§ 3.8 p.m.
§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
§ Moved, That the House do now again resolve itself into Committee.—(Lord Mackay of Ardbrecknish.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The CHAIRMAN OF COMMITTEES in the Chair.]
§ Clause 119 agreed to.
§ Clause 120 [New requirements for contracted-out schemes, other than money purchase schemes]:
§ Baroness Castle of Blackburn moved Amendment No. 184BG:
§ Page 69, line 42, leave out ("65") and insert ("63").
§ The noble Baroness said: I hope that in replying the Minister will not give me a whole list of technicalities but deal with the principle that I am trying to establish in my amendment. I am well aware that the drafting is far from perfect, and indeed that the amendment might prove to be in the wrong part of the Bill, because I have not attempted to enter into the cat's cradle of cross-references which besmirches the Bill. Indeed I would be incapable. I am too stupid to be able to enter into the competition of opacity with the Government. It takes great skill to hide the truth and it takes a lot of 1037 words, and this Government have always preferred verbosity to lucidity. It is part of their technique of government. I suspect that I am not alone in the Committee in having to try to put a wet towel around my head and follow the complexities of the Bill through to some kind of identifiable meaning.
§ I know that the issue of pensions is complex because I had to deal with it. As the Committee will be aware, I introduced my better pensions Bill in 1978. It gave birth to SERPS and so I well know what is involved. Even at its best and simplest it is sometimes difficult for the layman to understand what it is proposed should happen to him.
§ However, we can avoid making the matter more complex. I know because I turned up my Act and I was struck by the contrast in its clarity and simplicity. I will tell you why. When we had a complicated Bill I used to say to my draftsman, "Look, I know that you have to get in all the legal points but, for heaven's sake, try to make the Bill clear to those whom it will affect". I suspect that this Government have deliberately set out to make it obscure.
§ Therefore, my amendment concentrates on two straightforward, simple principles. In the amendment I am testing the political will of this Government and the purposes of their whole pensions policy. All the principles of the state earnings related pensions scheme, which I introduced, were based on the belief that there was what Dick Crossman, who also drafted an earnings-related pensions Bill, once called "apartheid in old age". In other words, we wanted to prevent the gross inequalities which afflicted our society in the retirement pensions field. So the earnings-related concept was not only introduced but it was inspired by certain political aims and not merely actuarial calculations, although they were sound enough, as the government actuary certified.
§ What were those principles?—that we could only adjust some of these gross inequalities if we recognised what they sprang from and whom they affected the most. Clearly, they sprang from great inequalities and variations in income, great uncertainties in earning power and great changes in the ability of people to earn as they approached retirement age.
§ I shared the same view as my brilliant Minister of State, the late Brian O'Malley. His death in the middle of our discussions was a very great blow, and was recognised by all sides of the House. We said that the group of people whose unjust treatment in the pensions field stood out a mile was, obviously, women. They were not even allowed to join occupational schemes when we started the demand for equal treatment in those schemes. Of course, my Bill abolished the married women's option to be dependent on her husband's pension. We had to phase that in gradually and some women are still suffering from the remnants of that dependency. We asked, "What is the earnings pattern of these women?". As the Equal Opportunities Commission has pointed out in more than one brilliant report, it is a pattern of earnings fluctuation, changing labour, casual labour, part-time labour and interrupted work due to family responsibilities. We all know it and 1038 I shall not bore the Committee by repeating it. However, I ask the Government to bear in mind the way in which they hope to correct it.
§ One of my civil servants—I do not claim the credit—had the inspired concept of the 20 best earning years. We knew as he said it that that would also help those blue-collar workers who often reach their earnings peak in middle life when they are physically strong and whose earnings may then decline somewhat. An obvious example is the miner who in the heyday of his physical strength will be at the coalface earning good money. When he can no longer bear the strain of that he will move to the surface and his earnings will drop. Of course, final salary schemes are no use to them. What is more, it would be unfair to average things out over the whole of their earning life. However, if you say to a manual workman or to a woman, "Look, pick the 20 best earning years of your life and we will base your pension entitlement on that", that is fairer.
§ I frankly admit that I introduced a piece of sex discrimination. The men did not like it; they had not suffered from it before. I said, "I am not going to raise the women's retirement age from 60", even though we as a government admitted that we could not at that time afford to bring the men's retirement age down from 65 to 60. I said to the men, "I am sorry. You will have to wait a bit; it will come. We have had to wait thousands of years for a bit of sex equality. It will not do you any harm to feel what it is like". So I kept it. The woman received the full benefit that she had contributed despite the fact that she retired five years earlier.
§ Since then we have seen this Government beat the most miserable retreat from that piece of inspired legislation, which I point out to the Committee was fully backed by the pensions industry. We knew that, by imposing these standards as a condition for contracting out of the state earnings related pension scheme, we had to help them a bit with the costs of, for instance, indexation which the conditions included. We did not mind. Good heavens, is not that what this society of ours is crying out for—a little more generous-spirited partnership—and not, "Let's have the competitive system. We are the bosses so we have to have our funds protected. You are the workers so you have to take less pay."? We have seen the recent indecent examples, which are spreading still further, of those inequalities as the man at the top takes millions. He boasts that his business is profitable so he deserves it. But that profitability has been based on keeping down already low wages.
§ I would like to think that this Chamber could recapture some of that spirit that we tried to infuse into our society. If we do not, the rich will suffer as much as anybody, even if it is only in poverty of spirit. But they could suffer from great social insecurity as well. Surely history has taught us that. My long life has taught me it. Therefore, I want to seize this opportunity to try to reiterate those principles and to make the Government face up to the fact that they have deliberately slaughtered them, because not only have they reduced the value of the state pension on which low-paid women depend—and very often a large majority of women receive nothing but a state pension—but they have also 1039 broken the earnings link. Everyone will tell you that they know how much better off those at the bottom in retirement would be if only this Government had not broken that earnings link; or at least their genetic predecessor did that—the Thatcher Government.
§ Women are suffering. Not only are they told that the maturity period has been lengthened and that everything has been whittled down, but they are told also that they must carry on with their low-income lives into an old age of uncertainty and instability until they are 65. I know that we have to equalise the pension age. I had my bit of fun and I won the women a breathing space; and I am darned glad that I did. But I recognise that eventually the pension age must be equalised. But if it is still true that this country of economic miracles cannot afford to reduce the pension age for everybody to 60, the obvious fair compromise is to strike a figure of 63. That is the first thing for which I ask.
§ But women are also the greatest beneficiaries of the restoration of the principle of basing their pension on the 20 best earning years. Women are the most insecure earners in our society by definition. It is the woman who is likely to have an interrupted career. Sometimes that may be for the happiest of reasons—she has a family. But sometimes it is for the unhappiest of reasons. As we heard in our debates yesterday, it falls to her to look after her husband's elderly parents, and small thanks she gets for it. We are snatching away that raft of security and saying to a woman, "Well, you have to contribute as long as you are earning, unless you have your home responsibility credit, or whatever, but we will enable you to retire on your 20 best earning years level".
§ Please, Mr. Minister, do not tell me that the amendment may be out of order in some word here or some phrase there. The nomenclature of the amendment shows the sort of minefield of obscurity which we are in. What is it—Amendment BH or GA, or something? That is easy compared with some of the enumerations of some of the clauses, subsections and sub-subsections until all the letters of the alphabet are exhausted. Please can I have some inkling that even at this late stage the Government will think again about those two basic principles?
§ Baroness Turner of Camden
I proffer my sympathetic support for what my noble friend has been saying about her amendments. Of course, more than anybody, she has the right to tell the Government what they should be doing. As she has reminded us, she was responsible for the pensions legislation introduced in the mid-1970s, with all-party support—I emphasise that. It was then known as the "Castle Plan" and we all thought that the debate about pensions had finished for a very long time. We had not expected a Conservative Government quite so soon to attempt to demolish the structure which had been created.
The first amendment seeks to amend the clause so that it reads, "a normal pension age of 63" instead of "a normal pension age of 65", with regard to the Government's reference occupational scheme. As we know, nowadays many occupational schemes have a lower pension age. Indeed, 63 is not at all uncommon. When seeking to equalise pension ages some years ago 1040 many schemes chose the age of 63 as being cost-neutral. Indeed, had the Government decided to be cost-neutral in relation to the state scheme, they could have accepted the proposition for a flexible decade of retirement and taken 63 as the principal age at which state pensions would be paid.
Unfortunately, I was not able to be here later in the Committee's proceedings last night, but I understand that there was some discussion about a flexible decade of retirement. I was a member of your Lordships' committee back in 1989 which recommended a flexible decade of retirement—a decade of choice between the ages of 60 and 70. We recommended 63 as the pivotal age at which full state benefits became payable because we were advised then that that was cost-neutral.
Moreover, flexibility surely makes sense, particularly nowadays. In view of the Government's support for flexible employment and for various changes in employment patterns, I am surprised that they are apparently not in favour of the flexible decade of retirement because, as my noble friend pointed out, there are different types of employment. In some employments people are only too happy to retire early because they have had a long and arduous life; for example, in heavy industry. Mining is obviously a case in point where it is sensible to have an early retirement age. But there are other employments where people welcome the social environment brought about by participation in the activities of the workplace and would wish to retire much later. If the Government really believe in choice, the flexible decade is the option which they should choose. As we have already said, 63 is the cost-neutral pivotal point.
As I said earlier, I know there was some discussion about that last night. I have looked at Hansard. But, on the other hand, there were no votes and it is still open to the Government to consider that option. Perhaps I may press the Minister to do so between now and Report.
As regards my noble friend's second amendment, she is quite right to say that the best 20 years provision in SERPS was of very great benefit to large numbers of the lower paid, particularly women and those who have a chequered work pattern. As she rightly points out, many employees have their best earning years when they are younger. As they get older they are given lighter or less well paid employment. Moreover, women spend time in and out of employment and a broken work record often prevents them from getting onto the promotional ladder. Therefore, when they retire the final years of their working lives are not necessarily the best years upon which entitlement to pension should be based.
My noble friend has advanced important arguments. As she said, her amendment is possibly flawed. However, the issues raised are important. There is time within the framework of our discussions on the Bill for the Government to think about what has been said and perhaps to do something between now and Report stage to try to meet some of the considerations that have been raised.
§ 3.30 p.m.
§ Baroness Seear
As the arguments about the flexible decade of retirement and also about the age of 63 being 1041 the pivotal age have been fully aired, I shall not repeat the support we gave yesterday from these Benches to those proposals. We must remember that one of the major purposes of the Bill is to move from the pay-as-you-go scheme, with all that that involves, to a funded scheme. That accounts for some of the differences we are finding. I believe that we should welcome the change. It shows more foresight than that displayed by our predecessors who legislated in the field and by those operating in other parts of the European Union.
However, having agreed with the Minister and supported him up to this point, I press him to think again about the proposed 20 best years. The last three years is liable to be a very poor deal for people who have had to go into part-time employment or, indeed, who have been in part-time employment for a good deal of the time. The last three years for people between the ages of 60 and 65, except in certain executive and administrative jobs where people are able to continue to contribute very satisfactorily in their early 60s, is not a time of good earning for many people. I cannot see that the proposal for the 20 best years would make that much difference. No doubt the Minister has figures at his disposal that are not available to me. I doubt that it would make a great deal of difference as regards the costing of the scheme, but it would make a great difference to many less well-paid people. That applies to women in particular, but also to men who are now retiring early and getting whatever job they can, often at a very much lower rate of pay. I urge the Minister most strongly to think again about changing the provision from the last three years to the best 20.
§ Baroness Lockwood
I support my noble friend's two amendments. I agree, for all the reasons given by my noble friends and by the noble Baroness, Lady Seear, that pensions should be based on the best 20 years rather than the last three years. There is no doubting the fact that, for the majority of women, that would provide a much better pension.
I also support the amendment to the effect that the pension age would be 63 for both men and women. Yesterday, the Minister argued against lowering the pension age for men to 60, despite the fact that no such amendment was actually moved. I wonder whether we can persuade the Minister today to agree to a common pension age of 63, especially when the effect—as stated by my noble friend and as indicated in the Government's White Paper—would be cost neutral. Moreover, I believe that there is also a possible saving of £0.5 billion by the year 2035. So it would be cost neutral in its early years with a possible saving later.
The Minister's arguments yesterday were based on demographic factors, on our ability to pay, and on the increasing number of people being paid pensions and the effect of that on our international competitiveness. The noble Lord said that by shifting the retirement age to 65 we would be adding five more years to the working lives of women. Is the Minister sure that that would happen? For example, the Minister also said that 40 per cent. of occupational pension schemes already 1042 permit members to retire at the age of 63 or below. Therefore, there is already a move in occupational schemes to facilitate earlier pensions.
It would seem that there is some doubt in the Government's mind. Their proposals include extending "auto credit", now available to men from the ages of 60 to 65, to women. Clearly, they are expecting some women to retire before the age of 65. I am sure they are correct in that assumption. Indeed, we must face up to the reality of the situation that over 50 per cent. of men are now out of the labour force before they reach the state pension age of 65. The same will surely be so for women, or even more so, given their current pattern of retirement. I am certain that the Minister does not anticipate that more women than men will continue in employment up to the age of 65.
Last night, the Minister said that 40 per cent. of men were still working at the age of 64. Therefore, does the noble Lord expect 40 per cent. of women still to be working at the age of 64? Further, does the Minister want older men and women to work into their mid-60s at the expense of younger people?
One major study carried out by Hammond and Morris in 1986 assumed that half the jobs vacated by men retiring early were taken up by the unemployed and half by women coming into employment. The study concluded that if the replacement of older people by the unemployed were extended to 75 per cent. there would be a net saving because the cost of supporting the unemployed was greater than the cost of paying state pensions at an earlier age. Surely it would be more efficient to encourage the unemployed to move into the vacancies created by people retiring at the age of 63. That would also have an effect on the arguments that the support ratio is expected to decline in the next century. The support ratio surely depends not on the number of people of working age but on the number of people who are actually economically active. Therefore, if we could have a greater number of economically active people between the ages of 16, 18 or 20 up to the age of 63, that would be a much more efficient situation for the country.
I suggest that the priority for the Government is not to increase the retirement age for women to 65 but to come to a sensible compromise at 63 and to concentrate their efforts on reducing the number of unemployed by encouraging investment in industry and in training so that more people will be encouraged into employment. Similarly, the support ratio could actually be increased by the number of people who would be of working age. As 63 is cost neutral and the mid-point in all the factors, I hope that the Government will seriously consider the proposal as a useful option.
§ Baroness Farrington of Ribbleton
I rise to speak in support of the amendments moved by my noble friend Lady Castle, and to speak in particular in support of the second amendment. I do so because I wish to remind the Committee of the point that I raised in the debate yesterday which is that nowadays more women lose more time from their careers due to the responsibility of caring for elderly relatives than they do from caring for children. As regards the retirement age, the final three 1043 working years of a woman's life are often interrupted and broken, sometimes by taking unpaid leave to care for relatives. Many women do this from the goodness of their hearts; they are willing to do it. Not only do their relatives and families benefit, but it is also a good example to the next generation that we should care for members of the family. It is wicked, surely, if the legislation that we agree to here then penalises them in their own old age for having taken such a decision and such responsibility. I appeal to the Minister to give an indication that at a later stage the Government will listen to the needs of this particular group of women.
§ 3.45 p.m.
§ Lord Mackay of Ardbrecknish
I have been slightly mystified by this debate because it has ranged a good deal wider than either the two amendments or indeed the clause. Many of the arguments we have heard about the ages of 60, 63 or 65 were arguments that we could properly have addressed last night if some key amendments had not been withdrawn, although we addressed them eventually but not perhaps within the variation that we had on the Marshalled List. I do not intend to revisit last night's debate on the correct age of retirement because this clause, while it is related to that, has nothing to do directly with the Government's sensible decision that the common age of retirement should be 65.
Indeed this clause is not about any real, on-the-ground pension scheme. This clause is about the reference scheme with which other schemes will be compared. While this clause and the reference scheme contain the age of 65, that does not mean that every other scheme must contain that age. It just means that the reference scheme against which they will be judged will be based on 65. I was interested to note that I brought the noble Baroness, Lady Castle, to her feet again. I was going to say that she seemed to haunt me but perhaps I would not go so far as that. When I had a short spell in the transport department one of her pet schemes of yesteryear was being changed by the Government. Now I have moved to pensions—another of her pet schemes of yesteryear—which are being changed by the Government. Therefore I am given a little lecture on what happened all those years ago. I do not know whether I wish to be transferred to the Department of Employment so that I may be given a short lecture on In Place of Strife and what happened in that area when the noble Baroness was in Government, but we shall see.
Today I wish to address in particular the two amendments which the noble Baroness has tabled to this clause. The amendment to Section 12B(3) (a) of Clause 120 seeks to alter the reference scheme under the new contracting out test by lowering the normal pension age in the reference scheme to 63. I am assuming that the noble Baroness intends to propose that pensions be calculated based on the best 20 years earnings revalued, although that is not in the amendment. But either way would be significant.
This amendment, which lowers the normal pension age of the reference scheme to 63, is not acceptable because it would have the effect of raising the level of benefits under the reference scheme. If the reference 1044 scheme was to require benefits at a rate of 1/80th at the age of 63, the amendment would have the effect of making the reference scheme between 8 and 10 per cent. more valuable to individual scheme members. In addition, such an amendment could increase the costs for schemes where the benefits offered were at the level of the reference scheme.
