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Earner's Guaranteed Minimum

Volume 893: debated on Thursday 12 June 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move Amendment No. 23, in page 23, line 32, leave out '1/8th' and insert '1/7th'.

With this amendment it may be convenient to take the following amendments:

No. 24, in page 23, line 32, leave out '1/8th' and insert '1/6th'.

No. 41, in Schedule 1, in page 52, line 6, leave out 'eight' and insert 'seven'.

No. 27, in page 52, line 18, leave out '1/8th' and insert '1/7th'.

No. 28, in page 52, line 18, leave out '1/8th' and insert '1/6th'

No. 42, in page 53, line 13, leave out 'half'.

No. 43, in page 53, line 26, leave out 'half'.

Amendment No. 23 bears a close resemblance to Amendment No. 15, which I moved in Committee. These two amendments seek to give a fairer deal to those like yourself, Mr. Deputy Speaker, who continue to work beyond retirement age.

I remind the Minister that in Committee I was supported by two of his hon. Friends, the hon. Member for Edmonton (Mr. Graham) and the hon. Member for Walsall, South (Mr. George), both of whom spoke in favour of the amendment.

The hon. Member for Edmonton said,
"If the amendment cannot be accepted, I hope that he "—
that is, the Minister—
"can come back at a later stage and say something helpful to a great many people who are already encouraged to continue working."
This is the latest stage at which the Minister can come back. Both the hon. Member for Edmonton and I look forward to his saying something helpful. In the same debate the hon. Member for Walsall, South also expressed the hope that
"…the Minister will be forthcoming on that score."—[Official Report, Standing Committee A, 24th April 1975; c. 290–1.]
It is a matter of concern that the Labour back benchers are not only empty of talent but are also, on an important matter such as this about the future of retirement pensions, empty.

The argument is essentially simple. At the age of 65 a man can either claim a retirement pension or he can carry on working. If he chooses the latter, he forgoes his pension until such time as he does retire. By so doing, he saves the Government a considerable amount of money and, in recognition of this, he receives a deferred increment. In the Bill, as it now stands, for every week he carries on working beyond retirement age, his pension is increased by one-eighth of 1 per cent. In the case of a single man, this works out at a rate of return of 6½ per cent. before tax on his investment in his pension. I believe that that rate is far too low, and I seek to raise it by these amendments to 7½ per cent. This is done by increasing the rate of accrual from one-eighth to one-seventh. One-seventh per cent. still represents a very good bargain for the Treasury, and the rate of accrual would have to rise to one fifth per cent. if it was to be actuarially fair.

These sums may sound very small, but if one takes an example and looks at the global sums of money involved, one finds that the sums are in fact quite large. A single man aged 65—this may be of interest to you, Mr. Deputy Speaker—has a life expectancy of 13·94 years and, if he has an earnings record of £40 per week, his pension entitlement is £18·70. If he decided to retire at the age of 65, he would therefore draw £18·70 for 13·94 years, and this comes to £13,555·26. Alternatively, he could work for a further five years and retire at the age of 70.

For each week that he works under the Bill as it stands, he would add one eight hundredth of his weekly pension entitlement of £18·70. At the end of his five years, he has earned himself an extra £6·08 per week by virtue of deferring his retirement. He is then entitled to £18·70 plus £6·08 per week for the remaining 8·9 years of his life, which comes to £11,519·73. This is £2,035·53 less than what he would have received had he retired at the age of 65.

The Government are, therefore, doing very well out of those who continue to work. While this may be a financial bargain from the Treasury's point of view, it is a shameful swindle on elderly people, many of whom are unable to calculate the real rate of return on their savings, and, I suspect, do not realise what a bad bargain they are getting.

The case for accepting my amendment is now even stronger than it was when I first moved it on 24th April. In the meantime, the Government have introduced an inflation-proofed savings scheme for those over retirement age. A man of 65 who retires and perhaps receives a lump sum on retirement can now invest that lump sum and receive a return equivalent to the going rate of inflation, currently over 20 per cent. But the man who continues to work, and whose savings before retirement remain locked up, gets much worse treatment, as his savings accrue only at 6½ per cent.

This distinctive treatment between those who live off unearned income and those who continue to earn seems wholly alien to the Government's general philosophy, and I do not see how they can reconcile this penal treatment of those who continue to work with their consciences.

This is not an expensive amendment. In the Minister's own words:
"The cost in global terms is small… It is estimated that it would reach £1 million a year after five years and £5 million after 30 years, so we are not talking about enormously increased expenditure."—[OFFICIAL REPORT, Standing Committee A; 24th April 1975, c. 292].
In fact, it is wholly wrong to look at this amendment in these terms. The reality of the present situation is that the Government are borrowing money from those over retirement age at 6 per cent. whereas the going rate at which the Government are borrowing from the rest of the community is nearly twice that amount.

