HL Deb 08 March 1990 vol 516 cc1274-84

4.10 p.m.

The Paymaster General (The Earl of Caithness)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(The Earl of Caithness.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 1 [Qualifying conditions]:

The Earl of Caithness moved Amendment No. 1: Page 1, leave out line 27 and insert: ("(c) in subsection (8), for the words "or (3)(a) above, or in both," there shall be substituted the word "above".").

The noble Earl said: This amendment. corrects a minor drafting omission. It is self-explanatory. I beg to move.

Baroness Turner of Camden

We on these Benches accept the amendment.

On Question, amendment agreed to.

Baroness Turner of Camden moved Amendment No. 2: Page 2, line 2, leave out ("subsections (10) and (11)") and insert ("subsection (10)").

The noble Baroness said: This is in the nature of a probing amendment. I make no claims to technical excellence for it. The Bill as it stands seeks to meet the demands of equality by removing from women a condition which allows the payment of pensions increases to pensioners under 55 with dependants. We were told on Second Reading that the number of women involved is small. I believe it is only eight. We have also been informed that their accrued rights will be protected. That appears to be provided for in the Bill. However, I am not happy about provisions designed to bring about equality between the sexes on the basis of the less favourable rather than the most favourable provision. In my view there should be a levelling up rather than a levelling down. That is also the view, as I understand it, of the National Union of Teachers. That is one of the unions affected by the measure and its staff have written to me on the subject.

It appears that the NUT approached the Department of Education and Science some time ago seeking a change in the regulations to include men under age 55 with dependent children. The Department of Education and Science referred the matter to the Treasury and the subsequent provision in the Bill, which now causes the NUT concern, is that the Government propose that women under age 55 will not qualify for their public service occupational pension to be index linked after 1st January 1993. In other words, the department went along to the Treasury to try to obtain an improvement which would enable men to benefit from the slight advantage but now the provision is to disappear altogether.

The Minister said on Second Reading that if a levelling up process were adopted it would result in heavy expenditure because it was estimated that the numbers involved would be very great. I should like to explore this matter a little further. It seems to me to be a bad principle that equality must be achieved at the lowest cost and by adopting the lowest provision rather than the better one. Although only a few women are affected at the moment, that does not take account of what could happen in the future. As we all know in this House, we are facing demographic changes. I suspect that in the future there will be far more women who at some time during their working lives will have to adopt the role of carers, and who will therefore need support because they have dependants. For those reasons I should like to explore the matter further through my amendment.

As I said earlier, I am not wedded to the wording of my amendment. I do not claim technical excellence for it. Nevertheless, I simply wish to explore further a situation which reduces a good provision for women instead of transferring that better and more advantageous provision to men in the cause of equality. I beg to move.

Lord Rochester

On Second Reading I said that it must be recognised that the elimination of discrimination by removing the benefit now enjoyed by women amounts to a levelling down rather than a levelling up. It should not be thought that because we accept the proposal in this case, the Government would obtain the agreement of Members of the Committee on these Benches if they sought to use this Bill in any way as a precedent for further legislation stemming from European Community directives and covering other aspects of social policy.

In that connection I instanced on an earlier occasion the matter of equalising retirement ages. The noble Earl, Lord Caithness, will recall that. I said that any inclination on the part of the Government to level down by fixing a common retirement age as high as 65 should at least be balanced by an increase in the level of the basic state pension. In his reply to the debate the Minister said nothing, if I may say so, to reassure me on that point. I shall be interested to hear whether he can add anything today to the non-committal statement that he then made.

4.15 p.m.

The Earl of Caithness

I am grateful for the clarity with which the noble Baroness introduced her amendment. It may help the Committee if I briefly define the purpose of the clause. This clause of the Bill provides for the phasing out of Section 3(2)(c) of the Pensions (Increase) Act. This section provides for women pensioners under 55, not disqualified on ill-health grounds, to qualify for a pensions increase if they have a dependent child. Very few women qualify under that provision. As the noble Baroness reminded the Committee, as far as we know only eight women come into this category in the centrally administered schemes for which details are available.