Many occupational pension schemes have equalised their pension ages at age 65 in the light of the Government's proposals to equalise state pension age. The reference scheme takes account of this and also fits well with the Government's proposals in the Bill on the state pension age. The age set in the reference scheme does not—as I said right at the beginning—require schemes to have a normal pension age of 65. Regulations under Section 12D of Clause 120 will allow schemes to have a normal pension age of between 50 and 75 in line with the current Inland Revenue rules, provided that overall scheme benefits are broadly equivalent to, or better than, those under the reference scheme. The level of the reference scheme has been set to strike a balance between the interests of employers, individuals and Government, and we believe that this has been achieved with a normal pension age of 65.
I turn to the other amendment of the noble Baroness which seeks that pensions be calculated based on the best 20 years earnings revalued. Some groups of workers may have higher earnings early in their working lives. The best 20 years revalued could reflect these differing earnings patterns. However, higher earnings at the start of a working life often reflect overtime and shift payments which may not fully count towards pensionable earnings. Most individuals have higher earnings later in their careers and would wish their pension to be calculated on the basis of their earnings prior to retirement or leaving service. Practically all salary related schemes calculate an average final salary with reference to the years immediately preceding an individual's retirement. This amendment would change the basis of this calculation in the reference scheme and result in considerable administrative complexity for pension schemes so that much of the savings from the introduction of the new contracting out test would be lost.
Calculation of benefits over the best 20 years would require schemes to keep detailed records of individuals' earnings over their working life. This could prove particularly difficult when individuals transfer between schemes and employers and between state and occupational or personal pension provision. The reintroduction of such cumbersome procedures and the recording of earnings on an individualised basis would be similar in many ways to the current GMP arrangements. These have been strongly criticised by employers as too complex.
Our proposals seek to reduce the administrative complexity for employers and schemes while offering a specified level of benefits to members under the reference scheme. This amendment could make the provision of occupational pension schemes unattractive to employers. This amendment is not acceptable to us, and we believe that it would have the effect of lowering the value of pensions under the reference scheme and it would complicate the scheme administration for 1045 employers. With that explanation of what this is about—it is about a reference scheme and the fact that it does not mean that all schemes have to retire people at 65—I hope that the noble Baroness will see fit to withdraw her amendment.
§ Baroness Castle of Blackburn
As I feared, the Minister has of course taken refuge behind technicalities and even digging up—he hoped—some terrible skeletons in my cupboard of yesteryear. I can assure him that that failed abysmally. Despite the fact that all he has done is to reveal the barrenness of ideas and arguments and the paucity of spirit which we have come to associate with this Government, I shall withdraw my amendment in order to fight another day. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 184BH not moved.]
§ On Question, Whether Clause 120 shall stand part of the Bill?
§ Baroness Turner of Camden
I rise to oppose the Motion that this clause shall stand part of the Bill.
The clause sets out new requirements for contracted out schemes other than money purchase schemes and in so doing seeks to abolish the guaranteed minimum pension, as the Minister said in response to the previous amendments.
At present in order to contract out, schemes have to meet the guaranteed minimum pension test. In this clause the Government propose an alternative based on a reference scheme which in some cases will provide an inferior substitute for GMP benefits.
The original intention with SERPS was that a contracted out scheme would have to satisfy two main complementary conditions. The first was the requisite benefits rule. That, like the reference scheme proposed by the Government, was based on a 1/80 th accrual rate. The second was the GMP rule. However, in 1988 the requisite benefits test was dropped by the Government. It was argued that it had become very complex and, secondly, that it was ineffective. There is no reason to suppose that the proposal now being made in the Bill will be any more effective.
The requisite benefits test ensures that the pension provided must be better than those set out as a reference scheme in the Bill. For some people—those on good wages, in a good scheme for a large part of their working lives—that may well represent a good deal and will guarantee them better benefits than the GMP. But for others that will not be the case. The low paid, in poor schemes and with short periods of service, stand to be disadvantaged by the disappearance of the GMP test. It is no consolation to an individual who falls through the safety net formerly provided by the GMP to be told that others have been assured of better benefits.
It must be the intention surely to try to ensure as far as possible that people do not end up worse off than they would have been had the GMP test continued in existence. That must be particularly so in the case of people who are less well off and less privileged in every sense of the term.
1046 During our debates yesterday the Minister referred to those of us who could look forward to final salary earnings-related pensions and those already receiving them. He spoke of such people as privileged. He surely cannot support a system which would further undermine the position of those who are not so privileged.
The reference scheme may provide lower benefits if there are periods of high inflation during a working lifetime because it provides an inadequate level of inflation protection as compared with the GMP. The reference scheme provides benefits as good as the GMP only if inflation rises no higher than 5 per cent. If it exceeds that level either before or after retirement there is the possibility of the GMP being better, depending on the extent and duration of the relevant periods of high inflation. The reason is that SERPS is inflation proofed. Even when scheme members contract out of SERPS they remain entitled to what are called residual SERPS benefits, which can be a significant part of some people's pensions.
In addition, members of contracted out schemes could suffer losses under the provisions of the Bill as a result of the removal of the guaranteed protection which the DSS currently offers for GMP benefits. The value of that protection was made clear in the Maxwell fiasco when the scheme members at least had their GMPs restored immediately because the guarantee was absolute. That is of immense value, particularly to the poorly paid.
The Minister may argue that with the other provisions in the Bill—the solvency standard and the compensation scheme —the guaranteed support represented by GMPs is no longer necessary. But the system of compensation guarantees only up to 90 per cent. of benefits as compared with the total GMP. Some types of loss will not be covered, notably losses arising from poor investment decisions. GMPs are guaranteed, whatever the reason for the shortfall.
Of course, the Government do not really like SERPS at all. I well remember the days of the Fowler review, which was referred to yesterday by the Minister in the course of debate. It was clear that at that time the Government would have liked to do away with SERPS altogether, but there was such a fuss that they withdrew from the confrontation that could have ensued and settled instead for a gradual undermining of the scheme. First the accrual rate was worsened and then the best 20 years provision disappeared. Then we had the campaign to encourage people to take out personal pensions and to opt against SERPS, with the encouragement of the national insurance rebate. Now we have the disappearance of the GMP test altogether. That is a potential worsening for the poorer paid, less privileged members of the workforce. We should not let it pass without attempting to persuade the Government that they are doing something wrong.
Coupled with my opposition to Clause 120 is my opposition to Clauses 124 and 125, both of which follow on from the clause which I currently oppose.
§ Baroness Castle of Blackburn
I should like to support Baroness Turner in opposing the Motion that this clause stand part of the Bill. I do not need to go 1047 over the ground which she has so devastatingly revealed to the Committee in her indictment of what the Government intend to do in the Bill in general and this clause in particular.
I want to reinforce the warning about the future of SERPS. I also want to refer to a recent article in the Observer by two economists from the Institute of Fiscal Studies headed:The strange death of a pension scheme".They know, as everybody who is a pensions expert knows, that the Government are bent on the slow destruction of the whole scheme.
As has been pointed out, 10 years ago the Government announced that they were going to abolish the scheme. But there was an outcry because, despite the weakening of the scheme which has taken place, 9 million people are still members of it. It is a lifeline to them and the best that is available. It is better than any personal pension scheme which is supposed to give them so much choice.
The article also points out that, although the Government have failed in the abolition of the scheme, they have been tireless in ill-doing ever since. The economists claim that the benefits that accrue under SERPS have been halved in the past 10 years. They also paint out that the benefits will be further halved by this Bill. Those two economists—Richard Disney and Paul Johnson—write on the basis of expert analysis of the benefits people will receive and the attacks which the Government are making on the scheme.
The Government's long-term aim is most vividly summed up in the recent book by the No Turning Back movement which is currently lending such support to our Prime Minister. In that book the group does not hide the fact that it believes in two things. It believes that state benefits should be only for the poor—a reversion to the dear old Victorian divisions in our society and charity for the poor—and very meagre charity at that. The book goes on to state that eventually the state may have no insurance scheme of its own at all. That is the aim.
Those of us who resist that aim and believe that you cannot provide security and dignity in old age for everyone without the state coming in with its support must rally against this clause in particular.
§ 4 p m.
The Earl of Clanwilliam
Perhaps I may ask the Minister to advise the noble Baroness, Lady Castle, of the maximum percentage of final salary to be obtained from SERPS, and what one would expect in respect of an ordinary pension, which would be at least 50 per cent.?
§ Baroness Castle of Blackburn
I am very fascinated by the way in which this Government, who clearly have their back to the wall, are increasingly trying to hand over the role of government to the Opposition. I should be delighted to become Minister of Pensions again. If so, I could have turned to the officials' Box and rustled up the exact figure for which I had been asked. However, I am afraid that I do not have the figure at my fingertips.
§ Baroness Hollis of Heigham
We should be happy to answer the question, but perhaps the Minister prefers to do so.
The Earl of Clanwilliam
My question was addressed to the Minister who will no doubt be able to answer the noble Baroness.
§ Lord Mackay of Ardbrecknish
I intend to reply to the debate. I shall answer the questions that arise. First, however, perhaps I may say to the noble Baroness, Lady Castle, that I have no intention of giving way from this side of the Chamber to allow the party opposite to take their places on these Benches. We intend to do our level best to see that that does not happen. That will not come as a surprise either to the party opposite, or indeed to my noble friends.
This is a complex area of social security. I hope that I can explain it as clearly as possible although I am under the strictures that nothing I say will ever be as clear as the explanations and the legislation put forward by the noble Baroness, Lady Castle.
The current contracting-out system of guaranteed minimum pensions known as GMPs has been criticised because of its complexities. There is also the problem which no one has addressed of how occupational pension schemes can provide equal pensions for women while SERPS remains unequal, as it will be until the state pension equalisation is completed by the year 2020.
We consulted widely on options for the future. Following consultation we have decided to break the links between SERPS and contracted-out schemes from 1997. For service from then, salary-related schemes will no longer be required to provide GMPs but instead will be required to meet a test of overall scheme quality.
Schemes must comply with the new statutory standard introduced by new Section 12A. I shall come back to that in a moment. Schemes must confirm that they are not exempt from the rules restricting self-investment. Schemes must have sufficient resources to warrant the issue of a contracting-out certificate; that is, they must be able to show that they can meet their contracted-out liabilities. To cover this, in the long-term we will require an assurance that the scheme complies with the minimum solvency requirement at the time of the election to contract out. During the transitional period for the introduction of the minimum solvency requirement, schemes must be fully solvent in relation to contracted-out liabilities.
We also expect to prescribe conditions relating to financial propriety to ensure that schemes have a clean bill of health at the time of election to contract out. Finally, the subsection provides for schemes not within a prescribed class. We expect to use this power to set extra conditions for overseas schemes wishing to contract out.
These contracting-out conditions, over and above the need to meet the new standard test of scheme quality, are required to ensure that the Government can appropriately permit the employer and employee to pay rebated national insurance contributions. I am sure that the Committee would agree that it would not be appropriate for the Government to permit the rebate to 1049 be invested in schemes which, for example, did not have sufficient resources to match liabilities for contracted-out benefits.
The clause then sets out the arrangements for the new scheme-based contracting-out test which salary-related schemes will have to meet from the principal appointed day. Although the current GMP test will be replaced by this new test, GMPs accrued before it comes into force, planned to be in 1997, will continue to form part of the occupational pension and will continue to be subject to broadly the current rules.
New Section 12A sets the statutory standard which schemes must meet. It requires schemes to provide benefits for earners and their widows/widowers which are at least broadly equivalent to the reference scheme defined by new Section 12B. The scheme actuary will be required to certify that this requirement is met.
The new section makes powers for regulations to set the criteria for the comparison of scheme benefits to the reference scheme. It also has powers to allow the method of comparison to be explained by a guidance note prepared by a body prescribed by the Secretary of State, such as the actuarial profession. The approach of a mixture of secondary legislation and professional guidance received widespread support during the consultation exercise on the new contracting-out test.
New Section 12B sets the benchmark for the reference scheme which must be met by contracted-out salary-related schemes. The benchmark for members' benefits will be based on an accrual rate of 1/80ths—I referred to that on the last amendment—a definition of final average salary and 90 per cent. of band earnings (that is, earnings between the upper and lower earnings limit) payable at a normal pension age of 65. The benchmark for survivors' benefits will be 50 per cent. of the members' benchmark. This takes account of the response to the consultation exercise and the benchmark has been set at a level which strikes the right balance between the interests of employers and scheme members. The reference scheme has been set to ensure that contracting-out continues to offer an attractive alternative to SERPS.
The section provides powers for detailed requirements for the reference scheme to be set out in regulations. It also contains powers to make additional provisions relating to benefits for widows and widowers. Those will cover exceptions to the general requirements.
New Section 12C provides powers to prohibit or restrict the transfer of a liability or the commutation of part of the benefit into a lump sum except in prescribed circumstances. The regulations governing transfers will be used to ensure that liability for the payment of pensions, or in respect of accrued rights to pensions, can be transferred only to appropriately secure arrangements. The intention regarding lump sums is to follow current Inland Revenue limits with appropriate exceptions for public sector schemes. There will be a small effect in the long term on income-related benefit costs, although this will be a relatively insignificant amount.
1050 New Section 12D provides a power to prescribe the ages at which benefits become payable in the case of a salary-related contracted-out scheme where members have service which falls after the principal appointed day.
My noble friend Lord Clanwilliam asked about the average revalued salary for SERPS. That figure is 20 per cent.
The noble Baroness, Lady Turner of Camden, gave the example of the Maxwell scheme and asked whether, under the new rules, people would be able to obtain a transfer back into SERPS. I believe that that was her question. In Clause 125 there is a power for the Secretary of State to do that in conditions where the scheme fails and the employer is insolvent.
The new contracting-out test, which I explained to the Committee, is a key part of the Government's reforms of the contracting-out system. Although the detailed exceptions will be in regulations, this clause is an important part of the Bill. I commend it to the Committee.
§ Baroness Turner of Camden
It simply remains for me to thank the Minister for that detailed explanation. I am, of course, aware of much of what he said. But it still does not settle all my worries about the disappearance of the GMP test. For one thing, it is argued that the GMP test is too complicated. If it were so complicated, why did the Government decide in 1988 to abandon the requisite benefits test and instead maintain the GMP test? I believe they did so at that time because they saw its value as an individual guarantee to the individual scheme member or the individual worker.
The Minister referred to the solvency test and other guarantees available. The requisite benefits test, and so on, are guarantees of the scheme itself, not to individuals. I believe that that is terribly important. I do not think that there is any point in pressing the issue to a vote at this stage, but I am unhappy about the whole section of the Bill. I am very much afraid that it could leave some poor people worse off than they are at present with the GMP test. As I said in my opening remarks, whatever else we do, whatever pension reforms we endorse, we should seek to ensure that the worst paid and the worst off will not have their conditions worsened as a result of what is done in the Bill.
Moreover, it seems to me that although the Minister made much of the complications of the GMP test, with modern computerised administration the complexity and difficulties of handling it have been rather exaggerated. My recollection is that the Occupational Pensions Board progressively eased enforcement procedures, as it did while I was a member. No doubt what it has been doing will be taken over by the DSS which could continue the policy.
I do not intend to divide the Committee at this stage, although I am not happy with the Government's response. I shall read it carefully in Hansard.
§ Clause 120 agreed to.1051
§ Clause 121 [State scheme contributions and rebates]:
§ Lord Lucas moved Amendment No. 184C:
§ Page 72, line 35, after ("made") insert:
§ ("( ) in subsection (5), for "alteration" there were substituted "determination").
§ The noble Lord said: The purpose of the amendment is to replace the word "alteration" with the word "determination", so far as the report under Clause 42(1) (a) of the Pension Schemes Act 1993 is concerned, in recognition that the rebate percentages following the first review of contracting out terms after the passing of the Bill will be set for the first time under the terms of the new contracting out system. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 184D:
§ Page 73, line 18, at end insert:
§ ("( ) If the Secretary of State pays an amount under subsection (3) which he is not required to pay, he may recover it from any person to whom, or in respect of whom, he paid it.").
§ The noble Lord said: In moving Amendment No. 184D, I wish to speak to Amendments Nos. 184E and 184F. Amendment No. 184D allows the Secretary of State to recover any erroneous payments of "top-up" age-related rebate made to contracted-out money purchase schemes. A similar power is already in place in primary legislation for rebate payments made direct to appropriate personal pension schemes. Those are used principally in the case of incorrect earnings information supplied by employers.
§ Such overpayments may be recovered from the scheme to which the rebate was paid or the scheme member. Under the new arrangements for direct payments of age-related rebates by the DSS, overpayments can be recovered and the national insurance fund protected.
§ Amendments Nos. 184E and 184F concern the age used to determine the rate of age-related rebates payable to members of contracted-out money purchase schemes and holders of appropriate personal pensions. As drafted, the Bill would lead to someone born on 6th April receiving a higher rate of rebate than they would strictly need to compensate for the SERPS forgone in that year and so higher than other contracted-out money purchase scheme members born in the same tax year. The amendment corrects that anomaly. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 184E:
§ Page 74, line 8, leave out ("first day of the") and insert ("last day of the preceding").
§ On Question, amendment agreed to.
§ [Amendments Nos. 184EA and 184EB not moved.]
§ Clause 121, as amended, agreed to.
§ Clause 122 [Minimum contributions towards appropriate personal pension schemes]:
§ 4.15 p.m.
§ Baroness Hollis of Heigham moved Amendment No. 184EC:
§ Page 75, line 3, leave out subsection (2) and insert:1052
§ ("(2) In subsection (1), for "41(1)" there is substituted "42B(1)".").
