HC Deb 16 April 1996 vol 275 cc420-2W
Mr. Clapham

To ask the Secretary of State for Social Security what kind of pension guarantees a money purchase pension scheme offers the employee; and if he will make a statement. [24822]

Mr. Heald

Occupational money purchase pension schemes do not offer pension guarantees. Contributions to the scheme by employees and members are invested in a fund, the value of which is used either to provide a pension or to purchase an annuity from an insurance company on retirement. The rate of pension is therefore dependant on the level of contributions made, the investment performance of the resulting fund and, where an annuity is purchased, the prevailing annuity rates at the time of retirement.

With money purchase schemes which are contracted out of the state earnings-related pension scheme, SERPS, employers must guarantee to make contributions which at least equal the value of the reduction in national insurance contributions that they and their employees enjoy.

Mr. Clapham

To ask the Secretary of State for Social Security what advice he has made available to employers and unions since 1988 about the quality of a good money purchase scheme; and what steps he has taken to ensure such schemes have a level of predictability. [24820]

Mr. Heald

The Department produced two guides in 1988, the year in which employers were first able to set up money purchase schemes contracted out of the state earnings-related pension scheme, SERPS. Both the NP41, "New Pension Choices for Employees" and the NP42, "New Pension Choices for Employers" explain how money purchase schemes work, the difference between contracted-out money purchase, COMP, and salary-related pension schemes, the factors which affect the eventual rate of pension payable and the legal requirements which employers have to satisfy to be able to establish such schemes.

From April 1997, the Government are introducing age-related rebates for COMP schemes. The rebates are designed to ensure that the value of the final pension reflects more closely the value of the benefit forgone by contracting out of SERPS.

Mr. Clapham

To ask the Secretary of State for Social Security what steps he is taking to ensure that older employees will not be disadvantaged if their employer switches from a salary scheme to a money purchase scheme; and if the measures will be retrospective to 1988. [24821]

Mr. Heald

Employers set up occupational pension schemes voluntarily and the decision to switch from one type of provision to another is a matter for them. Where an occupational scheme is contracted out of the state earnings-related pension scheme, SERPS, certain specific conditions have to be met if the nature of the provision is altered-the accrued rights of all members have to be secured, interested parties such as trades unions have to be consulted and members must be kept fully informed about the change. Scheme members in such situations should consider seeking independent financial advice on their pension position.

Mr. Clapham

To ask the Secretary of State for Social Security what is his estimate of the proportion of occupational pension schemes that are currently money purchase schemes; and what is the approximate number of employees covered by such schemes. [24819]

Mr. Heald

In 1991, the latest year for which data' are available, it is estimated that 71 per cent. of occupational pension schemes2, covering around 900,000 members, were arranged on a money purchase basis3.

The figures are based on information from both contracted-in and contracted-out occupational schemes.

Notes: 1 1991 survey on occupational pension schemes by the Government Actuary's Department. 2This figure should be treated with a degree of uncertainty due to the limitations of the sampling method for small occupational schemes. 3This figure includes hybrid schemes where the main benefits are defined by the accumulation of the contributions paid.