However, this discrimination must be ended to comply with the EC Directive No. 86/378 which requires member states to introduce equal treatment for men and women in occupational pension schemes. Levelling up—that is, giving the same concession to men and women pensioners under 55—would be costly for schemes with normal retirement ages under 55. Equal treatment can only therefore be secured by removing this provision. That is done in the Bill in a way which fully protects the accrued rights of female scheme members and pensioners. That was a point that the noble Baroness raised. I hesitatingly confirm what I said to her on Second Reading. The existing rights are protected.

I must tell the noble Baroness that her amendment is not technically correct, but I do not wish to go into that matter because there is the argument she raised about cost. It is for that reason that I have to advise the Committee that this amendment should be rejected. As the noble Baroness intimated, the cost would be large.

The initial cost would be about £6 million per annum for the police scheme and, if analogous arrangements were made, about £75 million per annum for the armed forces schemes. These costs could reach £14 million per annum at today's pension levels for the police schemes and, if analogous arrangements were made, about £100 million per annum for the armed forces schemes. That is a quite considerable chunk of taxpayers' money, and whatever government were in power would have to consider that among their other priorities because inevitably we all have to live on a budget.

Those who have retired on ill-health grounds or who are physically or mentally disabled already receive pensions increases below the age of 55. When other pensioners in these schemes reach 55, which is still five years younger than the normal retirement age for most public service schemes and 10 years below the age for state pensions, their pensions are increased and the increase that has built up since they retired is paid. I am sure the Committee agrees that we could not give priority to targeting additional benefits on a group of public service pensioners who already enjoy some of the best pension provisions of any groups of public sector employees. It is for that reason that the Government consider it is appropriate to level down and phase out this concession which benefits, in practice, only a small number of women.

I must say to the noble Lord, Lord Rochester, that I cannot add anything more to what I have already said. However, if I can add anything, having had further thought on the matter, I shall let him know.

Baroness Turner of Camden

I thank the noble Earl for that explanation. It is not my intention to press the amendment this afternoon. As I said when I introduced the amendment, it is a probing amendment to explore further the Government's view on the proposition that there should be a levelling up rather than a levelling down.

However, before I withdraw the amendment, I should like to put one further point to the Minister which was raised at Second Reading by the noble Lord, Lord Rochester. In principle we on these Benches, and I believe the noble Lord, Lord Rochester, are not in favour of achieving equality by choosing the lowest level rather than the better condition. Will the Minister let me know his view as to whether the Bill will be regarded as a precedent for the future? There are bound to be occasions in the future, particularly arising from European directives, when we have to take steps to equalise pension provisions. Situations may well arise where conditions are similar and men may not have benefited in the past while women have received a slight concession, and so on. I should hate to think that we should regard levelling down as an appropriate way of achieving equality within the directives emerging from Europe.

The Earl of Caithness

I fully understand the concerns of the noble Baroness. She will understand that I cannot give her the cast-iron guarantee that she would like me to give. However, I can assure her that every scheme will be considered on its merits, because every scheme will be different. One has to look at the entire picture. In this particular case, after a great deal of thought, we decided that it would be right to deal with the matter as we have. I am not in a position to judge at the moment whether similar circumstances apply to other schemes.

Baroness Turner of Camden

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 3 and 4 not moved.]

Clause 1, as amended, agreed to.

Clauses 2 and 3 agreed to.

Clause 4 [Employers' contributions towards cost of pensions increase for teachers and persons engaged in the health services etc.]:

Baroness Turner of Camden moved Amendment No. 5: Page 4, line 42, at end insert: ("(3) Regulations under subsections (1) and (2) above shall only be made after consultation with appropriate bodies as provided for by section 9(5) of the Superannuation Act 1972.").

The noble Baroness said: Again, this is an attempt to probe beyond what was said by the Minister in the Second Reading debate. I have put down the amendment because I was not altogether happy with the reply that I received from the Minister when we discussed Clause 4 on that occasion. It seemed to me that the only way in which I could raise the matter in Committee was by putting down an amendment in these terms.

The amendment calls for consultation with the appropriate bodies before regulations under the clause would be brought into operation. I am sure that the Minister will say that it is entirely unnecessary because the 1972 Act compels consultation and there is no point in stating it again in the Bill. However, there is genuine concern among the teaching organisations about the Government's intentions under this clause. Although there has been an assurance that there will be consultation, there is a need to know more about the Government's intentions at this stage.