§ The noble Baroness said: This amendment is quite technical. Basically, it is along the lines of the level playing field and it is intended to stop a subsidy being paid to personal pension providers by national insurance contributors. As worded at present, the Bill will ensure that age-related rebates paid to appropriate personal pensions will be higher than for those people who have a contracted-out money purchase scheme. That is because the Pension Schemes Act 1993 provides for the two rebates to be calculated separately so as to reflect the cost of providing benefits. Thus, as the costs of personal pensions (especially the costs of administration and marketing) are higher than in a money purchase scheme, the rebates will be higher.
§ I believe that from recent information we all accept that the typical level of expense of a personal pension can range from 15 per cent. up to 30 per cent. of the contributions in administration and selling costs alone. However, the cost of a money purchase scheme is often below 10 per cent. of the contributions. So it seems unfair to us that holders of an appropriate personal pension should receive a higher rebate simply because they have chosen the higher cost form of provision with higher commission charges, which is favoured by the Government. That is particularly bearing in mind that it comes from the national insurance scheme. I beg to move.
§ Lord Mackay of Ardbrecknish
As the noble Baroness explained, the amendments seek to have the same age-related contracted-out rates for appropriate personal pension schemes and contracted-out money purchase schemes. We believe that there need to be different levels of rebate.
The rates set for occupational schemes might be expected to be lower than those for personal pensions schemes for two reasons. First, the different types of schemes have different levels of expenses. While personal pensions and occupational schemes are both money purchase arrangements, there are significant differences which affect the expenses incurred. The rebates will need to reflect that fact.
Most fundamentally, occupational schemes relate to a particular employment, whereas personal pensions are entirely individualised. This means that occupational schemes would generally be expected to incur lower expenses due to economies of scale. Each member of an occupational scheme has his own fund and all the members will work for the same employer. Their contributions can be collected from the same payroll and so on. Personal pensions are entirely individual, as I have said, and can thus be expected to incur greater expenses. The Government Actuary will be asked, in advising on the levels of age-related rebates, to make allowance for the reasonable costs and charges of the more efficient personal pension providers.
Secondly, for administrative reasons, members of occupational schemes and their employers will receive part of the rebate during the course of the tax year. This will be in the form of a reduction in their national insurance contributions. The balance will be paid after the end of the tax year. For personal pensions, the whole 1053 rebate will be paid after the end of the tax year. This means a loss of investment return on the rebate, which will also be taken into account in calculating the rates.
The net effect of these differences is that the rebate for occupational schemes is expected to be lower than for appropriate personal pension schemes. It is important to remember that the rebate is intended to represent the amount which will need to be invested to replace the SERPS given up. If the rebate is insufficient to do that it will generally not make sense for someone to contract out through that route.
In the scenario proposed in the amendment, it would be personal pensions which would be expected to receive a lower rebate. It could well be insufficient to replace the SERPS given up. The majority of personal pension holders would, in these circumstances, be best advised to return to SERPS. It is important to remember that a personal pension is the only alternative to SERPS for many people. So there would be a reduction in choice and a greater burden would be placed on future generations through increased SERPS liabilities. With that explanation of what we propose in that part of the Bill and of the effects which the noble Baroness's amendments would have, I hope that she will be able to withdraw Amendment No. 184EC.
§ Baroness Hollis of Heigham
I thank the Minister for his reply. I should like to take up a couple of points. First, he said that there needs to be a different subsidy—that is what we are talking about —because personal pensions have different levels of expenses and rebates (I quote his phrase) "need to reflect that fact". They do not. That is a political decision by the Government and a personal decision by the individual. If they choose that flexibility, they must expect to pay the price for having an individually tailored personal pension scheme. There is no justification whatsoever for us, as taxpayers and contributors to the national insurance scheme, to subsidise that choice.
Earlier, when we discussed state financing of the regulator and when it suited the Minister, he was insistent that because only half the population were in occupational pension schemes, the whole population should not pay for regulation. Now, when it comes to personal pensions and we are dealing with perhaps one-fifth of the population in such schemes, it suits the Minister to argue that all of us should help to subsidise the cost. I hope the Minister realises that we shall be quoting back at him the need for the public to subsidise the particular interests of a less than complete minority when we return to this issue. He cannot have it both ways. It is a political decision by the Government to set preferential terms in order to bait people into personal pensions with our money.
My second point is this: it would be acceptable if personal pensions were indeed directed, and limited effectively, to those groups. I accept that there are those who need personal pensions. I think we all accept that for the highly mobile, the self-employed, and in some cases the highly paid, personal pensions make a suitable form of provision for their old age. But with rebates such as this, the Government have bribed people with 1054 their own money into schemes that are unsuitable. For example, those in the public sector, miners, nurses and teachers have been bribed to give up good occupational schemes, and sometimes SERPS, to go into personal pensions for which they are clearly not suited and for which they will receive reduced benefits. Moreover, personal provision has gone not to the better-off, but to the low-paid. The average income of a man on a personal pension is below £10,000 a year; that of a woman is below £7,000 a year. In consequence, merely rechurning the rebates that the Government will give will not produce security against poverty in old age.
What is the option? Either you have to confine the target audience for personal pensions, increase the rebates or require an additional contribution. The Government, for ideological reasons, are not willing to do the first; at our expense they propose to do the second; and we, at a later stage, may return with an amendment to do the third. The only way that personal pensions will provide suitable protection against poverty in old age is if, in addition to rebates, those who contribute to them make a personal contribution of at least 5 per cent. out of their own earnings. Unless they do that—and two-thirds presently do not—they will continue to suffer poverty.
What the Minister is saying is that he will use our money—the taxpayers' money—out of national insurance to lift up the rebates for personal pensions to cover sales costs because personal pensions, otherwise, are too poorly directed and will produce too low a return for people in their old old age.
The right response to that problem is not to put up the rebates. It is, instead, to ensure that personal pensions are taken out only by those for whom they are suitable, and then only with the addition of a personal contribution from the individual holder of a particular scheme. I suspect that we shall return to this matter at much greater length on Report. But let the Minister not think that this issue is ideologically neutral. The Minister is continuing to encourage people to go down a road which we already know to be full of pitfalls for ordinary people. In human decency, he should not continue to do that. But I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 184ED not moved.]
§ Lord Lucas moved Amendment No. 184F:
§ Page 75, line 32, leave out ("first day of the") and insert ("last day of the preceding").
§ On Question, amendment agreed to.
§ [Amendment No. 184G not moved.]
§ On Question, Whether Clause 122, as amended, shall stand part of the Bill?
§ Baroness Turner of Camden
I rise to oppose the Motion that this Clause stand part of the Bill. As we know, this is the clause which enables the Government to provide age-related rebates to individuals who opt for personal pensions. As I said at Second Reading, there is a very strong feeling in certain quarters that the Government have skewed this Bill in favour of personal pension provision.
1055 We know of course that the Government's philosophy has always been an individualistic one. The legislation that followed the Fowler review was specifically designed to get people to opt for personal pensions even when they were in quite good occupational schemes. We are already having to deal with the problems that that campaign caused. My noble friend Lady Hollis has already made reference to that point in relation to a previous amendment. People who would have been better served to stay with their occupational schemes were persuaded by high-pressure salesmen to opt for personal pensions. The self-regulatory mechanisms in financial services—I have a personal interest as chair of the Personal Investment Authority ombudsman council—have now to pick up the pieces. It will be complicated, messy and expensive. And in the end there may well still be many dissatisfied and unhappy people.
I am surprised therefore that the Government should have chosen this Bill as the vehicle for persuading yet more people into personal pensions. The age-related rebates are specifically intended to make personal pensions more attractive at the higher age range. As matters stand at present, it is generally accepted that older people are better off either staying with SERPS or, more likely, opting back if they are currently outside it.
The Government are anxious to take more people out of SERPS. We are constantly being told that we cannot afford SERPS, and that the generation that will come after us will not be prepared to pay for public provision of this order. But I say again, as I have said before, that extolling private provision over and against public provision is mistaken. Ultimately, whether provision for the elderly is paid for out of public funds or private funds—many of the latter managed by insurance companies—does not matter to the economy as a whole. Ultimately we all have to pay for it, and arguably pay more if private provision is encouraged. It all comes out of the same economic pot, so to speak. We pay for it either in taxes or in higher insurance premiums —or, if the private sector fails, in increased social security provision.
In this clause the Government are quite openly encouraging older people into the personal pensions market. The poorer among them would almost certainly be better off staying with SERPS. Recent events have demonstrated that very few people appreciate just how much they have to pay into a personal pension scheme in order to qualify for reasonable provision in retirement. Those who simply rely on the rebate—of whom there are a large number—will be extremely disappointed. Many have realised that already.
I am therefore against encouraging more people down that road and increasing the market for personal pensions. I do not believe that it is in the interest of poorer, older people. And somehow we have to sort out the problems that have arisen with the Government's last venture into the area of encouraging personal pension provision in inappropriate circumstances.
Finally, there is the cost argument. I understand that the cost of subsidising personal pensions—that is what the rebates do—would be of the order of £300 million 1056 a year. Much of that would go to swelling the profits of insurance companies. For these reasons, I oppose the Motion that the clause should stand part of the Bill.
§ Lord Mackay of Ardbrecknish
The current flat rate rebate structure in appropriate personal pensions (APPs) means that it does not make economic sense for holders of APPs to maintain their plans until retirement. At some point they are likely to be best advised to return to SERPS. That does not help to ease the burden on the next generation of SERPS expenditure; nor is it helpful to individuals to have to change pension provision in this way.
Nevertheless, the Government are committed to choice in pension provision. We have already clearly seen that that differentiates us from the party opposite. Accordingly, this clause legislates for age-related rebates to enable most current APP holders to maintain their plans until retirement. We have already announced that we shall be capping the age related rebates at 9 per cent. This will ensure that rebate levels and costs are restrained in the early years of the scheme. With regard to relating rebate to age, the current system is that there is a fixed limit. The fixed amount, when multiplied by the number of years that it is held in the pension fund, gives quite different calculations at various stages in a person's life. As one gets older, the number of years remaining until retirement reduce. If we do not increase or vary the rebate according to age, we reach a position where it is more attractive for someone to remove himself from his APP and return to SERPS. This clause provides for the Secretary of State to make payments of age related rebates to APPs. As I said, it replaces the current arrangement of a flat rate.
The bulk of the clause inserts a new Section 45A into the Act. This provides for setting age-related rebates, following a review by the Government Actuary, in the same way as now for the flat rate rebate. The rebates themselves will be made by order, which will be subject to affirmative resolution. That, in itself, is an important step, since it puts APPs on a separate actuarial footing. For the first time, APP holders will be paid a rebate specifically designed to provide the appropriate level of pension in place of SERPS. As at present, there must be a clear tax year between the order being made and its coming into force.
In calculating suitable rates of rebate for APP holders, the Government Actuary will need to take into account reasonable levels of expenses which are incurred in providing such schemes. It is essential that some allowance of this kind is made. If only the basic rebate required to replace the SERPS given up were paid with no allowance for expenses whatsoever, it would simply not be best advice to contract out of SERPS using an APP. As I said in previous discussions, that in turn would lead to increased expenditure on SERPS in the next century, placing a burden on the workforce of the future.
People will only be willing to save for retirement if they believe that their pension rights will he secure. They must be able to rely on the highest standards of expert advice and must be able to have confidence that the regulatory framework will protect their interests against the unscrupulous and the incompetent.
1057 We believe that these provisions are in place so that people can feel secure in making the move to APPs. We believe that choice is important, clearly unlike the party opposite, although I notice that in certain circumstances certain people—presumably decided by socialist apparatchiks—are allowed to have personal pensions. In their case, you are not allowed to make a choice; you are not supposed to be intelligent enough or able enough to seek advice to make that choice. We believe that that element of choice is important.
We believe that APPs play a vital part both in reducing expenditure on SERPS and in extending that pension choice. They ensure that everyone has the option of contracting out of SERPS and making their own pension provision if they choose to do so. APPs are particularly valuable to those employees who do not have access to an occupational scheme.
As I explained, the introduction of age related rebates for APPs is essential to enable current APP holders to maintain their plans until retirement, and to ensure that those plans continue to offer an additional choice of pension provision to younger employees in future years.
With that explanation, I trust that the Committee will approve the clause.
§ Clause 122, as amended, agreed to.
§ Clause 123 agreed to.
§ 4.30 p.m.
§ Clause 124 [Reduction in benefits for members of certified schemes]:
§ Lord Lucas moved Amendment No. 184H:
Page 77, line 4, at end insert:
(6) In relation to earners where, by virtue of subsection (1), section 44(6) of the Social Security Contributions and Benefits Act 1992 has effect, in any tax year, as mentioned in that subsection in relation to some but not all of their earnings, regulations may modify the application of section 44(5) of that Act.").
§ The noble Lord said: The purpose of this amendment is to provide a regulatory power to modify the effect of subsection (1) of Clause 124. The effect that we intend to achieve by such a modification would be to ensure that those persons who have earnings in both contracted out and not contracted out employment in the same tax year will derive full SERPS entitlement from those earnings relevant to the not contracted out employment. I beg to move.
§ On Question, amendment agreed to.
§ Clause 124, as amended, agreed to.
§ Clause 125 [State scheme etc. premiums and buyback into State scheme]:
§ Baroness Seear moved Amendment No. 184HA:
§ Page 78, line 19, leave out ("from") and insert ("to be paid from the resources of the scheme by").
§ The noble Baroness said: The purpose of this amendment—this matter has come up already in earlier debates—is to avoid putting too heavy burdens on trustees. We are anxious to encourage people to be prepared to be trustees but the threat and dangers of heavy financial commitment are such as to discourage the very people whom we would wish to be trustees 1058 from taking on the job. Therefore we want to put a limit on their liabilities and ensure that if there is a case for a repayment, it falls on the funds of the trust as a whole and not on the individual members. I beg to move.
§ Lord Mackay of Ardbrecknish
These amendments share a common purpose: to protect trustees from personal liability for debts relating to the scheme fund. I understand the noble Baroness's concern that trustees should not have to fund the levies from their own pockets. I can assure her and the Committee that that has never been the intention. There will be a range of provisions in place to ensure that whenever levies are payable, appropriate resources are available to the trustees. Therefore, in practice we do not consider that this amendment is necessary to safeguard the trustees' position. Nevertheless, someone has to be legally responsible for the payment of the levies. It is only right that that responsibility should be placed on the trustees.
In salary related schemes, the sponsoring employers stand to bear the balance of costs, and the minimum solvency provisions will safeguard the funding levels. In order to ensure that levy payments do not undermine the minimum solvency requirements, we intend to provide that, where necessary, amounts of levy may be included in the agreed schedule of contributions to be paid by the employers.
The situation in money purchase schemes is very similar. In both cases, failure to pay amounts due under the agreed schedule will create a debt on the employer.
However, we recognise that where a scheme is frozen or paid up, there may be no active, solvent employer standing behind the scheme. In that case, we acknowledge that there may be a danger of levy payments eroding members' benefits. In such cases, the trustees will be able to apply to the registrar to waive collection of the levies. We intend that the registrar will have the power to waive collection only in certain circumstances: where there is no solvent employer and where the registrar is satisfied that payment of the levies would adversely affect members' accrued benefit entitlements. That will ensure that the position of both members and trustees is protected in these circumstances. We do not wish to disturb the existing arrangements for liability for, and payment of, the levy, which work quite satisfactorily.
Amendment No. 184HA seeks to ensure that trustees and scheme managers should not be personally liable for the debt to the Secretary of State that will arise on full or partial restoration of a member's state scheme rights.
Unlike the levy liability, which in the majority of cases falls on schemes with active employers, such a debt can only arise where the sponsoring employer is insolvent and the scheme is winding up in deficit. As with the levy provisions, special treatment is required where there is no solvent employer.
The provisions enabling the Secretary of State to restore the member's state scheme rights, in whole or in part, closely follow present provisions contained in Schedule 2 of the Pension Schemes Act 1993. I alluded 1059 to that some little while ago when answering a question from the noble Baroness, Lady Turner, with regard to the Maxwell pension arrangements.
At present, regulations provide for the payment of any state scheme premium imposed on the trustees of a scheme to be a liability to make that payment out of the resources of the scheme. I can assure the Committee that we shall maintain that position. The amendment is, therefore, not required. I trust, in the light of that explanation, that the noble Baroness will be satisfied and feel able to withdraw her amendments.
§ Baroness Seear
I thank the Minister for that very clear explanation. It is useful to have it on the record. I intend to withdraw the amendment but I wish to ask him one further question. He said that the regulator would make regulations to cover this matter. Will those regulations come before the House? Will it be done by affirmative order? Will we see it? I think it would be reassuring to be told that we shall.
§ Lord Mackay of Ardbrecknish
If the regulator is making the regulations, I am not sure whether they would come before the House. Regulations made by the Secretary of State or by the Government come before the House in either of the ways. However, I shall check that point and let the noble Baroness know.
§ Amendment, by leave, withdrawn.
§ Clause 125 agreed to.
§ Clause 126 [Interim arrangements for giving effect to protected rights]:
§ Lord Haskel moved Amendment No. 184HB:
§ Page 79, line 2, leave out ("In the case of a personal pension scheme,").
§ The noble Lord said: In moving this amendment I shall speak also to Amendment No. 184HC. A few moments ago the Minister spoke to us about choice. He will be delighted to know that this amendment is about choice. It asks why the Government are restricting choice.
