Pensions and Other Benefits. In initiating a debate on that report on 27th July last, the noble Lord, Lord Allen of Abbeydale, whom I am glad to see in his place, said in the Official Report at col. 1579, there should be a decade of retirement where both men and women can 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". At that time my noble friend Lady Seear supported the principle of flexibility in retirement but recognised that the pivotal age was a matter for discussion; and that there was a need for careful consideration before a decision was finally taken having regard to the expenditure that the country could afford. Part of the Government's response to that debate was that equalising at the age of 63 would add substantial extra cost to the large sums already spent on state pensions and that a decade of retirement might also add significant complication to pension arrangements.

I take this opportunity to urge that, in the matter of equality of pension benefit, any inclination on the part of the Government to level down by fixing the pivotal age in that case as high as 65 should at least be balanced by an increase in the level of the basic state pension. I say that for the simple reason that in my view pensioners deserve to receive a fair share of this country's wealth.

The only other clause of the Bill on which I wish to speak is Clause 4. It enables the Secretary of State to make regulations providing for employers to meet the cost of pensions' increases in the teachers' and NHS superannuation schemes. At present this cost is met by the Treasury. I am concerned about two aspects of this matter. First, there have been numerous recent examples of the Government introducing enabling legislation under which they are empowered to make far reaching changes subsequently by regulation. Local authorities are already wondering how on earth they are to meet their existing financial commitments without being capped for levying excessive amounts of poll tax. If such fundamental changes as the clause envisages are now to be made to the financing of public service pensions through the transfer of ultimate responsibility for funding to local authorities, I should like to know why those changes, once their content is known, should not be incorporated in primary legislation which can be adequately debated, and if necessary amended, rather than being subject only to the negative resolution procedure.

Secondly, I understand that although the working party on the funding of the teachers' superannuation scheme has reached agreement on how the scheme can be credited with sufficient funds to meet its future commitments, no agreement has yet been reached on the means by which the scheme could be compensated for past deficiencies in funding. The noble Baroness also had something to say on this point. I understand that on that account the working party sought a year ago to have an urgent meeting with the Secretary of State to discuss the problem; but as yet no such meeting has been held. Will the Minister give an assurance that before the relevant regulations are introduced there will be adequate consultation with all the interests concerned?

5.32 p.m.

The Earl of Caithness

My Lords, I am grateful for the reception given by both the noble Baroness, Lady Turner of Camden, and the noble Lord, Lord Rochester, to this modest, but I am sure the House would agree, complex Bill. I look forward to discussing the details in Committee.

Perhaps I may take up some of the points that were raised. Both the noble Baroness and the noble Lord paid particular attention to Clause 1. This was not surprising as I said that it was the main clause of the Bill. They were concerned about levelling up as against levelling down. It is on the one hand the case that we have identified so far a maximum of eight women against a potential of the male side of a further 57,000 who might have to come into consideration if we levelled up. That would involve public expenditure of more than £110 million when fully costed up. I was therefore grateful for the acceptance of our argument by the noble Lord that we should in this instance level down. I can confirm to the noble Baroness what I said earlier about the existing benefits for women.

The noble Lord, Lord Rochester, also asked about equalising pension ages. As he said, we have been over this course before. I can confirm that the Government recognise the arguments for equalisation of pension ages. As he indicated, there are a great many complex issues to consider. The demographic factors and the long-term economic and financial implications of any change for individuals, employees and the state are but a few of the difficult considerations.

When I looked into the matter, I was interested in the question of pivotal age. The noble Lord mentioned a pivotal age of 63. It is interesting to see what happens in the rest of Europe. There seems to be a common pension age in some countries. In Denmark, it is 67; in France, it is 60. A few countries have a common pension age of 65. A few have different pension ages. In Italy, the pension age for men is 60 and for women it is 65, so there is quite a diversity in Europe.

Lord Allen of Abberdale

My Lords, did the noble Earl give the pension ages for Italy the right way round? I had understood the pension age for men to be 65 and for women 60. I think he said it the other way.

The Earl of Caithness

My Lords, in Italy the pension age for men is 60 and for women it is 55.

Lord Allen of Abbeydale

My Lords, I think the noble Earl said 65.

The Earl of Caithness

My Lords, I apologise if I said 65. I am therefore even more grateful to the noble Lord, Lord Allen of Abbeydale, for intervening and allowing me to correct the impression I gave to the House.

The noble Baroness put next in her batting order of concern Clause 10. Perhaps I may elucidate. Clause 10 amends Section 12 to put the re-employed scheme member in the same position as a scheme member who has left but not rejoined only in respect of the pension entitlement he has accrued at the end of periods of service completed before re-employment. The re-employed scheme member is placed in the same position by this amendment as another employee who is serving for the first time in respect of his pension entitlement currently being accrued or which may be accrued by future service. The noble Baroness read into Clause 10 a little more than we are doing. I shall read in the Official Report what she said and write to her if I did not cover that point fully. The noble Baroness then contrasted Clauses 9 and 10. Clause 9 does not confer a new right on civil servants. It extends the right which already exists in relation to salary related pension benefits.

On Clause 7, the noble Baroness was concerned about the Government not planning to index money purchased benefits. It would not be appropriate for the pension scheme to index money purchased benefits. The annuity purchased by the scheme member with the proceeds of additional voluntary contributions depends on the terms which the annuity provider is prepared to offer the scheme member. Annuity providers can offer partially or fully indexed annuities and scheme members can purchase such annuities if they wish to do so. The noble Baroness will be pleased to hear that added years will continue to be indexed.

Both the noble Baroness and the noble Lord were concerned about consultations regarding Clause 4. I can reassure the House that there will be full consultations with staff and employers before the power is used. As the noble Lord will know, we are required to do that by Section 9 of the Superannuation Act, and we shall fulfil our obligation under that Act.

I am grateful to the noble Baroness and to the noble Lord for their contributions. If I have missed any points I shall take them up between now and Committee stage. The Bill adapts and improves a good system, which has worked well for nearly 20 years, to meet the needs of the 1990s. It is fair to pensioners and current employees. It is fair to the taxpayer. I am convinced it is a reasonable and realistic response to the problems of equal treatment. On that basis, I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.