I have been told by the teaching organisations that they would like to know the precise circumstances in which Clause 4(1) will be activated for the first time. Is there any prospect of the clause being activated for the first time before, first, there has been an agreed revaluation of the teachers' superannuation scheme notional fund and, secondly, agreement has been reached on a method of ensuring realistic returns on future excesses of income over expenditure for the teachers' superannuation scheme notional fund? It may be recalled that the issue of the teachers' superannuation scheme notional fund was raised earlier when we discussed the matter at Second Reading.

I should like the Minister to say what the situation is in relation to those two points. Although he has said that there will be consultation, and I am sure that he will do so again this afternoon, it is within that context that the organisations most concerned with this part of the Bill are seeking some reassurance. I beg to move.

Lord Rochester

At Second Reading I said that my understanding was that, although the working party on the funding of the teachers' superannuation scheme had reached agreement on how the scheme could be credited with sufficient funds to meet its future commitments, no agreement had been reached on the means by which the scheme could be compensated for past deficiencies in funding. Therefore I asked the Minister whether he would give an assurance that before the relevant regulations were introduced there would be adequate consultation with the interests concerned.

In reply the noble Earl said that there would be full consultation with staff and employers before the power was used. The noble Baroness has already made that point this afternoon. However, I suggest that that is not quite the same as engaging in consultations before the regulations are introduced. As I understand it, the amendment seeks to oblige the Government to do just that and to have such a requirement written into the Bill. I hope therefore that the noble Earl may feel able to accept the amendment.

The Earl of Caithness

The effect of the amendment would be to require consultation with staff and employers' representatives in teaching before regulations were made covering either the teachers' supperannuation scheme or the NHS scheme. However, I understand from what the noble Baroness said that she also wished to ensure proper consultation with the appropriate bodies in the NHS scheme although her amendment does not cover that point. I take it that that was her intention.

Clause 4 of the Bill inserts new subsections into Sections 9 and 10 of the Superannuation Act. However, Sections 9(5) and 10(4) of the 1972 Act, as the noble Lord, Lord Rochester, has reminded us, already provide for consultation with representatives of persons likely to be affected before any regulations are made under Sections 9 and 10. Those provisions will cover any regulations made under the new provisions conferred by the Bill. Therefore, I say to the noble Baroness and the noble Lord, Lord Rochester, that their concerns are already taken care of.

However, it may be helpful if I enlarge on the matter. The clause has been included to allow the Secretaries of State responsible for the NHS and teachers' superannuation schemes in England, Wales and Scotland to make regulations to permit the cost of pensions increase to be taken into account in determining employers' contributions. At present the Pensions (Increase) Act generally precludes pensions increase from being regarded as a benefit of the schemes. Since pensions increase is not a benefit of the scheme its cost cannot be taken into account in setting the rate of contributions which pay for scheme benefits. The costs of pensions increase are therefore borne by the departments which administer the scheme.

The teachers' and NHS schemes are unfunded but accounts are kept of expenditure and income, including income from the notional investment of balances in the account. The Government Actuary advises the Secretaries of State on the appropriate levels of employers' contributions on the basis of quinquennial valuations of the assets and liabilities attributed to the schemes. For that purpose the Government Actuary makes various assumptions.

As the noble Baroness reminded us at Second Reading, union interests in teaching have argued strongly in the past that the basis on which notional investment income is credited to the scheme is unrealistic. They consider that a different method of calculating investment returns would increase the assets attributed to the scheme and might therefore make possible lower contribution rates or improvements in benefit. I understand that the teachers' superannuation working party has agreed on a report which proposes an alternative method of assessing investment income credited to the notional fund.

The Government recognise that there are arguments for change in such matters as the investment assumptions which might be seen as giving greater realism in building up the assets of the schemes. However, we believe that there must be corresponding realism in treating pensions increases as a liability of the schemes. I understand that employees' and employers' representatives in the teachers' superannuation working party recognise and accept that. Without Clause 4 it will not be possible to take forward work on the package of changes in the operation of the notional fund which the teachers' unions support. That is not to say that final decisions on those issues have been taken. There is further work to do and there will be careful consultations with all the interests concerned before any change is made.