§ The new facility announced in the Budget and provided for under the current Finance Bill allows for the purchase of an annuity to be deferred but cash payments can be taken from the fund in the meantime. The intention is to enable those who retire at times when investment conditions are unfavourable to wait until they are better. The provision in the Bill extends only to appropriate personal pensions. The purpose of the amendment is to find out why it is not also extended to money purchase schemes and other pension arrangements. Obviously the Government intend to encourage personal pensions whenever possible, but it does not seem reasonable that this deferment cannot be extended to people who have chosen other forms of pension. As the Government are very much for choice, I should have thought that they would accept the amendment. I beg to move.
§ Lord Mackay of Ardbrecknish
It is always nice to know that one's arguments on previous amendments are 1060 being listened to. The noble Lord will be hoping that I am listening to his arguments. The effect of the amendment would be to extend the option allowing members to draw an income from their appropriate pension fund scheme to the members of contracted out money purchase occupational pension schemes. People in those schemes could delay the taking out of an annuity in their scheme and draw down on income during the years in which they delay taking out an annuity. My understanding is that that is possible currently, or would be possible if the employer agreed, but I think the noble Lord is inviting me to go a little further and give it as a right.
Money purchase occupational pension schemes have a very different tax regime from that of personal pension schemes. Extending the flexible annuity proposals to money purchase occupational pension schemes would not be straightforward. Although, as I have mentioned, some employers may give the right, many other employers would not want to take on the extra administrative work involved with continuing, if I may so describe it, to have someone on their books after he retires. In the normal way of things the person would have bought his annuity and would have removed himself from the ambit of the employer. Members would also have the option to transfer to a personal pension scheme and they could then use the provisions which are currently in the Bill.
My right honourable friend Anthony Nelson, the Economic Secretary to the. Treasury, said in relation to this matter in another place on 30th January during the Committee stage of the Finance Bill, which extends similar flexibility to non-appropriate personal pensions:If there proves to be a problem in practice, we shall certainly reconsider the matter but we think that the flexibility for retirement annuity contracts and for occupational pensions is adequate".—[Official Report, Commons, 30/1/95; col. 722.]On the understanding that the Government have already indicated in the Finance Bill that they are prepared to consider any ideas for introducing more flexibility in this area for occupational pension schemes, I hope that the noble Lord, Lord Haskel, having made the point and having listened to what I said, will be able to withdraw his amendment.
§ 4.45 p.m.
§ Lord Haskel
I thank the Minister for that explanation and I am glad that he thinks that the proposal adds to the flexibility of the pension regime. Obviously we shall not pursue the matter further as it is being considered. I would just recommend that the Minister consider the proposal favourably because flexibility is another word for choice, a subject on which we were lectured earlier this afternoon. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 184HC not moved.]
§ Clause 126 agreed to.
§ Clause 127 [Requirements for interim arrangements]:
§ [Amendments Nos. 184HD and 184HE not moved.]
§ Clause 127 agreed to.1061
§ Clause 128 [Interim arrangements: supplementary]:
§ [Amendment No. 184HF not moved.]
§ Clause 128 agreed to.
§ Lord Lucas moved Amendment No. 184J:
§ After Clause 128, insert the following new clause:
§ Monitoring personal pension schemes
§ "Appropriate schemes: "Blowing the whistle".
§ 33A.—(1) If any person acting as the auditor or actuary of an appropriate scheme has reasonable cause to believe that—
- (a) any requirement which, in the case of the scheme, is required by section 9(5) (a) to be satisfied is not satisfied, and
- (b) the failure to satisfy the requirement is likely to be of material significance in the exercise by the Secretary of State of any of his functions relating to appropriate schemes,
§ (2) No duty to which a person acting as auditor or actuary of an appropriate scheme is subject shall be regarded as contravened merely because of any information or opinion contained in a written report under this section.").
§ The noble Lord said: This amendment introduces a new requirement on any person acting as the auditor or actuary of an appropriate personal pension scheme to blow the whistle to the department if he has reasonable cause to believe that the scheme is not satisfying the requirements for continued appropriate scheme status. This requirement will complement both the monitoring procedures for appropriate personal pension schemes which are already in place and the others that we are bringing forward elsewhere in the Bill. It will provide an additional level of protection for personal pension investors. We propose that the enforcement of the requirement and action resulting from the failure to comply will be a matter for the relevant professional body. This requirement closely mirrors Clause 41 of the Bill relating to trust-based occupational pension schemes. I beg to move.
§ On Question, amendment agreed to.
§ Lord Haskel moved Amendment No. 185:
§ After Clause 128, insert the following new clause:
§ Consent of Regulatory Authority to exceptions
§ (2) In subsection (1), before "subject" there shall be inserted the words "except where the consent of the Regulatory Authority has been given to such term or rule and".").
§ The noble Lord said: This is a probing amendment to see whether some thought has been given to the situation regarding the private pension plans and the independent financial salesmen. By removing the regulations in the Social Security Act 1986 to make membership of an occupational personal pension scheme compulsory, the Government opened up the pensions market. The activities which have led to the mis-selling of pensions eventually led to the efforts of the Securities and Investments Board to put the matter right by reviewing each personal pension plan sold.1062
§ Section 160 of the Pension Schemes Act 1993 provides some protection against continued mis-selling while leaving the pensions market open. However, there is now some doubt about whether the SIB—the regulator—has the authority over the independent financial advisers to review the mis-selling because the independent financial advisers have now obtained a judicial review. In addition, if the independent financial advisers carry out the instructions of the PIA and write to their personal pension plan customers in the manner laid down, they may lose their insurance cover.
§ The purpose of this amendment is to remove the uncertainty created by this situation by authorising the Occupational Pensions Regulatory Authority (OPRA) to regulate the independent financial advisors when they are selling personal pension plans. I beg to move.
§ Lord Mackay of Ardbrecknish
This amendment seeks to alter law which was first introduced by the Social Security Act 1986. The provision prevents employers from making it a condition of employment that their employees must join their scheme or a personal pension scheme of the employers' choice. As a result, an individual can now choose between state and non-state schemes and between occupational and personal pensions. Employers cannot make membership compulsory.
The noble Lord, Lord Haskel, drew to the attention of the Committee reinstatement for personal pension holders who have been disadvantaged by poor selling practices. Of course, we accept that remedies should be available to those investors.
However, it is for the trustees or managers of individual schemes to decide whether or not people should be able to rejoin their occupational scheme. The Securities and Investments Board has recommended that—where possible, and the scheme is willing—people who have transferred into a personal pension from an occupational scheme as a consequence of bad advice should be reinstated in their original scheme. Public service schemes such as for teachers, nurses, and so forth, are willing to readmit employees who want to rejoin. In other cases it may be best to top up the personal pension. Whatever remedy is chosen, the costs will be borne by those responsible for the mis-selling. With that clear statement of what we expect and believe to be the position, I hope that the noble Lord will be able to withdraw his amendment.
§ Lord Haskel
I thank the Minister for that explanation. Obviously, it seems sensible that the trustees should decide whether pensioners or beneficiaries should be reinstated. I am not sure that my understanding of the amendment and the Minister's response are exactly related to each other. I shall read with interest in Hansard what he has said and, if necessary, I shall return to this matter at Report stage. In the meantime I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 129 agreed to.
§ Clause 130 agreed to.
§ Schedule 5 [Amendments relating to Part III]:
§ Lord Lucas moved Amendment No. 186:
§ Page 116, line 2, at end insert:
§ . In Schedule 4 to the Social Security Administration Act 1992 (persons employed in social security administration etc.) the entries in Part I relating to the Occupational Pensions Board are omitted.").
§ The noble Lord said: In moving this amendment I speak also to Amendment No. 187. These two amendments are consequential on the abolition of the Occupational Pensions Board and merely remove references to it. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187:
§ Page 116, line 14, at end insert:
§ . In section 13(9) of the Judicial Pensions and Retirement Act 1993 (election for personal pension), in the definition of "personal pension scheme", "by the Occupational Pensions Board" is omitted.").
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187A:
§ Page 117, leave out lines 3 to 6.
§ The noble Lord said: In moving this amendment I shall speak also to Amendment No. 187F. Section 34(6) of the Pension Schemes Act 1993 allows the Occupational Pensions Board to withdraw a contracting-out certificate if it is discovered that a scheme is refusing to allow individuals over particular ages to participate. Amendment No. 187F repeals subsection (6). For salary-related contracted-out schemes the responsibility will in future be on the scheme actuary to check that there is no age-discrimination when certifying that the new quality test is met. This requirement will be prescribed either in regulations which will be under Clause 120(12A) (4) and (5) of this Bill or in a guidance note. There will be no change to the existing requirement for money purchase contracted-out schemes except that in future it will be contained in regulations under Section 9(3) (a) of the Pensions Schemes Act 1993. The power will be exercised by the Secretary of State rather than the OPB.
§ Amendment No. 187A removes the reference in Schedule 5 to subsection (6), which is no longer needed. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187B:
Page 118, line 9, leave out from ("following") to ("percentage") in line 10 and insert ("the definition of "minimum payment" there is substituted—
and for the purposes of this subsection "rebate percentage" means the appropriate flat rate").
§ The noble Lord said: This amendment revises the definition of "minimum payment" to reflect the amount of rebate received by the contracted-out money purchase scheme member and his employer as a reduction in liability to pay national insurance contributions.1064
§ The amendment makes it clear that the definition of "minimum payment" will include only the appropriate flat rate percentage as specified by new Clause 42(A) (3) and not the whole appropriate age-related percentage. That is because the balance of the appropriate age-related percentage over the appropriate flat rate percentage will be paid over direct to the scheme by the Department of Social Security. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187C:
Page 118, line 18, at end insert:
(". In section 9 (requirements for certification), in subsection (3) "22 and" is omitted.").
§ The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 187D and 187E. The effect of Amendment No. 187D is to repeal Section 22 of the Pension Schemes Act 1993 which requires that the resources of contracted-out occupational pension schemes must be derived in whole or in part by payments made by the employer or the employee. From 1997 there will be no specific financial requirements concerning the resourcing of contracted-out pension schemes. There will be general rules in relation to the financing of all pension schemes. Section 22 is therefore no longer required after the principal appointed day.
§ Amendment No. 187C merely removes a reference to Section 22.
§ Amendment No. 187E .omits Section 31(1) of the Pension Schemes Act 1993, which is a power to set out requirements as regards the investment of resources of a contracted-out personal or occupational money purchase pension scheme. This power is no longer needed as the Bill contains new rules on investment which cover all occupational pension schemes. Investment rules for personal pension schemes are covered in the Financial Services Act. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187D:
Page 118, line 30, at end insert:
(". Section 22 (financing of benefits) is repealed.").
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 187DA:
§ Page 118, line 35, after ("rights)") insert ("(a)").
§ The noble Lord said: In moving this amendment, I shall speak at the same time to Amendments Nos. 187DB, 187EA and 187FA. As Members of the Committee will know, the state scheme premiums which buy back protected rights into SERPS are being abolished. As a consequence there will be no further justification for the current provision whereby protected rights in the case of money purchase occupational and personal pensions can be extinguished by the payment of a premium.
§ Amendments Nos. 187DA and 187DB omit the relevant subsection. Amendment No. 187EA concerns Section 34 of the Pension Schemes Act 1993 which covers certification procedures. New subsection (9) (2B) sets out the conditions for contracting out. As part of the on-going monitoring arrangements for contracted 1065 out salary-related schemes, we will use regulations to require employers and the scheme actuary to confirm, at intervals of no more than three years, that the contracting out conditions are still being complied with.
§ This amendment to Section 34 is needed to make it explicit that the recertification requirement applies only to salary-related contracted-out schemes. Any change of circumstances affecting money purchase contracted-out schemes or appropriate personal pension schemes will be considered in the same way as now to see whether the contracting-out certificate is still appropriate.
§ On Question, amendment agreed to.
§ 5 p.m.
§ Lord Lucas moved Amendments Nos. 187DB to 187FA:
Page 118, line 36, at end insert ("and
(b) subsection (7) is omitted").
Page 118, leave out line 40 and insert:
("( ) subsection (1) is omitted, and").
Page 118, line 47, leave out from ("(1)") to ("issued") in line 48 and insert ("for paragraph (a) there is substituted—
(a) in the case of a contracting-out certificate—
§ Page 119, line 7, leave out ("subsection (7) is") and insert ("subsections (6) and (7) are").
§ Page 119, line 34, leave out ("41") and insert ("42").
§ The noble Lord said: I have already spoken to these amendments. I beg to move.
§ On Question, amendments agreed to.
§ Lord Lucas moved Amendment No. 187G:
Page 120, line 16, leave out sub-paragraph (c) and insert:
("( ) in subsection (5), for "55(2) (ii)" there is substituted "55(2A) (c)", and
( ) subsections (6) to (10) are omitted.").
§ The noble Lord said: In moving Amendment No. 187G, I should like to speak also to Amendments Nos. 187H, 187J, 187K, 188 and 189.
§ The effect of Amendment No. 187G is to retain Section 60(5) of the Pension Schemes Act 1993, amending the cross-reference to Section 55 from subsection (2) (ii) to subsection (2A) (c). This is to ensure that accrued rights are extinguished in all the circumstances in which a contributions equivalent payment is paid. It also repeals subsections (6) to (10) of Section 55, which are no longer relevant as they refer to Section 55(3), which is itself repealed.1066
§ Amendments Nos. 187J and 187K expand the scope of Sections 155 and 165 respectively of the Pension Schemes Act 1993 to include contracted-out money purchase pension schemes. The provisions will make it possible for the Secretary of State to require information from contracted-out salary-related and appropriate schemes.
§ Amendment No. 189 corrects a duplication in the Bill as currently drafted. I beg to move.
§ Baroness Hollis of Heigham
I do not want to sound churlish, but is it not remarkable to have 22 government amendments following each other in an attempt to correct the drafting of the Government's own Bill? Obviously such corrections may occasionally be needed due to typing mistakes or occasional cross-references, but we are talking about 22 government amendments. The number of regulations in the Bill—200—is paralleled only by the number of the Government's amendments to their own drafting. I thought that the noble Lord might like to be made aware of that fact, if he was not already conscious of it.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendments Nos. 187H to 189:
§ Page 120, line 37, at end insert ("and, in subsection (1) (b), for "that section" there is substituted "section 58'"').
Page 121, line 7, leave out sub-paragraph (c) and insert:
("( ) for the words from "sections 7" to "premiums)" there is substituted "Part III").
Page 121, line 23, at end insert:
(". In section 165 (application of certain provisions to case with foreign element), in subsection (2) (a), for the words from "sections 7" to "premiums)" there is substituted "Part III"").
Page 121, leave out line 34 and insert:
(". In section 176 (fees), for "either by the Secretary of State or by the Board on his behalf" there is substituted "by the Secretary of State".").
§ Page 121, line 43, leave out from ("omitted") to end of line 46.
§ On Question, amendments agreed to.
§ Lord Lucas moved Amendments Nos. 190 and 191:
§ Page 122, line 8, after ("(1)") insert ("for the words from the beginning to "make" there is substituted "Subject to subsection (2), before the Secretary of State makes" ").
Page 122, line 9, at end insert:
("( ) in subsection (2), at the end of paragraph (c) there is added—
§ The noble Lord said: I have already spoken to these amendments with Amendment No. 171. I beg to move.1067
§ On Question, amendments agreed to.
§ Lord Lucas moved Amendment No. 191A:
§ Page 122, line 28, leave out paragraph 54 and insert:
§ (". In Schedule 6 (transitional provisions and savings), paragraph 11 is omitted.
§ In Schedule 9 (transitory modifications)—
- (a) in paragraph 1—
- (i) in the Table in sub-paragraph (1), entries (iii) to (v) are omitted,
- (ii) in sub-paragraph (3), in paragraph (a) (i) of the definition of "appointed day", for "to (v)" there is substituted "and (ii)", and
- (iii) in sub-paragraph (5), "or (4)" is omitted, and
- (b) paragraph 4 is omitted.").
§ The noble Lord said: This amendment is consequential on the Government's decision not to require contracted-out salary-related occupational pension schemes to provide guaranteed minimum pensions for married women and widows who have elected to pay national insurance contributions at the reduced rate. Such women are otherwise known as "reduced rate optants". These provisions would be inappropriate under the new contracting-out arrangements and the Government signalled their intention to repeal the provisions in the White Paper Security, Equality, Choice: The Future for Pensions published last June.
§ Paragraph 54 of Schedule 5 to the Bill identified references in Schedule 9 to the Pension Schemes Act 1993 which needed to be omitted in the light of that decision. This amendment will remove further redundant material. I beg to move.
§ On Question, amendment agreed to.
§ Schedule 5, as amended, agreed to.
§ Lord Freyberg moved Amendment No. 191B:
Before Clause 131, insert the following new clause:
("War widows' pensions
. The widow of a deceased member of Her Majesty's forces whose death was adjudged to be attributable to service shall continue to be entitled to a war widows pension regardless of any subsequent change of status.").
§ The noble Lord said: In moving Amendment No. 191B, I should like to speak also to Amendments Nos. 191C and 191D.
§ The reason for these amendments is to rectify three long-standing inequities in war and service widows' pensions. It is extremely important to act now as many of the widows worst affected are over 70 years old—the majority are very much more—and the 50th anniversary of the end of the Second World War is a timely opportunity to restore their dignity and to ensure that their last years are spent living above the poverty line.