The Government are therefore discriminating against those over retirement age who seek to carry on working, and there are no social reasons whatsoever for this discriminatory treatment. The Government have in fact succeeded in reversing the parable of the talents. The servant that hides his talent in the earth—or puts it into the Government's equivalent, the index-linked national savings scheme—does very well. The servant that goes and trades and makes five more talents—by carrying on working—does very badly.

Whereas in the parable the unprofitable servant has his talents confiscated and is cast into outer darkness, the Government have reserved this penalty for the profitable servant, whose retirement pension is, in real terms, confiscated. The bit of the parable which remains unchanged is the nature of the employer who was, if my memory serves me right, a very hard man.

This amendment, therefore, has all-party support. It involves a very small amount of public expenditure, and it gives the Government the opportunity of stopping what is in effect a shameful theft of the savings of elderly people. I very much hope that the Minister will announce that he accepts this amendment this evening, particularly in the light of comments made by the Minister of State on a similar amendment to the Social Security Benefits Bill on 16th January this year, when he promised that he would take a detailed view on this matter and consider fully the representations which have been made.

4.45 p.m.

Amendments Nos. 24 and 28 were to have been moved by the hon. Member for Cannock (Mr. Roberts), who I notice is not present in the Chamber. Those amendments would have outbid my very modest amendments by raising to one-sixth the rate of accrual. The hon. Member for Cannock clearly shares the strong feelings of Opposition Members on this matter. I hope that it is not pressure on him by the Government which has prevented his attendance at this debate. Perhaps the Government could compromise between the one-eighth in the Bill at present and the one-sixth proposed by the hon. Member for Cannock by accepting the amendments which I have moved, which suggest one-seventh.

Amendment No. 41 is a consequential amendment which would reduce from eight weeks to seven weeks the qualifying period for the deferred increment and would prevent any complicated questions being involved in the calculations.

Coupled with those three amendments are Amendments Nos. 42 and 43, in the names of myself and my hon. Friends. These amendments closely resemble the Amendment No. 89, which I moved in Committee—and I promise not to quote the Bible in support of my case this time. This section of the Bill makes provision for the surviving spouse who outlives his or her partner, and where the partner is in the process of building up a deferred increment to the pension. As the Bill stands, the surviving spouse gets only one half of the deferred increment.

This provision is wholly contrary to one of the major principles in the Bill, namely that a surviving spouse can inherit the full pension rights. On Second Reading the right hon. Lady the Secretary of State drew attention to this principle as follows:
"Moreover, when a widow retires or if she is widowed after pension age she will be able to draw any additional component which she has earned in her own right as well as the basic and additional components which she has inherited from her husband."—[Official Report, 18th March 1975; Vol. 888, c. 1493.]
So far as deferred increments are concerned, it simply is not the case that a widow inherits the total entitlement from her husband, and it does seem odd that this anomaly remains in the Bill.

Also, as it stands, Schedule 1 is inconsistent with Clause 7. Clause 7 provides that a widow's retirement pension shall be computed in exactly the same way as her husband's pension was computed, and this very welcome feature has not been carried through to the schedule. Further, the schedule is inconsistent with what is said in the foreword of "Better Pensions", which says
"the widow may inherit 100 per cent. of her husband's pension entitlement"
and further,
"the older widower and the widower who has had to be supported by his wife because of prolonged sickness can inherit her pension rights."
The reduction of one-half is not consistent with either of those two statements.

Again, this is not an expensive amendment. According to the Under-Secretary, some £5 million would be added to the cost of the scheme after 15 years. This is not a large sum, and it is worth paying to ensure consistency throughout the Bill. It will enable many widows to be taken off supplementary benefits, and I am sure that the Minister would welcome that particular consequence. In Committee, the Under-Secretary said, quite rightly, that this one-half provision was taken from the Conservative's Act. However, that Act did not embody some of the principles I have outlined, particularly that embodied in Clause 7 of this Bill, so the same inconsistency was not involved.

The Under-Secretary conceded that this provision was not completely logical with the rest of the Bill, and in fairness to him he did not seek to defend the Bill as it stood. I suspect this time that I may be pushing at an open door. He undertook to have further thoughts in the light of other amendments tabled by members of the Committee, and I hope that in the light of those thoughts—though his mind may have been on other matters more recently—he will now announce to the House that all the amendments I have proposed may be accepted.

When the hon. Member for Ealing, Acton (Sir G. Young) said that he was pushing at an open door I felt that there was some element of truth in that. However, the way in which he pushed was with such a force as almost to encourage me to slap it back rather than open it even wider.