The noble Lord, Lord Rochester, was concerned about the costs which might fall to local authorities. Let me assure the Committee that the Government are also mindful of that point. We want to be sure so far as is possible that the net effect of any changes will not add unacceptably to the costs of employing authorities. On Second Reading the noble Lord asked why any changes could not be incorporated in primary legislation. He has raised that point again today. As I explained, the changes that we are considering would form part of a package. Once the package was agreed, it would be necessary to make the necessary changes in primary legislation to implement the proposals. The power that we are now seeking is an enabling power which the Government can use after full consultation with the interests concerned. It is natural to take the power in the Superannuation Act which provides the legislative framework for the schemes concerned and to use the existing arrangements for consultation with employer and employee interests.

I hope that the recognition which I have given to the need to contain additional costs for employing authorities and the need for full consultation before any changes are made will allay any of the misgivings which noble Lords may have. I hope that on that basis the noble Baroness will be able to withdraw her amendment.

4.30 p.m.

Baroness Turner of Camden

I thank the Minister for that explanation which is extremely helpful. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

Clause 4 agreed to.

Clause 5 [Guaranteed minimum pensions: abolition of double indexation for surviving spouses]:

The Earl of Caithness moved Amendment No. 6: Page 5, line 8, leave out from ("be") to ("and") in line 10 and insert ("taken to be one half of the rate of the deceased spouse's guaranteed minimum pension at that time").

The noble Earl said: Unfortunately, paragraph (b) as originally drafted may be ambiguous. The purpose of the amendment is to ensure that that ambiguity no longer exists. In order to enable us to do that, we have changed the wording to specify the rate of notional widows' or widowers' guaranteed minimum pension as one-half of the rate of the deceased spouse's guaranteed minimum pension. I can explain further if the Committee would like me to do so. I beg to move.

Baroness Turner of Camden

We are prepared to accept the Minister's explanation.

On Question, amendment agreed to.

The Earl of Caithness moved Amendment No. 7: Page 5, line 13, leave out from beginning to ("or) in line 14 and insert ("subject to any directions under section 59A below (whether made before or after the coming into force of this subsection), be accordingly reduced under that subsection by an amount equal to the rate, as determined under paragraph (b) above").

The noble Earl said: Amendment No. 7 puts beyond doubt that the existing direction and any directions made in the future will, where appropriate, apply equally to the notional guaranteed minimum pension calculated under Section 59(5ZA). I believe that that is appropriate. I beg to move.

On Question, amendment agreed to.

Clause 5, as amended, agreed to.

Clauses 6 to 9 agreed to.

Clause 10 [Restriction on election that regulations shall not apply to persons whose service has terminated]:

The Earl of Caithness moved Amendment No. 8: Page 8, line 6, after ("employment") insert ("or office").

The noble Earl said: This is a drafting amendment. I beg to move.

On Question, amendment agreed to.

On Question, Whether Clause 10, as amended, shall stand part of the Bill?

Baroness Turner of Camden

I gave notice of my intention to oppose the Question that Clause 10 stand part of the Bill largely because I raised the matter at Second Reading as a result of representations that I had received from local government pensions advisers. Although I received an explanation from the Minister at that time, I am still unclear as to whether it meets the points that were made by the advisers.

As I understand it, the clause as it stands would result in something being removed from people which they had hitherto enjoyed without there necessarily being any reason for it. If that is so, I feel justified in exploring the matter further by this means.

I am informed that the change in the law effectively nullifies most of the advantages conferred on such persons under the Superannuation Act 1972. Moreover, I am also told that there has been no consultation about the matter. If that is the case, it seems to me rather unwise to proceed in that way. People are generally reluctant to relinquish an advantage that they have. If that is the case, I cannot see that there is any good reason for so doing. With those few words, I ask the Minister to make some further comment.

Lord Rochester

I too am concerned that there has apparently been no consultation with interested parties about the effect of the clause on the rights of re-employed members of local government superannuation schemes. If that is the case, I hope that the Minister will be able to give us a satisfactory explanation as to how that has come about and will tell us what he proposes to do about it.