§ The first of these amendments, Amendment No. 191B, concerns the right of a war widow to a pension for life. At the moment, there are just under 50,000 war widows who receive a war widow's pension. They fall into two categories. Those widowed before 1973 receive the DSS war widow's pension plus a supplement that was won as a result of the 1989 parliamentary campaign. Those widowed after 1973 receive an MoD attributable forces family pension and the DSS war widow's pension but without the supplement.1068
§ The pensions are generous in themselves but come with a cruel and financially punitive sting. Both the DSS and MoD pensions are removed if a war widow remarries or is discovered cohabiting. That is particularly serious for the most elderly and for widows with small children. In the case of a widow with dependent children, should anything go wrong with her second marriage—divorce or a second bereavement—she will be left high and dry. It is unreasonable to expect a second husband to bear all the costs of the children of the first marriage, especially when he is likely to have children of his own. The DSS war widow's pension is never restored, while the MoD pension is only restored subject to an uncertain and demeaning means test. That deters most widows from applying and others from even considering remarriage. In 1993, only one in 100 war widows under the age of 60 remarried.
§ Such treatment is outdated and hard to reconcile with practice elsewhere. Indeed, 84 per cent. of current UK occupational schemes pay a pension for life regardless of marital status. Moreover, among comparable armed forces schemes abroad, the UK is isolated in respect of its treatment of war widows. Of the 14 schemes studied by the Officers Pension Society, eight give a pension for life. In Europe, only the UK fails to restore war widows' pensions after a second bereavement or divorce. That should not be allowed to continue.
§ The second amendment (Amendment No. 191C) concerns the pensions of service widows of post-retirement marriages; that is, widows who married their husbands after they had retired. At the moment, those whose husbands retired before 1978 receive no service pension. Servicemen are in a unique position. They retire far earlier than any other profession. Typically, other ranks retire at 40 years of age, while most officers retire between 45 and 55. Those are not advanced ages for marriage or remarriage, but if a serviceman who retired before 1978 marries or remarries, his years of service (typically 34 for an officer and 22 for other ranks) count for nothing so far as concerns provision for his wife. He is therefore being penalised for the age at which he has chosen to marry.
§ The change of regulation in 1978 allows a fraction of a pension for post-retirement widows, but only on their husband's years of service after 6th April 1978. For officers' widows, each year of service after that date earns 1/34 of his service retired pay, while for other ranks each year counts for 1/22 of his pension. Today, 16 years on from the ruling, an officer will have earned for a post-retirement wife 16/34, or half of his pension. That is slightly less than a quarter.
§ It will not be until 2012 that an officer who retires and then remarries will have earned the maximum half rate pension for his wife. For pre-1978 post-retirement widows —those over 70—the situation is bleak. Very many receive no pension. The amendment asks for no special privileges, only that a pre-1978 serviceman's length of service be allowed to contribute towards his wife's pension. There is virtually no problem with precedent.
§ In the early 1970s virtually all civil servants worked to the age of 65. The amendment will put servicemen of those years on a par with civil servants of the same 1069 period. It asks that, provided the serviceman's post-retirement marriage took place before his 65th birthday (the end of his recall liability) and has lasted for at least three years, his widow should be given a pension related to the number of years in the forces—a minimum of 22 for other ranks and 16 for an officer.
Of the 14 comparable armed forces schemes every one, except that of the UK, makes pension provision for widows of post-retirement marriages. A woman in Suffolk has written to me saying:
My first husband who had paid all his life into the Widows and Orphans Fund, died aged 60 in 1969 and for 12 years I received his widow's pension".
§ She remarried and lost that pension. Today, if predeceased by her second husband, who had also paid into the widows and orphans fund all his life, she would receive no pension from either husband. Surely something should be done to rectify such an injustice.
§ My final amendment (Amendment No. 191D) seeks to rectify an unjustifiable anomaly for service widows whose husbands retired or died in service before 31st March 1973. That date marks a crucial difference to the rate of pension the widow can expect. I shall explain.
§ Widows of servicemen who joined the Army after 31st March 1973 automatically receive a pension of 50 per cent. of their husbands' retired pay. Widows of servicemen who joined earlier but who retired or died after that date had the option to buy into a scheme for a 50 per cent. pension for their wives. Widows whose husbands died or retired before 1973 receive only a 33 per cent. pension and had no option to buy into a higher one. That is dramatically lower than any other comparable armed forces scheme in Europe, the USA or Israel. None of those countries pays any of its service widows less than a 50 per cent. pension. In France, the figure is 50 per cent.; in the USA 55 per cent.; in Germany 60 per cent.; in Australia and Belgium up to 67 per cent.; and in the Netherlands 71 per cent. Our 33 per cent. is out of step. Do we really think so much less of the men who fought for this country's freedom? It is mean, inadequate and a disgrace.
§ For example, there is a widow living in Oxford whose late husband was a Fleet Air Arm pilot. He flew throughout the war, including the famous raid on the "Tirpitz" in Alten Fiord. His death at 37 of a massive heart attack while still serving as a pilot was not judged to be attributable to service, and after tax the MoD pension to which his widow is entitled amounts to £29.6 a week. Were she to receive a 50 per cent. pension (about £44 a week), she says that that extra £1,000 a year would make all the difference.
§ Again, it is the most elderly and vulnerable widows who are being made to suffer. Most are over 75 and many are in severe financial difficulties necessitating income support —not a cost-effective or dignified way of looking after them. My amendment proposes that their pensions be raised to 50 per cent. in line with post-1973 widows and the rest of Europe.
§ To conclude, most of the widows for whom the three amendments are sought watched their husbands go to war. On the Government's own figures, some 80 per cent. are over 70, with most aged between 75 and 85.1070
§ Many war widows are living lives of loneliness, dictated by the character of the pension regulations. Most service widows are in severe financial difficulty, necessitating various forms of government expenditure through income supplements. The true cost of honouring them in this victory anniversary year would be modest compared with the £5 billion saving being made by the Government through their retrospectively applied deferment of state retirement pensions for women. I beg to move.
§ 5.15 p.m.
§ Baroness Seear
I support the amendments so ably and fully moved by the noble Lord, Lord Freyberg, following his most excellent maiden speech, which impressed us all so greatly. The question will be asked—this is the only objection that can be raised—as to why war widows should be treated differently from other widows. There are a large number of widows who have suffered bereavement, perhaps in industrial accidents or in pits or in a great many other ways. Why then should we treat war widows differently? That is the question that may be asked.
My mind goes back 50 years, as will the minds of many Members of the Committee. I recall a conversation with a friend who had just come off the Murmansk convoys. He made a remark—it was in no way critical of his fellow sailors —that when the chips are down and the danger is great, it is impossible for a married man not to have in his mind the idea that his wife will suffer grievously if he carries the full burden of that fight. He was not suggesting, and I am not suggesting, that in those circumstances men would be any less brave, but surely the least we can do is to see that, when they are in those circumstances, they can be fully assured that their widow, if she is to be a widow, will be looked after properly. So I am glad to support the amendments.
§ Baroness Faithfull
I support the amendments, and, in particular, Amendment No. 191B. The Children Act 1989 lays down that the welfare of the child is paramount. I want to speak on behalf of the children of the widows and of their fathers who were killed in war. If a war widow wants to remarry, she realises that she will have her war widow's pension taken away. If the man is single, she realises that he has to take responsibility not just for her but for the children. If he is wealthy, all well and good, but supposing he is not wealthy, supposing he is taken ill, supposing he has a job or does not have a job—these days many men are losing their jobs—then the mother will realise that financially the children will suffer. If the man she seeks to marry is a widower with children, his financial burden will be heavy. There will be his children and her children. Just let us remember what happened over the Child Support Bill, now an Act, perhaps unhappily.
If under all those circumstances the widow decides not to marry but to live on her own, she deprives her children of a steady home and a stepfather. She deprives herself of companionship.
I believe that in all the circumstances we should consider the widows of men killed in the war. I realise 1071 that I cannot be objective about the matter. My father was killed in France in 1916 and my mother was left a widow. She would not remarry because of losing the pension and becoming dependent on someone else, with the possibility that her children might suffer. Therefore, she lived without remarrying and I know that that was a great sorrow to her. I support the amendment.
§ Lord Bramall
I am in an awkward position as regards the amendment because I am a member of the steering group which, under the leadership of the noble Viscount the Lord Privy Seal, is planning on behalf of Her Majesty's Government all the official events marking the 50th anniversary of VE Day and VJ, end of war, Day. Of course the steering group has no responsibilities for war widows' pensions as such. But it is charged with ensuring that any commemorative events and the expenditure on them are appropriate and in keeping with the sentiments and the mood of the country, in particular the veterans. With that mood rightly placing considerable emphasis on the gratitude felt for the service and sacrifice that made victory possible, the plight of some war widows cannot be completely divorced from the significant sums of money being spent on commemoration and, this time, on celebration. While on the one hand I have some representational responsibilities to the veterans, I do not wish to be too critical of any government action in relation to this anniversary, for which I and my colleagues on the steering group are prepared to take full collective responsibility. At the same time, fairness compels me to say that I agree so much with what was said by my noble friend Lord Freyberg in putting forward his important amendment to the Pensions Bill.
The whole subject is immensely complex because there are many different categories and degrees of hardship in a system which in principle and in practice is full of the most appalling and absurd anomalies. At this stage I need only remind the Committee that, because of the way in which war and service widows' pensions are paid in practice, a large number of elderly widows, many over the age of 75, are in severe financial difficulties. Surely in this 50th anniversary year of all years there is a golden and perhaps unique opportunity to improve the discreditable situation. After all, one of the main themes of the end-of-war commemoration, which is fully endorsed by the Prime Minister, is that of tribute and promise. There will be a tribute to those who served and suffered and a promise that those who did so and their families will he supported while that is necessary and encouraged to live out their lives in dignity. That pledge is essentially one made by the veterans, the associated voluntary organisations and, it is to be hoped, the younger generation. It involves no commitment on the part of the Government.
However, this year would provide a wonderful opportunity to make some gesture towards saying that at least war widows and those whose husbands' deaths were attributable to active service would never have their pensions removed from them and that an entitled service widow whose husband retired or died before March 1973, as many of the World War II generation did. should in future have the same half-rate pension as is currently available.
1072 Surely, this is an occasion for Ministers to show some imaginative spark of compassion and common sense which will capture the spirit of the moment and reflect the pulse of the veterans, rather than meekly harkening to Scrooge-like counselling ever reminding them of the dangers of precedent, the impossibility of retrospection—which governments are prepared to break when it suits them—or our inability to afford such gestures. No doubt that claim is insisted upon by the Treasury, whose policies between 1926 and 1938 we should never forget all but lost us that war. Now, thanks to so much sacrifice, we are able to remember its successful outcome with pride and gratitude.
I urge the Government to take heed of the amendment tabled by my noble friend Lord Freyberg. I urge them fittingly to mark this unique occasion by a significant gesture in the pension field, in particular as regards war widows. That would probably be more appreciated by the veterans than anything else that is being done to mark the 50th anniversary. I suspect that it will also be appreciated by the rest of the country, which will not be too enamoured by the thought of significant sums of money being spent, however sensibly, on commemoration and celebration when the widows of those who made the victory possible are still seen to be suffering.
§ Lady Saltoun of Abernethy
I am glad that I gave way to the noble and gallant Lord, Lord Bramall, and was able to hear his speech before speaking myself. I, too, support the three amendments tabled by the noble Lord, Lord Freyberg, but I wish to comment in particular on Amendment No. 191B.
A widow on remarriage, or if it is proved to the satisfaction of the DSS or MoD that she is cohabiting, will lose her pension. Few widows remarry because they are afraid of losing their pension and finding themselves in financial straits later on in life. That can happen, however well-off the proposed partner may be. Therefore, the Government would find their expenditure very little higher if they did the decent thing and allowed such widows to keep their pensions on remarriage. That would enable those women to find renewed happiness without the fear of financial stringency. In any event, having equalised the retirement age for men and women at 65, the Government will in a few years be making considerable savings and will be perfectly well able to afford to do that.
I do not know how much the Government are proposing to spend on the celebrations of the 50th anniversary of the end of the Second World War. But as I am not involved in those arrangements I can say what I like. I do not know what the Government propose to spend on feasting and fireworks, but to spend money on such things while maintaining that they cannot afford to abolish this wicked rule is utterly wrong.
Whatever the cost, this is a wrong which should be righted, however late in the day. And as for the weasely argument which I fear I may hear that it would be retrospective, perhaps I may say that the Government have never hesitated to legislate retrospectively when it suited them. To impose a burden retrospectively must be wrong but to right a wrong retrospectively must be right.
1073 War widows are not in the same category as other widows. They are the widows of men who lost their lives as a result of service in the Armed Forces. It is thanks to such men that we are able to celebrate the 50th anniversary of the end of the Second World War. Their widows cannot be in the same category as the widows of people who died in an industrial accident.
The treatment of war widows in this country since the Second World War by all governments, regardless of party, has, I am sorry to say, been one of the meanest, shabbiest, most shameful pieces of ingratitude ever perpetrated in a civilised country. I call upon the Government to take this unique opportunity, as was said by the noble and gallant Lord, Lord Bramall, and to accept these amendments, rectify a grievous wrong and give the war widows of this country something to celebrate at last.
§ 5.30 p.m.
§ Lord Carver
I strongly support all three amendments proposed by my noble friend Lord Freyberg. He has explained clearly the reasoning behind the amendments, and the emotion provoked by them has been expressed forcefully by my noble and gallant friend Lord Bramall.
Whether it is looked at from the point of view of need or equity—that is, equity between one widow and another, equity within the Armed Forces or equity between the Armed Forces and other professions—or whether it is looked at from the point of view of comparison with other nations, there can be no doubt whatever that the amendments should be accepted by the Government.
When these matters have been discussed on previous occasions, the only reason ever given for not taking the course proposed is that it would cost a lot of money. It has always been impossible for the Government, whichever department is concerned, to argue against the need. This time, for heaven's sake, let the Government put their hand in their pocket, which they do for other things. As the noble and gallant Lord, Lord Bramall, said, on this occasion we are remembering the men who died and the women who were left behind. Let the Government be generous for once.
§ Lord Boyd-Carpenter
There could not be a more appropriate occasion for making a spectacular improvement for war widows than this year when we are celebrating—and I use that word deliberately—the 50th anniversary of our victory in the war.
I am sure that it would have a great appeal to the British public to know that in that way, rather than in formal celebrations, we are marking our gratitude to those who died and those who lost their husbands during the obtaining of those victories. The noble and gallant Lords opposite spoke with very great authority on this matter. I am sure that the Committee will wish to pay great attention to them.
There is no doubt that the proposed new clauses will cost a certain amount of money. But, on the other hand, they are different from almost any other improvement 1074 in benefits of one kind or another because, whereas most improved benefits increase in cost, these benefits will diminish.
As has been said, most of the widows concerned are of a mature age and therefore, sadly, the tendency will be for the costs to reduce. One can distinguish that particular social improvement from any others which one can mention. I hope that the Government will take this matter very seriously. The noble Lord, Lord Freyberg, made an admirable speech following his admirable maiden speech which your Lordships greatly appreciated. The fact that these proposals are made by someone from the age group of the noble Lord, Lord Freyberg, is rather impressive, far more impressive than the fact that they are supported by people in my own age category.
Therefore, the Minister must realise that there is very strong feeling about this. The Government have an opportunity to do something which will strike at and stimulate the imagination of the British people. The British people will approve of the Government taking a step which does justice to a section of society which has lost the most important thing of all. To have lost one's husband or wife in the service of one's country is the most terrible penalty. The fact that at this 50th anniversary, we are making some provision—I hope, ample provision—to help them will, I am sure, be widely appreciated by the British people. I beg the Government not to put this matter aside. I beg them to realise that this is a very serious matter which will move the opinion of the people of this country perhaps more dramatically and drastically than any other step which they could take.
§ Baroness Nicol
As vice-president of the War Widows Association, I strongly support all three amendments. The question which the noble Baroness, Lady Seear, has had put to her has also been put to me. I have been asked why service widows should be treated differently. My answer is that the life of a service wife is very different. She is obliged to move house frequently. She is unable to put down roots, to build a career or even to obtain a job of sufficient status to build up her own pension rights. That is becoming more important as the system moves away from state pensions and towards personal pension provision. She may have to travel abroad when her husband is stationed away or alternatively, she may have to spend long periods alone coping with family problems. The wife of a middle-ranking or senior officer or a senior NCO is expected to support her husband in his career. She becomes an unpaid social worker to other wives. That is expected of her.
Whenever the armed services are discussed in this Chamber, whether at Question Time or in longer debates, there is much interest and many speeches are made about how we should value our servicemen. As others have said, surely the most tangible way in which to record our appreciation would be by ensuring that those men have the comfort of knowing that in the event of their death, their bereaved wives would be adequately and permanently compensated. I strongly urge the Government to accept the amendments.
§ Lord Dean of Harptree
I declare an interest as a war pensioner. I am extremely grateful for my war pension and I am even more grateful for the fact that 1075 the Inland Revenue cannot get at it because it is tax free. I am sure that all Members of the Committee would agree, as has been stated already, that we should give special priority to war widows and that they should receive a higher rate of pension than other widows.
In recognising that fact, we must also take into account the needs of other widows. One of the matters which strikes me about the first amendment moved by the noble Lord, Lord Freyberg—Amendment No. 191B—is that it deals only with war widows. It does not deal with other widows. I dislike intensely the withdrawal of all pensions on remarriage. That seems to me to be a relic of a past age. It is out of tune with modern thinking and the sooner we can be rid of that, the better. However, we must consider other widows in the public sector because they are all affected by that same restriction: that the pension is withdrawn on remarriage. For example, what about the widow of a policeman? Is she to be excluded from the provisions while war widows are included? What about the widow of a fireman? He does a very difficult job and it may well be that he dies young. What about the widow of a doctor?
I hope that the time will come when my noble friend will be able to assure the Committee that those restrictions can be removed from the public sector as a whole. But I am doubtful whether it is wise to remove it just for war widows, in spite of the fact that they are in a category which commands the sympathy of us all.