As the hon. Gentleman knows, in Committee both my right hon. Friend and I were pressed heavily on certain issues, and certainly we both gave promises that we would examine various propositions which had been put to us by the Opposition. Two such propositions are the subject of the amendments which we are now discussing: Amendments Nos. 23 and 27 and the consequential Amendment No. 41 and the twin Amendments Nos. 24 and 28 dealing with the rate of increment for deferred retirement: and then the second batch of amendments which we are taking with them, Amendments Nos. 42 and 43 concerning the level of the increment to be inherited by the widow or, in appropriate cases, the widower. Certainly we have carried out faithfully the re-examination which we promised on that occasion.

We have arrived at the conclusion that we are prepared to accept one of the propositions but, at the moment, have to ask the House to reject the other. Perhaps I ought to deal with the bad news first and then sweeten it with the good news. We ask the House to reject those amendments which seek to increase the increment from the present one-eighth per cent. per week to either the one-seventh per cent. moved by the hon. Gentleman or the one-sixth per cent. in Amendments Nos. 24 and 28. Our reason for this is threefold.

First, the benefits which these amendments would bring about would go to those pensioners who were fit enough and had the opportunity, through either place of work or place of living, to remain at work after the age of 65. We do not believe that at the moment that has the greatest priority in the improvements we ought to carry out.

Secondly, we believe that the fact that the 6½ per cent. was introduced only in April of this year, two months ago, means that the period is too short to judge its general acceptability or whether it has any effect at all in persuading people to remain at work. The figure of 6½ per cent. was judged by the previous Government to be a reasonable one, and I am sure you will be delighted to know, Mr. Deputy Speaker, that your interests were looked after by the previous Government when they increased this to 6½ per cent.

Order. I know that the hon. Gentleman the Member for Ealing, Acton (Sir G. Young), is very young, but he is old enough to know that he should not refer to me. The hon. Gentleman the Under-Secretary is only just behind me in age.

I withdraw any accusation I might have inferred against you. Mr. Deputy Speaker.

We feel that since the 6½ per cent. was only introduced in April this year there has not been long enough to see its effect, and we think it reasonable to delay any action on this matter.

Thirdly, the hon. Gentleman said, quite rightly, that if the Government were to agree to Amendments No. 23 and 27 this would cost a matter of £1 million a year after five years, rising to some £5 million a year after 30 years. Amendments Nos. 24 and 28 would double that to £2 million after five years and £10 million after 30 years. We are not saying that these are massive sums of money, although sometimes we here talk carelessly about £10 million or £5 million and that causes me certain misgivings, but we do not believe that we can justify spending those sums at this particular time.

This is obviously not the last word on this sort of subject. This is the type of amendment which any Government can introduce at any time, and this is certainly an aspect of the scheme which the present Government will continue to keep under review.

Amendment No. 41 would only be of importance if Amendment No. 27 were carried. As I hope the House will reject Amendment No. 27. Amendment No. 41 will automatically not be useful.

Amendments Nos. 42 and 43, which resurrect the old Amendment No. 89 in Committee—and this is the good news for which the hon. Gentleman the Member for Ealing. Acton has been waiting—we are certainly prepared to accept. They would allow a widow and in some cases a widower to inherit the increments that a late spouse had earned, since the amendments apply to that part of Schedule 1. The Government recognise that the new scheme requires a widow or widower to inherit all rather than half the pension which a late husband or wife was receiving, subject to the maximum payable to one person. This was the point my right hon. Friend the Secretary of State mentioned when she talked about the philosophy of the scheme. So I am delighted to tell the hon. Gentleman that we are quite prepared to accept his amendment. The change embodied in Amendments 42 and 43 will add some £5 million a year to the cost of the scheme after 15 years, but we feel that it is an improvement worth making and we are pleased to accept the amendment.

I think that the hon. Gentleman need not be too disappointed since his success rate in the last 15 minutes has been at least 50 per cent.

We are once more indebted to my hon. Friend the Member for Ealing, Acton (Sir G. Young) who I think is probably the only hon. Member of the House who can succeed in making proceedings on a measure such as the Social Security Pensions Bill somewhat entertaining and who in this case even managed to introduce a note of personal interest in the remarks he made. He makes biblical quotations which are of an uplifting quality and also gets hold of extremely valid points. The names of Members of the Conservative Front Bench are added to his amendments on both these matters because he took up two extremely good points in Committee and we have been following the case he has been making on behalf of the interests of those who defer retirement. We entirely accept the importance of what he has been urging in defending the interests of those—and there are increasing numbers—who want to work after retirement and who do work after retirement and who are entitled not only to a fair deal but to positive encouragement from the Government should they wish to do so.

In my opinion both the cases that my hon. Friend made are completely unanswerable in logic, so that there is no need to repeat them. Therefore a 50 per cent. success rate is the least he could expect.

For my own part, I accept that one has to have a realistic attitude when one is urging amendments which cost money upon a Government at Committee stage, and I accept that there are some reasons for defending or perhaps excusing a little further delay on the question of the increments themselves. However, I hope the Minister was not intending to slam the door too firmly, because I think that my hon. Friend's arithmetic is quite incontrovertible. But it is right that as a result of the 1973 legislation the figure has just been raised, and as both sides of the House have been going on about the inadequacy of the increments for many years, we regard the present position as much more tolerable than ever before.

