HL Deb 13 March 1992 vol 536 cc1552-3

2.47 p.m.

Lord Henley rose to move, That the draft order laid before the House on 27th February be approved [15th Report from the Joint Committee].

The noble Lord said: My Lords, I should like to speak also to the State Scheme Premiums (Actuarial Tables) Regulations 1992.

My right honourable friend the Secretary of State has a statutory duty to review the contracted-out terms at least every five years. His report and that of the Government Actuary were laid with the statutory instruments and they demonstrate how technically complex this subject is. I propose to avoid burdening the House with too many technicalities and to concentrate as far as possible on the broad principles.

It may help to put these statutory instruments into context if I remind the House that since 1978 occupational pension schemes have been able to contract out if they guarantee to provide a pension which is at least as good as the state earnings related pension. In return a reduction, commonly called "the rebate", is made to the national insurance contributions for such contracted-out employments.

The Government Actuary reports that the cost to schemes of providing guaranteed minimum pensions has been decreasing as the average rate of accrual of guaranteed minimum pensions declines. For the five years from April 1988 to April 1993 the rebate is set at 5.8 per cent. Following consultation, the Government Actuary has concluded that the range of uncertainties caused by the judgment of the European Court of Justice in the Barber case concerning equal treatment in occupational pension schemes makes it more sensible for the rebate level to be based on the costs for the first three years of the period only. He assesses that figure as 4.77 per cent. in his final recommendation to the Secretary of State, who accepts both that view and the recommended figure—subject only to rounding the figure to 4.8 per cent. The 4.8 per cent rebate will be shared so that employees receive 1.8 per cent. and employers 3 per cent.

Turning to the second order, in some circumstances contracted-out schemes may transfer their liabilities for guaranteed minimum pensions to the state scheme. This "buying back" is achieved by paying a state scheme premium. This premium is payable by the occupational pension scheme to the state scheme to transfer the liability for the guaranteed mimimum pension from the occupational scheme back to SERPS. The actuarial tables contained in the order before us today represent the average cost of providing a guaranteed minimum pension and are used to calculate the level of the state scheme premium payable.

The recommendations made by the Government Actuary will in most cases reduce the level of the state scheme premium payable. My right honourable friend the Secretary of State has accepted the Government Actuary's recommendations for that sensible adjustment.

My right honourable friend announced in another place that the Government would be consulting the pensions industry and other interested parties on the implications of equal treatment for contracting out. Those consultations are under way. In considering what changes are needed, we intend to give particular consideration to the scope for moving from flat-rate rebates to rebates related to age, at least for personal pensions and possibly also for other contracted-out schemes.

I hope that I have demonstrated how the Government have continued to safeguard the interests of those people who are contracted out through the rebate and buy-back terms. The House will see, I think, not only how complex this subject is but how these two statutory instruments fit into the Government's overall pension strategy, and I commend them to the House. I beg to move.

Moved, That the draft order laid before the House on 27th February be approved [15th Report from the Joint Committee]. —(Lord Henley.)

Baroness Turner of Camden

My Lords, I thank the Minister for that explanation of these highly technical instruments. This side of the House has no objection to offer. We regard the orders as uncontroversial, and I have pleasure in accepting them.

On Question, Motion agreed to.