If the Government do not feel able to agree to get rid of all the restrictions throughout the whole of the public sector, it seems to me that it would be far better to concentrate on really generous increases in war widows' pensions. That would benefit all war widows, particularly in this 50th anniversary year.
§ Lord Chalfont
I support the amendment moved so ably by my noble friend Lord Freyberg. However, I should like to speak briefly to Amendment No. 191B, upon which I feel very strongly. That amendment deals with the removal of a pension from a widow if she remarries or, if she is not willing to remarry, cohabits while she is still a widow.
That seems to me to be a harsh and even cruel procedure and one which I hope the Government will see fit to look at very closely. There has been a certain amount of discussion already as to why we should make the provision only for war widows and what is different about their case as opposed to other cases. There is a very simple answer to that. Sometimes it is known as the unlimited liability. By the very nature of his profession, a soldier, sailor or airman is risking his life—that is, the asset which he brings to his profession. It is his life that is at stake when he goes about the business of his profession. I believe that that is one of the major differences.
That also leads to another point which should be made; namely, that war widows of soldiers, sailors and airmen killed in action, tend to be young because the husbands whom they have lost tend to be young. Soldiers killed in action are, by the very nature of their profession, usually fairly young men. Therefore, when they leave their widows behind, they leave them with a 1076 long life in front of them. The only recompense and tribute that war widows have to the life that has been lost is their pension. Yet, as things stand at present, we take that away if there is, as the legislation so dryly puts it, "a change in status".
I should like Members of the Committee to contemplate what that change in status actually means and ask themselves whether the pension of a serviceman's wife, especially that of a war widow, should not be regarded as a lifelong entitlement and not something to be arbitrarily removed; and certainly not something to be subjected at some stage to the demoralising process of means testing.
The effect of the current system is to discourage war widows—who are sometimes, as I said, quite young—from remarrying. They fear that they will lose the only financial support that they have. Therefore, some of them choose, as the language has it, to cohabit; in other words, to live with someone without marrying. But if such women seek the kind of comfort and the kind of companionship that marriage can bring—and it is sometimes the only course open to them—and are discovered to be cohabiting, the pension is, again, arbitrarily removed. Let us not forget the ever-present whistle blower: the person who goes and tells the official that the woman is living with someone else.
The latter gives rise not just to the harshness of the application of the law, but also to ludicrous rulings from officials about what constitutes cohabitation. For example, I have heard people trying to describe it as being a matter of days which one spends under the same roof with someone else and even a question of whether those days are during the week or at the weekend. What an extraordinary way to deal with someone's life.
I am sure that there is no one in the Government who can be happy with the present state of affairs. I do not dismiss arguments about cost or about retrospection. I believe that they are real arguments and that the Government are right to put them forward. However, I put it to the Government that here we have an inequity, a harshness, and, as I said before, even a cruelty which they ought to be prepared to put right, even at the risk of retrospection and even at some considerable cost. I support the amendments.
§ Lord Elton
I trust that Members of the Committee will permit a very brief intervention on the third of the amendments. I am in favour of all of them, but the third amendment actually addresses a point of straight equity in my view. It has been suggested that the 1973 watershed is defensible because officers serving at the time were able to choose to buy back the right for their wives, when they were widowed, to receive half the pension that they had received during their lifetime after retirement. Some officers opted to do so, while others did not. Therefore, it is suggested that none should now benefit from a change in the law. However, that overlooks the fact that an officer who retired long before 1973 was not given that option. His widow has never had the chance of receiving such a benefit.
In this day and age when we have to declare the most tangential interest, I have to say that I had a second cousin who retired as an air vice-marshall in about 1959 1077 and who died last year. His widow is now receiving one-third rather than one-half of his pension. Had he lived and served longer beyond the permitted age, he would have had a chance of buying in; but he did not. It is a question of equity. I hope that my noble friend the Minister will be able to make some gesture in the direction of restoring equity. Otherwise, I shall find it impossible to agree with him on the issue.
§ 5.45 p.m.
§ Baroness Dean of Thornton-le-Fylde
I, too, support the amendments. However, I should like to speak especially to Amendment No. 191B. I should first declare an interest, but it is not a pecuniary one. Until recently, I was a member of the Armed Forces Pay Review Body. That gave me the privilege of seeing close at hand the work that our service personnel carry out in such a committed and loyal way. It also gave me the opportunity to talk to them and their wives during the many visits that we made during the course of our work.
I hope that the Minister will accept the amendments today with good grace. How much better that that should happen than, perhaps, the Government having to do a "U" turn in the future because public opinion forces it upon them. How timely that it should happen this year.
I know that some people say, "Well, of course, the dichotomy that we have is that when a war widow remarries she in fact loses her public service pension". Indeed, the noble Lord, Lord Dean of Harptree, mentioned that fact and the issue of policeman, firefighters and public sector workers. That is an issue which we raised from these Benches yesterday and asked the Government to look into. Unfortunately, but not too unexpectedly, the Government turned their face against it. I hope that that will not be used as an argument today to turn down what I would call a reasonable request.
The question has been put regarding the difference between a widow who was widowed because her husband was killed at war and the widow of an industrial worker who was killed in industry. It is difficult if not impossible to balance that kind of question; but there is a difference. The difference is that, in most cases, the widow of an industrial worker would receive a pension for life and would not lose it under the occupational pension to which her husband had contributed should she remarry. However, war widows automatically lose their pension in such circumstances.
We should also bear in mind the fact that our service personnel are young; indeed, many of them were young when they gave their lives in the service of our country. Some people say that that is an emotive argument. Yes, it is. If there were no emotion in the argument, I would suggest that we were a pretty cold-hearted nation. There has to be some emotion involved; but it is backed up by logic, justice, standards and the kind of way that we value those people who gave their lives in the service of their country.
We must also bear in mind that young men who left young widows often left them to bring up very young children. Are we seriously saying that the nation expects 1078 such women to go through the rest of their lives alone, bringing up a family, only to pay the price, if society finds out, of losing their widows' pension if they seek companionship through living with someone else. Yet if those widows took the moral course that most Members of this Chamber would expect, they would pay the price of losing their widows' pension.
This year is an important year. Of course costs are always a factor. However, I do not think they should weigh sufficiently in this argument for us to say that we can do nothing. I support these amendments and particularly Amendment No. 191B. Surely we can do something this year of all years to ensure that we treat the war widows fairly. They do not have their husbands to talk and argue for them.
I doubt very much that any one of those young men who gave their lives even thought that the country would do anything less than the right thing. The right thing has to be to meet the responsibilities that we have as a nation in paying these war widows their pension and ensuring, if they are lucky enough to marry again, that they do not lose their pension, and—the Government may decide that they will not go that far—if the second marriage does not work out or if the women become widowed again, that their pension should be given back to them. Something has to be done. I support all the contributions in this worthwhile debate.
§ Lord Brookes
The amendments address the obligations, the honour of patriotism and of blood freely, nobly and gallantly given. Such debts and such obligations are not diminished and are not eroded by time. Time is with us tonight. Let a Government, who I believe will want to respond to reason, to honour and to duty, act now.
§ Baroness Park of Monmouth
I, too, should, like to support the amendments of the noble Lord, Lord Freyberg, very strongly. Successive defence reviews from Options for Change right through to Front Line First have had much to say about equipment, armaments, weapons, capacity for defence and men and women as resources, and all too little so far about morale, incentives for recruitment in the future and what holds the services together—tradition, pride and the sense of being valued. It is vital that service widows should retain their pension for life rather than forfeit those in many cases far from generous pensions if they get a second chance to marry. It is surely bad enough that the pension itself is far lower as a proportion of the husband's service retired pay or pension than in a dozen other countries. I shall not give details as they have already been given.
If the Government want to send a further signal to confirm the low esteem and value which in the eyes of many in the services they place on service to the country by rejecting this amendment, I feel that that would be a grave mistake. I do not think the Government have begun to take in the quite widespread feeling of rejection and the feeling that the country thinks of the forces solely in terms of perks and so-called empty ceremonial. That is contributing to low morale within the services and will certainly affect future recruitment. 1079 The Government believe in value for money. Let them recognise the equal importance of money for value. Service widows have a special claim on decent and equitable treatment and the means to lead a normal life with normal access to companionship and happiness. I hope the country will do the honourable thing and agree to these proposals.
§ Viscount Slim
I see no reason why there should not be a special clause for war widows. I am afraid I take issue with the noble Lord who wanted to generalise the matter. I am sad that Her Majesty's Government have not come forward with a gesture already in this particular year. That would have been strategically sensible. Every government need all the friends they can get, and this one particularly so perhaps.
I hope that the Minister will listen to what has been said today—I shall not repeat the arguments—and I hope the Government will come forward with something now. It would not cost much. The widows are dying every day. The Minister is aware that I have an interest in this subject through my business helping charities and veterans' associations. I would say to the Government of the day, "Here is your chance". Here is the time for the Government to do something that will be recognised throughout the country as the proper gesture in this particular year of commemoration so that the war widow will be remembered and made safe for ever.
§ Lord Boardman
My wife (whom I married happily 46 years ago) was then a war widow. I therefore consider that if the House should divide on these amendments I would be precluded from taking part in any such Division. The purpose of my intervention is merely to place on record that such an abstention would not be for any lack of support for the amendments that have been so ably moved and which I fully endorse.
§ Lord Craig of Radley
I rise to support the three amendments which have been so ably moved by the noble Lord, Lord Freyberg. In particular, I wish to speak to Amendment No. 191B. The merits of the case have been well argued on moral and humanitarian grounds; on grounds of equity; and on grounds of comparison with other countries. This surely is a good case. There are not too many war widows and the measure should not cost too much. If the Government are worried that a low cost settlement today could become expensive if we were ever to be involved in another major conflict, all I say is that the cost of that conflict would make the cost of war widows' pensions following it shrink into very small sums.
War widows who seek renewed happiness and companionship are faced with a difficult dilemma. It is indeed impossible for them to get a proper definition of cohabitation, as the noble Lord, Lord Chalfont, has explained. I was amazed when looking at the figures to note the cost to the taxpayer of war widows who feel that they cannot remarry or cohabit. Take the case of a young 25 year-old widow with children, a widow perhaps of the Gulf War. At the time of her bereavement she will receive an MoD attributable pension, index linked and taxable, plus a DSS war widows' pension, index linked but not taxable. If she decides to remain single and lives to the age of 80—assuming an inflation 1080 of 4 per cent. per annum—she will have cost the DSS budget alone in the region of £800,000. If the widow were persuaded, or decided to remarry, she would receive a lump sum payment of one year's pension from the DSS and no further right to claim a DSS war widows' pension, whatever her circumstances.
The average number of war widows in this category created year by year is between only 40 and 50. At present few remarry but most are reluctant because they fear for their future security and they fear possible poverty. If they could be assured that they would retain their Armed Forces pension, more perhaps would take the step, and the saving to the DSS budget could be very large indeed. The Armed Forces attributable pension should be seen, I believe, as compensation and therefore not be withdrawn. The contributions have been paid not only in financial terms through the pay packet but also in the loss of life of the servicemen and in the sacrifices made by the service wife and widow. Thus the constraints made on widows wishing to remarry are not only seen as an injustice and deeply resented but also are not cost effective. We have before us a Bill to amend the law on pensions. Surely this is now the time to amend these difficulties.
§ Viscount Montgomery of Alamein
I feel that I, too, should intervene briefly in this debate for the fairly obvious reason of the name that I bear. But on this occasion I have another reason in that my mother was widowed in World War I. Her husband was killed at Gallipoli, and some 12 years later she made the rather extraordinary decision to forfeit her rather modest pension to marry my father—a fact for which I must be eternally grateful because otherwise I would not be able to speak here this evening.
The arguments have been put forcefully in this Chamber by Members of the Committee who have spoken. The amendments put forward by the noble Lord, Lord Freyberg, are worthy of support.
§ Lord Palmer
After the moving speeches we have heard I do not believe that the Government have a moral leg upon which they can stand, particularly if one thinks of pensions awarded to civil servants. The Government are on record as saying that they are a caring government. Let us hope and pray that tonight we will see full evidence of that caring.
§ 6 p.m.
§ Lord Mackay of Ardbrecknish
I feel a little like the spectre at the feast. Never mind. It is not the first time, and I expect it will not be the last. I have little doubt that some of my noble friends and other Members of the Committee who have spoken in the debate understand well the position in which I find myself, because I presume that when they had responsibility for this issue, either directly because they were in my department or indirectly as members of the government, they defended the position taken by their government—whichever it was. No doubt that was similar to mine this evening.
First, I should like to make the position clear because, although I do not suppose that anybody intended it, there was some wandering between two quite different 1081 pension schemes during the course of the debate. We are talking about two separate provisions. Each of the three amendments stands alone. They address quite different problems and two different schemes. The first proposed new clause addresses the Department of Social Security's war widows pension scheme, which is related to the rather larger scheme we run for war disabled servicemen. The other two new clauses refer to the Armed Forces pension scheme, which is the occupational pension scheme for servicemen and servicewomen. I should like to address the two schemes and each of the amendments separately.
Amendment No. 191B seeks to amend war pensions legislation so that a widow may continue to receive a war widow's pension even if she remarries. It has always been the case that the very preferential DSS war widows' pension is awarded for the maintenance of the widow of a man whose death is attributable to service in the Armed Forces, not only in warfare but when serving as a member of the Armed Forces. That applies if he dies due to an accident, disability or disease contracted due to his service in the Armed Forces. In those circumstances a war widow's pension will be paid. Therefore, the death does not have to be due to war or even to active service. The rationale behind the pension is to assist with the loss of support a widow could have expected from her late husband. The pension is not in any way intended to compensate for his loss.
Remarriage alters the widow's status. She is no longer a widow and, as a consequence, her war widow's pension is withdrawn. A gratuity equivalent to one year's pension is awarded, which for many war widows would be about £7,000. Should she be unfortunate enough to be widowed again there is, as has been pointed out, no provision under the war pensions scheme for the restoration of the pension. Like other widows, there is the provision for widows in those circumstances to look to the social security system for support.
I said that I thought that I was being cast as the spectre at the feast. While Members of the Committee may say that the Government are less generous than they ought to be, nobody should be left with the view that the DSS war widows pension scheme is other than generous. I am grateful to a number of speakers, including the noble Lord, Lord Freyberg, who pointed that out. Our disagreement relates to issues outside the payments involved.
It may be worth my while reminding the Committee that the war widows' tax free pension paid currently to most war widows is £140 a week. That is more than double the basic national insurance widows' pension, which is £57.60. There is the additional difference that the basic widows' pension is taxable income, whereas war widows receive their pensions tax free. If my arithmetic is right, that is equivalent to £178.50.
Over the past few years we have taken steps to improve the position of war widows. For example, the real value of war widows' pensions has been fully maintained in the uprating statements in line with RPI. As I mentioned earlier, the war widows' pension was made completely tax free in 1979. Previously half of it 1082 was taxable. The war widows' age allowance was significantly improved in 1984 with extra help for those over the age of 80. MoD special payments of £40 a week for pre-1973 war widows were introduced in April 1990, tax free and completely disregarded for income-related benefits. That was uprated to £48.70 and is an important part of the £140 a week tax free payment I have mentioned. In addition, £10 of the basic war widows' pension is disregarded in claims for income-related benefits, and local authorities have discretion under their local schemes to disregard more than that sum in claims for housing and council tax benefit.
My predecessor before I took over this job, my noble friend Lord Astor, announced extra money for British widows with New Zealand war widows' pensions, who were found to be badly off, and some Northern Ireland war widows. That change was announced on 23rd June last year and took effect from October last year.
I would not like anybody to be left with the idea that we are not mindful of the position of war widows and the special way in which we ought to treat them. I hope that by indicating briefly what we have done since 1979 I have demonstrated that we are mindful of that and have reacted. I hope that no Member of the Committee will accuse us of being Scrooge-like because those are fairly generous provisions. Indeed, exceptionally, a war widow is also able to receive a retirement pension based on her own contributions without any diminution in her war widow's pension. That would increase her income to nearly £200 a week, irrespective of any other resources she may have.
Amendment No. 191B proposes that the law should be changed to permit that very preferential pension to continue for life, regardless of any change in the widow's marital status. Even if that were justified—and I believe strongly that it is not justified—it would be very expensive. We know that since 1939 about 90,000 war widows have remarried. We do not know how many are still living and would claim restoration of their pension but, with the help of actuaries looking at life expectancy of people in that group and so on, we have estimated that the cost could be of the order of £60 million a year. "Small beer", I hear some noble Lords say. Those who have taken part in the debate who have been involved in government know the competing demands from that group and from other groups on governments and on taxpayers, who are always reluctant to pay even higher taxes. There is no bottomless pension pit. I do not suppose that anybody believes that there is.
We fully appreciate the sacrifice that the late husbands of these widows made on behalf of their country. We have ensured that the rate of the war widows' pension fully recognises those circumstances. That is no more than the country or the Committee would expect while the state of war widowhood remains. However, to continue to pay this very preferential pension when a war widow has remarried and either still has or has had the support of a second husband is neither justified nor fair to the widow who loses her national insurance widow's pension on remarriage. And it would be totally regardless of the 1083 income and wealth of the second husband and, in the event of widowhood again, the pension and other assets left to her by him.
As the debate has clearly shown, this is a difficult and emotive area. We have to strike the right balance and I believe that we have done that. Bearing in mind the original rationale behind the provisions for the war widows' pension, we see no justification for amending the legislation so that the pension may be received after remarriage when the widow is no longer a widow.