I accept that in making a choice the Government probably acted wisely in choosing the second of my hon. Friend's two points. As I said in Committee, it seemed that the omission which my hon. Friend discovered was an oversight on somebody's part in the planning and drafting of the Bill. I did not say that critically. Given the complexity of this Bill, the Opposition have made a great many errors in the course of choosing matters to argue upon. Nevertheless, it seems to me that there never was a case that could be made, when one compared this part of the Bill with others, for limiting a widow or a widower's entitlement to only one-half of this increment. I am glad that this is so overwhelmingly clear that it has been accepted, and I advise my hon. Friend to be patient for a year or two, because it can be a question only of time before his unanswerable logic has to be accepted by a Government and the increments brought up to a fair mathematical level.

My hon. Friend the Member for Rushcliffe (Mr. Clarke) was kind enough to say that my arithmetic was quite incontrovertible. He may be right in that, but I am afraid that his arithmetic is wrong. I put forward five amendments. Two have been accepted, so that the success rate is not 50 per cent. but 40 per cent. The Under-Secretary of State made the same error.

When the Under-Secretary of State said that he would accept one set of amendments, I was a little worried, because one set is much cheaper than the other, and the cheaper set was being pressed on him by his hon. Friends. I thought that he might take the easy way out and go for the cheaper of the two sets. To his credit, he went for the more expensive set which was not being pressed on him by his hon. Friends. I know that all old-age pensioners will be grateful for that decision.

5.0 p.m.

The argument put forward by the hon. Gentleman in rejecting Amendments Nos. 23 and 27 were better than those put forward in Committee. I accept that the new rates have only just come into effect. There was an implication that after a year or two has elapsed the time might be appropriate to look again at the rates of accrual and that that might be the opportunity to review them upwards. The hon. Gentleman will have to make his peace with his hon. Friends on the Committee who spoke in favour of the amendments and his hon. Friend the Member for Cannock (Mr. Roberts) who sought to go further than I proposed.

I am delighted that Amendments Nos. 42 and 43 have been accepted and that the philosophy in the Bill has been made consistent. It would be churlish of me to press Amendments Nos. 23 and 27. As I approach old age I have an interest in the provisions they make but I have a year or two to wait. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move Amendment No. 25, in page 24, line 3, leave out '5' and insert '8'.

With this amendment we come to one of the key issues which has dominated the discussions throughout our proceedings on the Government's new pension scheme. It has been a key issue in all the attempts that have been made to reach agreement between the two sides of the House on the correct structure for pensions in the future, and in the attempt which was made in Committee to work together to evolve a structure which allows proper continuing partnership between the State scheme and the occupational pension scheme.

Throughout, one of the major concerns has been the financial obligations that might fall upon occupational pensions schemes that were contracted out in respect of the accrued rights of early leavers from employment—those who leave an employment, and hence leave pensionable contracted-out employment, before their normal age of retirement—and there are a great number of these.

As the Government's proposals stood, the expectation appeared to be that pension funds could take on the full liability for the preserved rights of people who left pensionable employment to go to other employment before ordinary retirement age. That was an intolerable obligation to place upon employers and pension funds, given the basis of the scheme. If a man in his 40s leaves his employment, under the new arrangements he will leave with a preserved pension right. The obligation was to be left upon employers and their schemes to inflation-proof that preserved right until the man's ordinary retirement age and only after that stage would the Government take on the obligation of revaluation.

The Government agreed that that could be an unacceptable burden. In modern industry the mobility of labour is becoming increasingly high. We have not evolved an acceptable way of readily transferring rights from one scheme to another—and have certainly not evolved a way of making it an obligatory course. Some schemes would have been landed with a great burden of revaluing the preserved rights of early leavers, to the great detriment of their long-term employees who stay with one employer and one pension fund until the normal retiring age. That was another open-ended committment which would fall upon pension funds about which they protested and they persuaded the Opposition that they had a case.

Great changes have been made in the scheme in many respects throughout its progress. Between White Paper and Committee stages the Government made a concession. They proposed that an employer who wished to do so could limit his obligation to a 5 per cent. revaluation of the preserved right and, over and above that, he would have the right to pay a premium—now to be called a limited revaluation premium under the amended Clause 34 referred to in Clause 42—and buy back the remaining obligation into the State scheme. He would have to pay a lump sum to the Goverment for the cost of inflation-proofing the preserved rights over and above the 5 per cent. figure.

