Occupational Pensions (Hansard, 16 March 1990)

§ Mr. Newton

There has been a wide welcome for the general aims of the provisions in the current Social Security Bill which seek to give members of occupational pension schemes greater protection.

One of the provisions in the current Social Security Bill requires pension increases to be paid when a scheme winds up. I have received representations saying that I should go further and place a similar requirement for pension increases on schemes which continue as well. Others have pointed to the possible consequences for businesses and have said that the current wind-up provisions could in certain cases lead to employers facing additional contingent liabilities for which they had not been able to plan.

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I have carefully considered all these representations, and the discussions in Committee, and have concluded that we can strike a better balance. I shall bring forward an amendment for the Report stage of the Bill.

The amendment will make two requirements. First, in future schemes will have to pay annual increases to members for their pension rights which they build up after an appointed day. In respect of their rights, members will be guaranteed increases in line with the retail price index up to 5 per cent. a year. Schemes will of course continue to be free to pay more than this if they wish, as indeed some already do.

Secondly, where schemes have a surplus of assets over liabilities the first call on such a surplus will be to pay increases to members for pension rights which they have built up before the appointed day (including pensions now in payment). The target rate of increase will be the rise in the RPI up to 5 per cent. a year, but the rate to be guaranteed by each scheme will depend on the amount of its surplus. Employers will not be able to take a contribution holiday or refund until increases are guaranteed at the target rate.

The position when a scheme winds up will follow the general requirements for pension increases. In the event of a scheme winding up employers will have to ensure that members receive increases at the prices—5 per cent. rate for pension rights they have built up after the appointed day. For pension rights based on service before then, increases will depend on (a) the extent of increases already guaranteed as a result of the new requirements and (b) any additional surplus emerging when the scheme winds up.

We shall consult the industry about implementation, but I intend that these proposals should take effect no later than the end of 1991.

Together with the Bill's other proposals to establish a pensions ombudsman, to improve help and advice for scheme members and control the extent of self-investment, I believe that these revised proposals to strengthen the pension increase rights of scheme members constitute a significant further step forward in the development of occupational pensions.