I turn to the other two new clauses which address, and would make changes in, the provisions of the Armed Forces pension scheme. Here we are discussing an occupational pension scheme similar in character to other public service schemes and broadly subject to the same principles, although with markedly different terms and benefits. My noble friend Lord Dean of Harptree drew attention to the fact that the characteristics complained of by the noble Lord, Lord Freyberg, in both new clauses are in fact common to other public service schemes. I think it might be helpful if I explain how the current Armed Forces pension scheme actually works.
Service personnel do not have a monthly deduction on their payslip for superannuation, as many other people do. However, their rates of pay are abated—currently by 9 per cent.—to take account of the pension benefits so that in any comparison with outside earnings that abatement is brought into play to look at the total earnings of servicemen. The minimum term for an immediate benefit—in other words, an immediate pension—for an officer is 16 years' reckonable service, and for other ranks 22 years' reckonable service. At that point or thereafter up to 55 years of age, the serviceman can retire on an immediate pension, not uprated until 55, then uprated in full to account for the intervening years, then uprated annually thereafter. Those who do not qualify for an immediate pension because they do not have that length of service are treated in the same way as other deferred pensioners and receive a pension depending on rank and years of service at the age of 60. Widows and widowers are treated similarly and are eligible for a pension of one-half the spouse's rate. This provision includes those who marry after retirement.
That is the current position, but, like all pension schemes, these improvements have been introduced over the years and count only for service after the date of introduction. If retrospection is made available it is done on the basis of the person "buying back" some or all of the preceding years.
In order to comply with the Social Security Pensions Act 1975, provision was made in the Armed Forces pension scheme for the payment of pensions to widows of service pensioners who married (or re-married) after retirement. I believe that this is the issue which the third new clause addresses. But this change benefits only the widows of those giving service on or after 6th April 1978 and only service on or after that date is taken into account when calculating the level of pension due. Thus, in time, as the entitlement extends over the years, the wives of those sevicemen who married after their retirement will increasingly come to share the same rights on widowhood as other service wives. Like the 1084 Armed Forces pension scheme, other public service schemes also now provide for widows' pensions where the marriage has taken place after retirement.
Before the introduction of improvements in the early 1970s, public service pension schemes provided for an eligible widow to receive a pension at one-third of the rate of her husband's own pension. The proportion was increased to one half; for the Armed Forces pension scheme the operative date was 31st March 1973. Coupled with the change, which applied to service given from that date, opportunities were provided for those serving on or after that date to make direct contributions so as to qualify previous service for half rate widows' pensions also. For those who did not choose to contribute, previous service continued to count at one-third rate and subsequent service counted at one-half rate. I am sure that some noble and gallant Members of the Committee, having been given that option and being sensible men, took it and bought in the years prior to 1973. But some probably decided for a variety of reasons that they did not wish to do so.
The principle of non-retrospection is fundamental to the issue of not extending the option to "buy in" to those who have already left the service—those who had left before 1973. The "buy in" opportunities given to those serving on that date in 1973 were at rates which were actuarially assessed. Similar arrangements applied in other public service schemes which made the change at about the same time. A "buy in" for those who are ineligible would be a clear breach of non-restrospection, since it would apply new provisions to those who had retired before the operative date. I almost said the "actuarial date" but the two are related because, if those persons are no longer active members of the scheme, they cannot be asked to buy in.
The option for members of the Armed Forces serving on or after 31st March 1973 to buy in their previous service if they wished would in itself make it impossible in equity to extend the half rate pension to widows whose husbands had left the service before that date and who had not, as a result, contributed financially towards the improvement. That would also apply to those serving on that date who chose not to buy in.
When it comes to the remarriage of a widow, the Armed Forces pension scheme, like other public service schemes, ceases to pay. On subsequent divorce or re-widowhood, a simple test is applied by the Armed Forces pension scheme. It is not a complicated means test. It is simple: has the second widowhood left the widow better or worse off than if she had not remarried? If worse off, then the Armed Forces pension scheme widow's pension is restored in full.
Therefore the second and third new clauses would make considerable changes to the normal rules governing all public service pension schemes. The costs to the Armed Forces pension scheme would be considerable. However, the read-across to other public service schemes would impose very substantial additional burdens on the taxpayer. As I have said, it would be very unfair to those who bought in years prior to 1973 to give their widows one-half pension if those 1085 who chose not to do so were now to be given, if I may use the word, a "free" improvement. And re-opening the buy in is not practical.
All of us in occupational pension schemes—that is what the Armed Forces pension scheme is—know and accept that improvements made either after we leave or during our service are not backdated. I urge the Committee not to break that important principle when it comes to the second and third new clauses before us.
On the first new clause, I simply reiterate the arguments I made about the generosity of the scheme and the very considerable amount of concern and detail that we in the Department of Social Security and, I know, my noble friend Lord Henley and his colleagues in the MoD give to making sure that we have a fair and equitable scheme.
I believe that in both the DSS scheme and in the Armed Forces pension scheme we have a fair and equitable scheme. It is clear from the speeches that everyone understands the emotive reasons underlying wanting to make the changes. However, I believe that they are not sensible when considered across the broad aspect of public policy and when considering the generosity of the schemes themselves. I hope that, when he reflects on what I said, the noble Lord, Lord Freyberg, will be able to withdraw his new clauses.
§ 6.15 p.m.
§ Baroness Jeger
Before the noble Lord sits down, perhaps I may speak from personal experience. After all we had been through, it was difficult for many of us to be told on remarriage that we would lose our pension if we were under 60 when we remarried again. That is an awful penalty on all widows. Many of us were in that age group when, unhappily, we were widowed. We then remarried, accepting that we had to abandon our war widow's pension. However, if we remarry, and the husband then dies, we are told that if we are under 60 we cannot reinstate the pension. What is left for us?
§ Lord Mackay of Ardbrecknish
I tried to answer those points in my speech and I do not wish to go over them all again. In the DSS scheme, the widows' pension exists in order to help maintain the widow who has lost her husband. When she remarries, she ceases to be a widow. That is the principle on which the scheme has been run for many years, under successive Governments, Ministers, Under-Secretaries, Ministers of State and government supporters of whichever party. I invite the Committee to consider that we would do better to leave the matter as it is, given the generosity of the whole scheme to existing war widows.
§ Lord Freyberg
I am grateful to those who have taken part in the debate on my amendments. I thank them for their useful and heartfelt contributions. I am disappointed in the Minister's reply and should like to come back on one or two points which he made.
I wish to respond to his statement that war widows' pensions are intended not as compensation but for maintenance. It is not enough to treat a war widow generously only when she is single; she is considering 1086 remarriage precisely because her husband was killed in the service of his country. The only solution is to accept that war widows' pensions should be regarded as compensation and never removed.
It is also true that on a widow's remarriage, the DSS awards each widow a gratuity equivalent to one year's pension. For some widows, that amounts to £7,000, but for the vast majority who married before 1973, the payment was as little as £250. I entirely agree with the Minister that generous provisions are made for war widows, but the £7,000 per annum is nowhere near what their husbands would have expected, had they lived.
On costs, the Minister claims that restoring a DSS war widow's pension to all widows who have remarried since 1939 would have cost £60 million a year. With respect, that is only part of the story. On remarriage, post-1973 war widows would retain only their MoD attributable forces family pension and not their DSS war widows' pension. That would lead to significant DSS pension savings.
Finally, according to the Government's figures, 80 per cent. of war widows are over the age of 70, with some 1,300 dying per year. Awarding them a pension for life is not a long-term or permanent commitment. I do not accept that on remarriage a war widow should forfeit all her rights as the widow of a man who has died for his country. I therefore feel compelled to test the opinion of the Committee. I commend the amendment.
§ 6.22 p.m.
§ On Question, Whether the said amendment (No.191B) shall be agreed to?
§ Their Lordships divided: Contents, 124; Not-Contents, 131.1088
|Division No. 1|
|Acton, L.||Dean of Beswick, L.|
|Addington, L.||Dean of Thornton-le-Fylde, B|
|Airedale, L.||Derwent, L.|
|Aldenham, L.||Dormand of Easington, L.|
|Allenby of Megiddo, V.||Dormer, L.|
|Ashbourne, L.||Dubs, L.|
|Bancroft, L.||Elis-Thomas, L.|
|Bath, M.||Ennals, L.|
|Blyth, L.||Erroll, E.|
|Boyd-Carpenter, L.||Ezra, L.|
|Bramall, L.||Faithfull, B.|
|Bridges, L.||Falkland, V.|
|Brightman, L.||Fanshawe of Richmond, L.|
|Brookeborough, V.||Farrington of Ribbleton, B.|
|Brookes, L.||Feversham, L.|
|Carmichael of Kelvingrove, L.||Fisher of Rednal, B.|
|Carnarvon, E||Freyberg, L. [Teller.]|
|Carver, L.||Gainsborough, E.|
|Chalfont, L.||Geraint, L.|
|Chapple, L.||Gilmour of Craigmillar, L.|
|Chichester, Bp.||Gladwin of Clee, L.|
|Chorley, L.||Gould of Potternewton, B.|
|Cocks of Hartcliffe, L.||Gray, L.|
|Coleridge, L.||Grey, E.|
|Congleton, L.||Halsbury, E|
|Craig of Radley, L.||Hamwee, B.|
|Craigavon, V.||Harris of Greenwich, L.|
|Cross, V.||Haskel, L.|
|Darcy (de Knayth), B.||Henderson of Brompton, L.|
|David, B.||Henniker, L.|
|Hilton of Eggardon, B.||Nelson, E.|
|Holme of Cheltenham, L.||Nicol, B.|
|Hooson, L.||Palmer, L.|
|Howie of Troon, L.||Park of Monmouth, B.|
|Hughes, L.||Parry, L.|
|Hylton, L.||Pearson of Rannoch, L.|
|Hylton-Foster, B.||Rennell, L.|
|Jeffreys, L.||Ritchie of Dundee, L.|
|Jeger, B.||Rochester, L.|
|Jenkins of Hillhead, L.||Rodgers of Quarry Bank, L.|
|Kennet, L.||Saltoun of Abernethy, Ly.|
|Keyes, L.||Seear, B. [Teller.]|
|Kinloss, Ly.||Sefton of Garston, L.|
|Kirkhill, L.||Shannon, E.|
|Kitchener, E.||Shaughnessy, L.|
|Lawrence, L.||Simon of Glaisdale, L.|
|Liverpool, E.||Simon, V.|
|Lockwood, B.||Slim, V.|
|Lytton, E.||St. Davids, V.|
|Macaulay of Bragar, L.||Strabolgi, L.|
|Mar and Kellie, E||Strafford, E.|
|McAlpine of West Green, L.||Swinfen, L.|
|McConnell, L.||Thomson of Monifieth, L.|
|McGregor of Durris, L.||Thurlow, L.|
|McNair, L.||Tope, L.|
|Meston, L.||Tordoff, L.|
|Milne, L.||Waverley, V.|
|Monson, L.||Weatherill, L.|
|Montgomery of Alamein, V.||Westmorland, E.|
|Moran, L.||Wharton, B.|
|Munster, E.||White, B.|
|Napier and Ettrick, L.||Wilberforce, L.|
|Abercorn, D.||Fraser of Carmyllie, L.|
|Addison, V.||Geddes, L.|
|Aldington, L.||Goold, L.|
|Archer of Weston-Super-Mare, L.||Goschen, V.|
|Astor, V.||Gowrie, E.|
|Balfour, E.||Gray of Contin, L.|
|Barber, L.||Gridley, L.|
|Beloff, L.||Hailsham of Saint Marylebone, L|
|Belstead, L.||Hambro, L.|
|Bethell, L.||Harding of Petherton, L.|
|Biddulph, L.||Hardinge of Penshurst, L.|
|Birdwood, L.||Harmar-Nicholls, L.|
|Blaker, L.||Hayhoe, L.|
|Blatch, B.||Hemphill, L.|
|Borthwick, L.||Henley, L.|
|Brabazon of Tata, L.||Hives, L.|
|Bradford, E.||Hogg, B.|
|Braine of Wheatley, L.||Holderness, L.|
|Brougham and Vaux, L.||HolmPatrick, L.|
|Buckinghamshire, E||Hothfield, L.|
|Butterworth, L.||Howe of Aberavon, L.|
|Cadman, L.||Howe, E.|
|Caithness, E||Inglewood, L. [Teller.]|
|Campbell of alloway, L.||Ironside, L.|
|Campbell of Croy, L.||Jenkin of Roding, L.|
|Carnegy of Lour, B.||Kenilworth, L.|
|Chalker of Wallasey, B.||Leigh, L.|
|Chelmsford, V.||Lindsay, E.|
|Chesham, L.||Lindsey and Abingdon, E.|
|Clark of Kempston, L.||Long, V.|
|Colwyn, L.||Lucas of Chilworth, L.|
|Constantine of Stanmore, L.||Lucas, L.|
|Courtown, E.||Mackay of Ardbrecknish, L.|
|Cranborne, V. [Lord Privy Seal.]||Mackay of Clashfem, L. [Lord Chancellor.]|
|Dean of Harptree, L.||Mancroft, L.|
|Denton of Wakefield, B.||Marlesford, L.|
|Dixon-Smith, L.||Massereene and Ferrard, V.|
|Eccles, V.||McColl of Dulwich, L.|
|Eden of Winton, L.||Merrivale, L.|
|Ferrers, E.||Mersey, V.|
|Flather, B.||Miller of Hendon, B.|
|Milverton, L.||Seccombe, B.|
|Monk Bretton, L.||Selborne, E.|
|Moore of Lower Marsh, L.||Shaw of Northstead, L.|
|Mottistone, L.||Sheppard of Didgemere, L.|
|Mountevans, L.||Skelmersdale, L.|
|Mowbray and Stourton, L.||Soulsby of Swaffham Prior, L|
|Moyne, L.||Stewartby, L.|
|Murton of Lindisfarne, L.||Stockton, E.|
|Norrie, L.||Strathclyde, L. [Teller.]|
|Northesk, E.||Sudeley, L.|
|Oxfuird, V.||Thatcher, B.|
|Parkinson, L.||Thomas of Gwydir, L.|
|Perry of Southwark, B.||Trefgarne, L.|
|Platt of Writtle, B.||Trumpington, B.|
|Plummer of St. Marylebone, L.||Tugendhat, L.|
|Quinton, L.||Ullswater, V.|
|Rankeillour, L.||Wade of Chorlton, L.|
|Rees, L.||Wakeham, L.|
|Renton, L.||Walker of Worcester, L.|
|Rodger of Earlsferry, L.||Wise, L.|
|Rodney, L.||Wynford, L.|
|Sanderson of Bowden, L.||Young, B.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 6.33 p.m.
§ [Amendments Nos. 191C and 191D not moved.]
§ Clause 131 [Extension of scope of right to cash equivalent]:
§ Baroness Turner of Camden moved Amendment No. 191E:
§ Page 82, leave out lines 15 to 18.
§ The noble Baroness said: I am sure that the Minister will be glad to know, after a somewhat harrowing debate, that these are genuine probing amendments. They are concerned with the clauses in the Bill that relate to the scope and right to guarantee cash equivalents.
§ The first amendment is a probing amendment in that it seeks clarification of the circumstances in which the Government envisage using the power to exclude certain final salary schemes from the obligation to pay transfer values in respect of deferred members whose service terminated prior to 1986. In principle, all scheme members should be entitled to transfer any benefit, and it is up to the Government to justify any need for exceptions.
§ The Government may argue that in some circumstances it would constitute retrospective legislation to give such a right where the benefit accrued prior to the date on which transfers became obligatory. But the restriction applies only to members who left service prior to 1986 and not in all pre-1986 benefits. Thus, if exceptions are to be permitted, it will mean that a member with a benefit based on 10 years' accrual who left on 31st December 1985 would not be entitled to a transfer, while if he or she had left two days later they would be. This really does seem unfair, and also unnecessary now.
§ The second amendment with which this one is grouped, refers to "the prescribed period". Clause 132 relates to the right of a statement of entitlement for members of schemes. It stipulates that within a prescribed period a member should be entitled to a 1089 statement of entitlement. We seek to delete "the prescribed period" and insert "one month". As I said earlier, this is a probing amendment seeking a statement from the Government on what period they intend to prescribe within which the guarantee date must be set.
§ In practice, there is no good reason why any well managed scheme should not be in a position to quote a transfer value as at a date within a month of when a member makes application. Unfortunately, more than a few schemes have an evident inability to meet such deadlines. But that may very well be due to poor administration on their part. As a member of the OPAS council, I must say that a frequent complaint received from scheme members is that they have to wait far too long to be notified of transfer values. I see no reason why "one month" should not be inserted as the requirement in this clause. Again, perhaps the Government will tell us what they mean by "the prescribed period".
§ The third amendment in this grouping relates to the manner and calculation of transfer values. The amendment seeks to retain the existing basis for the calculation of cash equivalent for transfers out of final salary schemes. It simply puts into primary legislation the wording which I understand appears in the current actuarial guidance note, issued in accordance with regulations, which determines how actuaries are required to calculate cash equivalents.
§ It seems that the Government, and perhaps some people in the actuarial profession, want to see the basis of calculating cash equivalents changed to one that is less secure. In particular, it is being suggested that the calculation should not be based on gilt yields, as at present and as stated in the proposed amendment, but should instead allow for equity yields, particularly in respect of younger members. That could mean a substantial reduction in the security that is involved, since, as we know, the benefits which such people may receive under a new basis will have to depend on the vagaries and risks of the Stock Exchange; and there could be only an even chance that they would receive their accrued benefits. Given the normal ups and downs in equity values, it can be assumed that part of the time they may well end up being worse off than can be guaranteed under the existing system.