The Minister said yesterday that whenever he makes concessions there is a tendency for those involved to come back and ask for more. There has been that tendency and the Opposition have been acting in the same good faith as the Government in trying to hammer out a bipartisan policy. We have tried to avoid asking for more but, unfortunately, there remains a difference between us about the settlement of this issue. The Government insist that they can help the occupational pensions schemes only by allowing the 5 per cent. plus a premium. We consider that a better solution is for funds to be entitled to limit their obligation to 8 per cent. revaluation. That would mean a fixed percentage revaluation and would avoid the uncertainties of an open-ended commitment to pay a premium over and above that.

Yesterday, in an even more prolonged debate on the key issue of schemes which ceased to be contracted out, we argued the case for certainty as opposed to openendedness for the various premiums in the Bill. But when it comes to preserving the accrued rights of early leavers, the case for a fixed 8 per cent., with its certainty and its insurable element is extremely strong. We remain firmly committed to the view that the right arrangement is 8 per cent. as opposed to 5 per cent. plus a premium. The Minister knows the case, and I wait to see whether he will reject it.

If, as I suspect, the Minister rejects that case again, there is one thing that puzzles me. The Government Actuary has given us a first look at the actuarial tables on which so much of our discussion has centred. Everyone now seems to be agreed that the difference between us in money terms is non-existent. I am persuaded—and I trust that the Minister is—that 5 per cent. plus a premium of the kind he proposes amounts to about the same as 8 per cent. certain over the generality of cases. To the Government and the Treasury—which matters so much in all our discussions—there is no difference. The Minister may say that it is not the same in every case and he has argued that it may even be disadvantageous to some schemes to have the 8 per cent. because they would be better off with 5 per cent. plus the limited revaluation premium.

That may be so. It depends upon the circumstances of each case, but I am persuaded that the industry, those who advise employers and those employers who have to take the critical decision whether to contract out when we have finished our work in the House would prefer the certainty of what the Opposition propose to the uncertainty of 5 per cent. plus a premium which is what the Government suggest.

Even at this late stage the Minister could make this concession and accept what we say. One more premium would come out of the Bill and the Bill would be simpler. The actuarial tables would be more straightforward because there would be no actuarial tables for partial as opposed to complete buy back and it would make the position of employers and their funds clearer. It would be easier to persuade employers to take the step which the Minister wants as much as we do. He wants as many employers as possible to contract out into good occupational schemes.

I turn to one final matter to reinforce our case. I hope that the Minister appreciates how important many sections of the industry still believe this point to be. There has been a tendency in our discussions to turn from one to another of the key points between us, and early leavers was one of the matters that was thrashed out at a comparatively early stage in our deliberations. However, there are still important groups of people whose interests are close to our own and who will very much want to achieve a genuine partnership. They will assist the Government as regards contracting out, but the matter of early leavers remains a fundamental stumbling block.

There is concern about the effect of the Government's present proposals on private employers in 1977–78. I am sure that people such as Sir Donald Sargent, the Chairman of the Corporation of Insurance Brokers, have been pressing their views and the views of the society on the Government as strongly as they have been pressing them upon the Opposition. We are persuaded by their views on this matter. It seems that the Government are sticking for no financial reason and for no great reason of principle. It would be another significant step to take, following the many steps that have already been taken in the move towards a bipartisan scheme, if the Minister would accept our amendment at this stage.

The amendment is linked with Government Amendment No. 36 because the Government's amendment is a further refinement, as it were, of the limited valuation premium to which we object. It would be our intention, if the Minister remains of the same opinion that he held in Committee, to seek to divide the House on Amendment No. 25, which seeks to increase the 5 per cent. to 8 per cent., and to indicate our objection to any premium at all by dividing on Amendment No. 36. That will give us a last opportunity to strike this premium out of the Bill.

Yesterday, when we were debating the new clauses, we were dealing with an emergency, an abnormal situation. Today we are dealing with a normal situation, namely, people changing their jobs. I think that both sides of the House will agree that the early leaver should not suffer as a result of leaving his job. The preservation requirements of the 1973 Act, which have recently come into operation, enshrine the principle that there should not be the sort of loss of pension rights which existed before that legislation was introduced.

Of course, we have to take into consideration the other side of the coin. I have two points to put before the House. First, when people leave their jobs they usually do so to better themselves and to go to positions where there is higher pay and higher pension entitlement. That is one consideration that we must bear in mind as a background to the debate.

I do not think I can accept that proposition. In this world of technological change many people who, perhaps, in the past may not have been in occupational pension schemes, but who are increasingly so involved now and will be in future under the provisions of the Bill, will not be leaving their employment and have not been leaving their employment to better themselves. Many people are leaving their jobs because of changes in industry, because of redundancies and because of the trade cycle. The hon. Gentleman cannot assume that the kind of pattern which he is envisaging will necessarily be typical in future.

5.15 p.m.

I accept what the right hon. Gentleman is saying, but I am suggesting that, while it is not true in all cases, many people leave their jobs to go to better jobs with higher pay and with higher pension prospects. I suggest that that is one of the factors we must bear in mind when considering these amendments.