The Earl of Caithness

The aim of Clause 10 is to rectify an ambiguity in the provisions of the Superannuation Act which protect the pension rights of members of certain pension schemes if changes are made to scheme rules after they have left the scheme. The clause clarifies those provisions in their application to re-employed scheme members; namely, those who have left but subsequently re-join the pension scheme. It places the re-employed scheme member in the same position as a retired scheme member or a scheme member who has left and has a preserved pension until his last break in service. It places the re-employed scheme member in the same position as a serving scheme member who has not had a break in employment so far as his current and future service is concerned.

However, it may be helpful to the Committee if I set out in a little more detail why the Government consider it is appropriate to make this amendment to Section 12 of the Superannuation Act 1972. Pension schemes today are necessarily very complex and it is inevitable that the rules have to be adapted as circumstances change. The general tendency is for pension benefits to improve or for new arrangements, such as the ability to make additional voluntary contributions which could benefit scheme members, to be introduced. Nevertheless, it may sometimes be necessary in order to meet changed circumstances to make changes to pension scheme rules which could adversely affect some scheme members, for example, as part of a package of changes whose overall effect is advantageous.

In the schemes covered by Section 12, scheme members who have left are protected against detrimental retrospective changes in scheme regulations by a requirement that they must be given a right of election that the new regulations do not apply to them. That is a proper protection for retired scheme members and for those with preserved pensions, since Section 12(1) of the Act explicitly provides for retrospective regulations to be made. Serving scheme members are protected by requirements that staff representatives must be consulted before any regulations are made and of course by the negative resolution procedure which applies to regulations covering those schemes and which means that objections to new regulations can be raised in Parliament.

Unfortunately Section 12 as it stands does not make clear how re-employed scheme members are to be regarded. Are they treated as having left or are they serving members? If the former is the case, they are placed in a very advantageous position vis-à-vis serving scheme members. Each re-employed scheme member would be able to freeze the pension scheme rules in the most advantageous form so far as he himself is concerned, not only in respect of any benefits already accrued by past service but also in respect of any benefits that he may accrue from future service.

The result could be a wide range of different provisions applying to individual re-employed scheme members. That would be very difficult to administer as well as being manifestly unfair to those scheme members with continuous unbroken service, some of whom could actually have joined the scheme before the re-employed scheme member joined for the first time. But it would also be inappropriate to treat re-employed scheme members differently from other former scheme members who had left but not rejoined the pension scheme so far as concerns the pension rights that they had accrued before they left.

Clause 10 ensures—and I think that this will resolve some of the fears of the noble Baroness—that those rights will continue to be protected. I can also assure her that there will therefore be no impediment to the re-employment of pensioners in jobs where their experience can be put to best use. I am sure that all Members of the Committee will welcome that.

The clause is intended to secure a proper balance between the interests of pensioners, those with preserved pensions, current employees and scheme managements. It ensures an appropriate degree of protection for pension rights of those who have left and rejoined the pension scheme, while providing greater flexibility for scheme managements to adapt the provisions of pension schemes to meet the needs of current and future employees.

Baroness Turner of Camden

I thank the Minister for that very clear explanation. I still have some concerns because it seems to me that there will be a worsening for some people. I do not see how that can be avoided. I should like to ask him one question to make sure that I have it quite right. Did I hear him correctly to the effect that if people are required to rejoin the service because their skills are needed, the better conditions will still be available to them? Is that what he said?

The Earl of Caithness

What I said was that the amendment that we are making, which clearly applies to the re-employed scheme members, will not be a deterrent to managements re-employing previous employees because if every previous employee who wanted to be re-employed could freeze his scheme in such a way that there were a multitude of schemes, that would inevitably put off managements. The noble Baroness has a point that in some cases there might be disadvantages but one must look at the scheme as a whole, which overall is advantageous.

Baroness Turner of Camden

I thank the noble Earl very much for that extra clarification. Obviously I do not intend to press the matter at this stage. I tabled the Motion because I wanted to secure from the Minister a detailed explanation of what the clause really meant in the light of the advice and recommendations I had had from the people who have been advising me. I shall look very carefully at what the Minister said and perhaps take some further advice if I need to do so. In the meantime I beg leave to withdraw my Motion.

Clause 10, as amended, agreed to.

Remaining clauses agreed to.

House resumed: Bill reported with amendments.