§ As I said at the outset, all three are probing amendments. We want to know where the Government stand; why they have put this wording into the legislation; and whether they will accept the manner of calculation that is proposed in the final amendment to which I have just spoken. I beg to move.
The Earl of Buckinghamshire
Perhaps I may intervene before the Minister stands up. I should like to speak to Amendment No. 191G. My understanding on this amendment is that it introduces a method of calculating cash equivalents or transfer values where there is none now. I know that the Institute of Actuaries and the faculty have laid down guidelines on how to calculate transfers. But I do not believe that it is true to say that they have stipulated that gilts should be the basis in all instances.
1090 The schemes have very different age profiles. I should like to put the question: should a scheme with a very young average age have cash equivalents and transfer values calculated in the same way as a scheme which has a very high average age? I suggest that that should not be the case. It would be true to say that the whole area of how to calculate transfer values and cash equivalents is difficult and controversial. Many members do not understand how that is done in final salary schemes. Nonetheless, I suggest to my noble friend the Minister that he exercise some caution in dealing with this technical area.
Scheme portfolios for younger members include a significant proportion of equities, the theory being that higher returns will come via such investments. To use transfer values which are based purely on gilts' yields will mean that the cash equivalent for many younger members in particular is likely to be higher than is necessary to support those benefits. I realise that in investment areas the past is no guide to the future. A debate is taking place in investment and actuarial circles about the gilt and equity yields converging. That debate is ongoing. We shall not know the answer in fact until it is finished.
With regard to this amendment, I believe that we should not interfere in the process. Schemes have very different structures in their actuarial management, investment policies and pi actices on discretionary benefits. In conclusion, I should not be happy to see Amendment No. 191G accepted by my noble friend the Minister. However, I appreciate that it has been put forward as a probing amendment.
§ 6.45 p.m.
§ Lord Mackay of Ardbrecknish
Perhaps I may explain the position in the order of the three amendments.
Amendment No. 191E revises Clause 131, with the effect that the statutory right to transfer pre-1986 accrued pension rights is extended to all members of occupational pension schemes. The current position is that pre-1986 early leavers from occupational pension schemes have no statutory right of transfer. Clause 131 extends the right of transfer to that group but provides a regulation-making power to exclude from salary-related schemes pre-1986 early leavers in respect of whom prescribed arrangements are satisfied.
I should explain the purpose of the regulation-making power which this amendment seeks to remove. Most pre-1986 early leavers have pensions which are frozen, in the sense that they are not protected by the revaluation provisions which apply to those who left after 1st January 1986. The policy intention of Clause 131 is to give members with frozen deferred rights the opportunity to transfer those rights to another occupational pension or a personal pension fund.
However, we do not intend to require those schemes which have fully protected the rights of pre-1986 early leavers to provide them with transfer values. As now, such schemes will be free to offer transfer values if they choose to do so. We feel that it is right to focus that extra freedom on those with frozen rights.
1091 Amendment No. 191F seeks to impose a one-month time-limit on the production of a guaranteed statement of entitlement. I sympathise with the purpose of the amendment, which is to speed up the transfer process, but we believe that the proposed time limit is unreasonably short.
Let me explain the current situation. The current legislation allows a scheme two months to produce an estimate of a member's cash equivalent. There is no requirement under current law for the estimated level of the transfer value to be guaranteed. Under our proposals for guaranteed statements, schemes may well feel the need to take even more care in producing the statements because there will be guarantees.
The calculation of a cash equivalent in any event is a complex process. It is important that a guaranteed transfer value should be accurately assessed. In particular, contracted-out salary-related schemes may often wish to check details of the guaranteed minimum pension element of the transfer value with the Contributions Agency. Such queries are more rather than less likely in the light of the Barber judgment and would consume most, if not all, of the time that this amendment allows for the statement to be produced.
The regulation-making power that we have taken is designed to enable us to consult with the pensions industry on a suitable time limit. I can tell the Committee that we should not expect the time allowed to be less than the two months currently allowed for production of an estimate, but we have not excluded the possibility that a slightly longer period might be appropriate. I should add that the time taken to produce a statement will not bite into the three-month guarantee period within which the transfer request must be received. The guarantee period will start when the statement has been produced.
Amendment No. 191G seeks to make it a statutory requirement that in calculating transfer values the scheme actuary shall base his assessment on the market redemption yields of British Government stocks at the time of the transfer. In short, transfer values for all—young and old members—should be gilt-based. That is indeed one of the ways in which the actuary is currently advised that transfer values may be assessed in the actuarial guidance note (GN11) which deals with this complex subject. Indeed, my noble friend Lord Buckinghamshire underlined the fact and warned me that this was a complex subject. He made some very good points in suggesting to me that I should be cautious. I fully intend to take his advice on this matter.
The amendment proposes to elevate the advice in the guidance note, which is permissive, to a statutory requirement in all cases. I believe that it is necessary to maintain a balance between actuarial guidance and statute. The Government have no objection to schemes paying transfer values in line with returns on gilts. Many schemes already do so and there is no reason why they should not continue to do so. Moreover, we propose to regulate in due course so that in future the calculation of transfer values should reflect at least the level of investment in gilts specified in the new minimum solvency requirement. That will effectively put a floor on transfer values so that they cannot be calculated 1092 assuming an excessive level of equity investments. To go further and insist that in all cases transfer values would be based on an assumption of gilts-only investment would be unreasonable and inconsistent with our wider proposals on minimum solvency.
The practical effect of the noble Baroness's amendment would be to require schemes to fund above the minimum solvency requirement, since a scheme which was exactly 100 per cent. solvent would not be funded to pay transfer values based on gilts for younger members. Let me repeat that we have no objections to schemes funding significantly above 100 per cent. of the minimum solvency, but we cannot accept that that should be a statutory requirement.
With those explanations of the three issues, I hope that the noble Baroness will feel able to withdraw her amendments.
§ Baroness Turner of Camden
I thank the Minister for those explanations. I said earlier when moving the amendments that they were probing amendments. We were anxious to find out exactly what was in the mind of the Government in drafting these clauses of the Bill.
I noted with great interest what the Minister said about my first amendment. I am glad that he indicated that the intention was to do something more special about those with frozen rights. I shall read his remarks in Hansard tomorrow with some interest.
With regard to my second amendment, I noted that he sympathised to some extent with our concern that there should be a time limit and that people should not be left hanging around waiting for that very necessary information. I also noted that the intention is to ensure that there will be at least some guarantee that people will not have to wait too long. In that respect, I am grateful for the Minister's explanation.
It has been very apparent that my final amendment concerns a highly technical matter. I do not claim to be an expert in that area. I was interested in what the noble Earl, Lord Buckinghamshire, had to say because I know that he is expert in that area, which is very much a part of his profession. On the other hand, I am assured—indeed, the Minister confirmed it to be the case—that the amendment reflects the precise wording from the current actuarial guidance note.
The Minister's case is that he does not want the guidance imported into the legislative requirement. He says that, if we were to do so—and he is quite right—it would mean that the minimum solvency standard would be higher than that originally envisaged. I am quite aware of that. In fact, when we discussed the minimum solvency standard earlier, I indicated that many people felt that the minimum solvency standard was not an adequate guarantee of solvency and that we wanted rather more in the way of security than was promised in the minimum solvency requirement. However, I note what the noble Lord has said and, in the circumstances, I shall certainly not press the amendments this evening. As I said at the opening of this short debate, these are probing amendments. We were anxious to find out exactly where the Government stood on these three quite important issues. Having said that, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 131 agreed to.
§ Clause 132 [Right to guaranteed cash equivalent]:
§ [Amendment No. 191F not moved.]
§ Clause 132 agreed to.
§ Clause 133 agreed to.
§ [Amendments Nos. 191G to 192A not moved.]
§ Clauses 134 and 135 agreed to.
§ Clause 136 [Jurisdiction of Pensions Ombudsman]:
§ Lord Lucas moved Amendment No. 192B:
§ The noble Lord said: In moving this amendment, I wish to speak at the same time to Amendments Nos. 192C to 192G. The purpose of Clause 136 is to extend the jurisdiction of the Pensions Ombudsman along the lines recommended by the PLRC so that he will be able to investigate complaints and disputes arising between the trustees or managers of an occupational pension scheme and the associated employer, and between trustees or managers of different occupational pension schemes. It will also bring into primary legislation an existing power, currently contained in regulations, to allow the Pensions Ombudsman to consider complaints and disputes arising between an individual and the employer.
§ Disagreements between trustees and employers and between trustees of different schemes can often result in lengthy and costly litigation. We believe it sensible that, as an alternative to court action, the Ombudsman should be given the power to consider such cases.
§ The drafting of the clause inadvertently brought employers of personal pension holders within the Ombudsman's jurisdiction. References to personal pensions are, however, inappropriate. Employers do not administer personal pensions and so cannot be properly described as managers. Personal pensions are contracts between individuals and the pension provider and complaints or disputes which arise between them are already within the scope of the Pensions Ombudsman's jurisdiction. Amendments Nos. 192C to 192F, therefore, remove inappropriate references to personal pensions to restore the position to the original policy intention. Amendment No. 192G further clarifies this by defining those responsible for the management of a personal pension scheme as the trustees or managers. Amendment No. 192B will give consistency with the other provisions of the Bill by specifying exactly which sections of the Pension Schemes Act 1993 will be amended by Clause 136. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendments Nos. 192C to 192G:
§ Page 85, line 35, leave out ("or personal").
§ Page 85, line 40, leave out ("or personal").
§ Page 86, line 9, leave out ("or personal").
§ Page 86, line 23, leave out ("or personal").
§ On Question, amendments agreed to.
§ Clause 136, as amended, agreed to.
§ Clause 137 agreed to.
§ Clause 138 [Disclosing information to the Authority]:
§ Lord Lucas moved Amendment No. 192H:
§ Page 88, line 2, leave out from ("to") to the end of line 10 and insert ("any person to whom subsection (6) applies, if the Ombudsman considers that the disclosure would enable or assist that person to discharge any of his functions.
§ (6) This subsection applies to the following—
- (a) the Regulatory Authority,
- (b) the Pensions Compensation Board,
- (c) the Registrar,
- (d) any department of the Government (including the government of Northern Ireland),
- (e) the Bank of England,
- (f) the Friendly Societies Commission,
- (g) the Building Societies Commission,
- (h) an inspector appointed by the Secretary of State under Part XIV of the Companies Act 1985 or section 94 or 177 of the Financial Services Act 1986,
- (j) an inspector appointed by the Department of Economic Development in Northern Ireland under Part XV of the Companies (Northern Ireland) Order 1986,
- (k) a person authorised under section 106 of the Financial Services Act 1986 to exercise powers conferred by section 105 of that Act,
- (l) a designated agency or transferee body or the competent authority within the meaning of that Act, and
- (m) a recognised self-regulating organisation, recognised professional body, recognised investment exchange or recognised clearing house, within the meaning of that Act.
§ (7) The Secretary of State may by order—
- (a) amend subsection (6) by adding any person or removing any person for the time being specified in that subsection, or
- (b) restrict the circumstances in which, or impose conditions subject to which, disclosure may be made to any person for the time being specified in that subsection."").
§ The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 192J. The purpose of these amendments is to clarify those regulatory bodies to which the Ombudsman may pass information and to extend the current protection of the Ombudsman from the law of defamation. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 192J:
§ Page 88, line 13, leave out ("to the Regulatory Authority").
§ On Question, amendment agreed to.
§ Clause 138, as amended, agreed to.
§ Clause 139 agreed to.
§ Lord Lucas moved Amendment No. 193:
§ After Clause 139, insert the following new clause:
§ Modification and winding up of occupational and personal
(". Sections 136 to 141 (modification) and 142 and 143 (winding up) of the Pension Schemes Act 1993 are repealed.").
§ The noble Lord said: I spoke to this amendment with Amendment No. 172. I beg to move.1095
§ On Question, amendment agreed to.
§ Clause 140 [Annual increase in rate of personal pension]:
§ [Amendments Nos. 193A and 193B not moved.]
§ Clause 140 agreed to.
§ Clause 141 agreed to.
§ Clause 142 [Power to reject notice choosing appropriate personal pension scheme]:
§ [Amendment No. 193C not moved.]
§ Clause 142 agreed to.
§ Clause 143 [Levy]:
§ [Amendments Nos. 194 to 195ZB not moved.]
§ Clause 143 agreed to.
§ Clause 144 agreed to.
§ Lord Lucas moved Amendment No. 195A:
§ After Clause 144, insert the following new clause:
§ Equal treatment in relation to official pensions
§ (2) In subsection (2) (c), "is a woman who" is omitted.
§ (3) In subsection (10)—
- (a) for "woman is in receipt of a pension" there is substituted "person is in receipt of a pension the whole or any part of', and
- (b) for "woman and that pension" there is substituted "person and that pension or part".
§ (4) In subsection (11)—
- (a) for "woman's" there is substituted "person's", and
- (b) for "woman" there is substituted "person",
§ (5) This section shall have effect, and shall be deemed to have had effect, in relation to pensions commencing after 17th May 1990, and in relation to so much of any such pension as is referable to service on or after that date.").
§ The noble Lord said: In moving this amendment, I wish to speak at the same time to Amendment No. 199A. These amendments remedy a small inequality in the way public service pensions are protected against inflation.
§ Public service pensions are increased in line with inflation under the provisions of the Pensions (Increase) Act 1971. Pensions for widows and widowers, children's or ill health pensions, and pensions for those aged over 55, are protected against inflation. Under age 55 no increases are made, but when the pensioner reaches that age the full value of the pension at retirement is restored.
§ An exception to the rule that no pensions increase is paid below age 55 was made for women with dependent children, but not for a man in the same situation. That was contrary to the terms of the equal treatment directive (86/378), which, broadly speaking, required pension schemes to provide equal treatment to men and women by 1st January 1993. Accordingly, the Pensions (Miscellaneous Provisions) Act 1990—the 1990 Act—equalised the entitlement by removing the exception in favour of women for service after 1st January 1993.
§ The European Court, in the Barber judgment issued in May 1990, just before the 1990 Act took effect, ruled that pensions were to be regarded as pay, and therefore subject to the requirement of equality in Article 119 of 1096 the Treaty of Rome. Other important aspects of Barber were unclear, and have only recently been clarified in a series of ECJ judgments given on 29th September last. Following these, it is now clear that the approach taken in the 1990 Act, to equalise by levelling down, is not unlawful, and that the Barber judgment applies to official pensions such as public service pensions. The Barber judgment itself requires pensions to be equal from 17th May 1990. The requirements of European law are therefore clear. Men aged under 55 with dependent children must be eligible to have their pensions increased on the part of the pension attributable to service in the period 17th May 1990 to 31st December 1992. The amounts involved and the numbers affected are likely to be very small, but the principle is of course an important one. We would be in breach of our obligations under the Treaty of Rome were we not to amend our legislation so that schemes could lawfully make these payments. The amendment makes the necessary change to the Pensions (Increase) Acts. I commend it to the Committee.
§ Clause 145 agreed to.
§ 7 p.m.
§ Schedule 6 [Amendments relating to Part IV]:
§ Lord Lucas moved Amendment No. 196:
Page 124, line 17, at end insert:
(". In section 164(1) (b) (i) (Crown employment), the words from "136" to "143" are omitted.
. In section 166(5) (reciprocity with other countries), the words from "136" to "143" are omitted.
. Section 172(1) (b) (review of Board's determinations) is omitted.
. In section 177 (general financial arrangements), in subsection (3) (b) (i), the words from "136" to "143" are omitted.
. In section 178 (meaning of "trustee" and "manager"), in paragraph (b), the words from "136" to "143" are omitted.
. In section 181 (general interpretation), in subsection (3), the words from "136" to "143" are omitted.").
§ The noble Lord said: This amendment was debated with Amendment No. 172. I beg to move.
§ On Question, amendment agreed to.
§ Lord Lucas moved Amendment No. 197:
§ Page 124, line 18, after ("(sub-delegation)") insert:
("(a) in subsection (1), the words from "136" to "143" are omitted, and
§ On Question, amendment agreed to.
§ [Amendment No. 198 had been withdrawn from the Marshalled List.]
§ Schedule 6, as amended, agreed to.
§ Clauses 146 and 147 agreed to.
§ Clause 148 [Parliamentary control of orders and regulations]:
§ [Amendments Nos. 198A, 198B, 198C and 198D not moved.]1097
§ Clause 148 agreed to.
§ Clauses 149 and 150 agreed to.
§ Schedule 7 agreed to.
§ Clause 151 [Extent]:
§ Lord Lucas moved Amendment No. 199:
§ Page 93, line 3, after (" 16(2)") insert (" 61(5)").
§ The noble Lord said: Clause 61(5) deals with the relationship of modifications under subsection (2) (d) of the Income and Corporation Taxes Act 1988. As taxes are an accepted matter under the Northern Ireland Constitution Act 1973, it is appropriate for Clause 61(5), like the 1988 Act, to extend to Northern Ireland. I beg to move.
§ On Question, amendment agreed to.
§ Clause 151, as amended, agreed to.
§ Clause 152 agreed to.
§ Clause 153 [Commencement]:
§ Lord Lucas moved Amendment No. 199A:
§ Page 93, line 23, leave out ("section 144") and insert ("sections 144 and (Equal treatment in relation to official pensions)").
§ On Question, amendment agreed to.
§ [Amendment No. 200 not moved.]
§ Clause 153, as amended, agreed to.
§ Clause 154 agreed to.
§ House resumed: Bill reported with amendments.