The second point to bear in mind is the reaction of employers and of work people. If we push employers and firms too hard in this direction they will begin to ask why they should support those who have left rather than those who are present. In our debates in Committee reference was made to the phantom payer. The Committee was warned that we could get into a situation, if we were not careful, where there would be more leavers than stayers and where the obligation on the pension schemes for the leavers would be greater than the obligation on the stayers.

We must be careful that we do not create a situation in which there has to be more provision for leavers than stayers. If we push firms too far in this direction there is a possibility that there will be a reaction against occupational pension schemes because of the obligation towards leavers. I say that as one who was responsible for the preservation requirements of the 1973 Act. I am sure that those requirements were right and long overdue, but let us be careful. Let us not push too far in a direction which will cause employers and their current work forces to feel that they are getting to the point of having to bear unreasonable obligations.

The point that I have just made is emphasised if we consider the likely costs which are likely to be involved, even with Government Amendment No. 36. First, there is the cost of up to 5 per cent. compound for each relevant year. It is clear that many years would be involved. Secondly, there is the premium as modified by Amendment No. 36. Again, the cost involved could be substantial.

I shall quote one or two figures which have been provided for me and which are based on the Bill as it stands, without taking into account Amendment No. 36. For an employee joining a firm at 18 and leaving at 40 the single premium to be paid, in the case of a male employee, amounts to 36·7 per cent. of final earnings. That is a fairly substantial figure. For a man who leaves at 30 after eight years' membership of the scheme with an initial salary of £2,000 per annum and a final salary of £5,320 per annum the cost of securing the likely shortfall of pension will be £121. For a woman leaving at the age of 30 after eight years' membership with the same initial and final salaries, the likely shortfall of pension and the cost of securing it will be £493.

I quote those figures to illustrate that we are dealing with what may amount to substantial additional costs for the firms involved. I quote them not in any way to argue against the principle for leavers but to suggest that we must take into account the obligations that we are putting on employers under the Bill.

I turn briefly to the question of the premium. I have never been happy about it and I agree with my hon. Friend the Member for Rushcliffe (Mr. Clarke) on this point. I admit that the Government are trying to meet the argument about open-endedness in respect of the premium in Amendment No. 36, but that does not reconcile me. I have two points to make about the premium tables. It is only right that we should dwell on them for a few moments because we had had them for only a short time when we discussed this matter in Committee, and we have not had time to assess them or take expert advice about them.

Two points about the tables concern me. First, why has the assumption of the excess of incomes over earnings been changed from 1 per cent. to a half of 1 per cent.? The explanation given is that the contribution reduction has changed from 6½ per cent. to 7 per cent., but that change in the contribution reduc- tion was not made for actuarial reasons. It was freely admitted that this was "danger money". The Government accepted the argument that 6½ per cent. did not provide an incentive to contract out and the additional half of 1 per cent. was therefore given. I am a little suspicious that the assumption has been changed from 1 per cent. to a half of 1 per cent. and I suspect that this is an example of the Government giving with one hand and taking away with the other.

I am surprised at the hon. Member. The Government Actuary came to the view that in strict actuarial and neutral terms the figure should have been 6·3 per cent. The figure of 6½ per cent. was mentioned in the White Paper, but in order to give some encouragement to employers and because of the risk factor an extra half of 1 per cent. was added in the Bill, the whole of which went to the employer. Whatever the policy reasons for the increase to 7 per cent., the bases immediately changed. We were then talking not about a positive yield of 1 per cent. but of a half of 1 per cent. There could not be a contribution reduction in respect of contracting out on one basis and tables on an entirely different basis involving figures which no longer had any part in the Bill.

I am not entirely convinced by what the Minister of State said. I hope that he will develop his theme when he replies to the debate, because this is the first occasion on which we have been able to argue the point. It is the first time we have had the tables long enough to be able to assess them.

The changes which the Government made—and I give them credit for responding in this way to the representations—were deliberately made not on actuarial grounds but on danger money grounds. I think the Government are, therefore, under an obligation, in the light of that, to explain why the change has been made in the assumption as to the gap between the rate of return and the increase in earnings.

My second point concerns mortality and the assumptions made about it. The same assumptions are made in these tables as for the contribution reduction—that is for the scheme which is contracted out. I should like to quote one reaction I have had from an expert source about this assumption. It says:
"The assumptions used by the Government Actuary as to mortality are that:
  • (a) current mortality will be similar to that experienced in pension schemes, and
  • (b) mortality will become progressively lighter in proportion to that of the population as a whole.
  • Assumption (b) is of somewhat doubtful validity as improvements tend to have most effect on the sick—who by definition are largely excluded from the experience on which the pension scheme mortality has been built up.
    Until preservation, most schemes paid refunds when members left service before NPD. The experience was thus largely confined to active members and thus the mortality was exceptionally light. This is self-evident—the average health of those fit enough to be at work must be better than the average of the population as a whole…
    While it is right to say that those who stay in service have very light mortality, it seems totally unjustified to make the same assertion about those who leave. Some at least of those who leave will do so because their health has broken down and they are unfit for work. To the extent that this is so the mortality of leavers will be higher than that of those who stay.
    As the group of leavers in any year is smaller than the group of those who stay, one extra death a year in the smaller group will have a much greater effect on the death rates than it would on the larger group—or on the group consisting of both leavers and stayers together."
    I have, therefore, suggested to the Government two criticisms of the assumptions on which the tables are based, and I hope that the Minister of State will be able to comment on them. I am not happy with the assumptions in the tables. I am certainly not reconciled with the efforts the Government have made in the Amendment No. 36 to close the open-endedness of the premium. I still much prefer no premium, but I will not repeat the arguments which my hon. Friend the Member for Rushcliffe made, and which were made in Committee.

    I know that the Minister of State will remind us of the stable from which this premium comes. However, I hope that he will recognise that, although the Government's argument about the value of the premium is not new among experts, there is a strong and growing body of opinion against having a premium at all. I hope, therefore, that the right hon. Gentleman will consider seriously this simple amendment which will not cost more but which is a different and, we believe, a more satisfactory way of achieving broadly similar objectives.

    I am not prepared to recommend to the House that it should accept the Opposition amendment. It is best when we disagree that we make that fact plain immediately. I shall set out my arguments in some little detail for the record. I know that the pensions industry will be interested in observing my comments so that, if it is the industry's wish, there can be a continuing dialogue on this subject when it has had the opportunity to consider what I shall say this afternoon.

    As the hon. Member for Rushcliffe (Mr. Clarke) acknowledged, the Government listened to and were prepared to accept the objections which the pensions industry raised about the original terms of the White Paper published in September 1974. The industry and the occupational pension schemes were being asked to accept an open-ended commitment, an uninsurable risk, and they could not do that. The view was expressed and, surprisingly, was echoed this afternoon by the hon. Member for Somerset, North (Mr. Dean) who asked why there should be support for those who left a firm—the phantom army.

    5.30 p.m.

    There are people—I do not include the hon. Member for Somerset, North—who do not welcome the development of preservation arrangements. Occupational pension schemes in the past have done well out of the lack of preservation arrangements where men and women have left an employment. They have got back their contributions, minus tax. The scheme takes back the contributions and the ex-employee is left with very little. That happened to me, and it has probably happened to others in this House. For pension fund managers it can mean additional expense for funds. Some managers have tended to regard people who have walked out of the door as ex-employees for whom they take no responsibility. But we in the House of Commons have made it clear that we are not prepared to tolerate that situation.

    The hon. Member for Somerset, North took a step down that road in the legislation for which he was responsible in 1973. We have taken a further step. I was rather surprised at hon. Gentleman's attitude. He appeared to be saying: "Why should we support people who have left?"

    I did not say that. What I was saying was that we must take into account the additional cost obligations which we are putting on employers—obligations which are additional to those in the 1973 Act. I was saying that if we make the obligations too expensive, there will be a direct clash between the interests of leavers and those of stayers.

    I am grateful to the hon. Gentleman for making that clear and I accept what he said.

    The Government began with the proposition that it was intolerable that men or women who had left their employment in a period of increasing labour mobility should on retirement or widowhood be so much worse off because they had not stayed with one employer for 40 years but had had a number of jobs. For that reason we set out in the White Paper that there would be the earnings dynamism pre-award for early leavers. This was to fall on the schemes.

    We recognised the objections raised by schemes and for that reason we accepted a change. The change took place and instead of there having to be a requirement on schemes to undertake the whole of the pre-award earnings dynamism, the employer, if he wished, could undertake to pay 5 per cent. compound interest in respect of the pre-award dynamism and a once-for-all premium when an employee left the scheme. It was envisaged that the Government would pay the difference between the 5 per cent. and the actual movement of average earnings for the period until the man retired.

    That formula was not a Government formula. It was put forward, after mature deliberation, by the Life Offices Association. We are not talking about a small group of people without expertise. Other proposals were put forward. One suggestion was that the employers should provide x per cent. of pre-award dynamism compound and that the rest should be met from the National Insurance Fund, but if there were no premium that would have involved a change in the contribution reduction in respect of con- tracted-out employment. It would have meant that those enterprises in which there was a less than average degree of labour mobility would pay for the costs of those with a high degree of labour mobility.

    The Government took the view that since we wanted to set a rate which could be a long-term rate rather than a rate which would be changed constantly the figure of about 5 per cent. was reasonable, but we thought that it was not desirable merely to say that there should be no premium and that adjustment could be made to the contribution reduction. We thought that would be inequitable.

    When the Bill was published it was thought that these matters had been settled, but there was always a difference of view in the industry on this matter, and the Government accepted one proposal rather than another. Strong views are held in the industry that the Government accepted the wrong proposal for the industry.

    I want to deal with that matter now. First, Amendment No. 36 introduces for limited revaluation premiums actuarial tables which vary with the yield on investments. The effect will be to help schemes by evening out fluctuations in the market prices. There will be a series of tables corresponding to the value of some market index. The use of tables of that kind will be of assistance to schemes.

    I do not think I can add to what I said in my intervention in the speech of the hon. Member for Somerset, North in regard to whether there should be a positive yield of 1 per cent. or a half of 1 per cent. because of the change from 6½ per cent. to 7 per cent. We are working on the basis of the Government's actuarial figures on the assumption of ½ per cent. rather than of 1 per cent. implicit in the reduction of 6½ per cent. If I decide that there is anything further to add, I shall let the hon. Gentleman know.

    There are always questions about mortality considerations which one has not heard before. I do not believe that the figure is as high as is suggested, but I shall consult the Government Actuary and I shall write to the hon. Gentleman.

    The nub of the discussion is that we accepted an amendment when the Bill was published which changed the responsibility or the method of apportioning cost and obligations for the preservation of pensions in respect of early leavers which was a matter of some discussion in the industry. More than one formula was put forward. It is now suggested that we should return to a situation in which there is no premium.

    There is one central point which I should like to place on record and which perhaps will be important in the continuing dialogue. The Opposition have said that their proposal to limit the revaluation to 8 per cent. without premium would cost nothing. They base that statement on the inference that the Government Acturay in calculating the contributiion reduction and in working out specimen tables which have already been circulated, worked on the assumption that earnings inflation in the long term would be 8 per cent. a year.

    There is a fallacy in this argument, which I shall explain. As the Bill stands, there is provision for the actuarial basis to be reviewed at intervals. At any particular time the cost of premiums will reflect the assumption of the Government Actuary made at the time when the tables were constructed in respect of the movement of earnings in the long term. If that assumption has altered when the tables are reviewed the amount of the premium will alter correspondingly. If, however, there are no premiums this possibility of adjustment or review is removed.

    I do not believe that pensions interests would wish to see the limit altered from time to time—I mean the limit on the revaluation of 8 per cent. mentioned in the amendment—because their whole case is that they want to have something fixed permanently. Therefore I assume that we should be asked to have one figure and to stick to it through thick and thin. This is where the potential cost obviously comes in, when the figure of 8 per cent. falls short of the figure which the Government Actuary would have assumed in calculating the premiums in the current tables. If I can put it in another and perhaps simpler way, the arrangement in the Bill allows premiums to be adjusted on review so as to reflect broadly the cost of providing the benefits. If we remove the premium this element of flexibility will be lost and we shall be left with a rigid and arbitrary yardstick of earnings movements, which, in the circumstances which I have mentioned, would lead to an unjustifiable cost falling on contributors generally.

    In addition to those reasons there is extra cost inherent in the proposals that occupational schemes' liabilities for early leavers should be fixed for dynamism at 8 per cent. a year instead of 5 per cent. plus a premium, even if the 8 per cent. were accurate over the long term. As the schemes will be required to pay the lesser of 8 per cent., or the actual rate of increase in national average earnings, there will be an extra cost to the State scheme whenever the increase in a year is more than 8 per cent., even if the average increase, taking one year with another, is 8 per cent. For example, if the increases in alternate years were 6 per cent. and 10 per cent., the occupational scheme would be paying 6 per cent. and 8 per cent. alternatively and the extra costs falling on the State scheme would be 2 per cent. every other year.

    I explained why I was not prepared to accept this amendment. I have tried to give an answer to the cost question in some detail and to put it accurately on the record. If the pensions interests, when they have considered what I have said this afternoon, feel that they would like to come back to me to discuss the matter on that basis, I shall be pleased to do that before the Bill goes to another place for consideration.

    The Minister of State began by saying that there was disagreement between us. I regret to say that that disagreement remains between us at the end.

    There is no argument between us about the preserved rights of the early leavers. There is no intention on the part of the Opposition or of any of the pensions interests to prejudice the legitimate expectations of earnings-related pension entitlement for those who move from job to job or who leave occupational pension schemes before retirement age. That was a red herring in the argument.

    The remainder of what the Minister said was an answer to the points we made. We do not find that answer acceptable. It is not my understanding that it is intended that the 8 per cent. figure should be rigid, fixed, and immutable for all time and not changeable at any stage. That is not the basis of the proposal being made. I trust that the Minister will inquire further about that and discover whether his opposition may not be based in part on a misunderstanding. We are persuaded that 8 per cent.

    Division No. 230.]


    [5.45 p.m.

    Aitken, JonathanHiggins, Terence L.Page, Rt Hon R. Graham (Crosby)
    Alison, MichaelHordern, PeterParkinson, Cecil
    Arnold, TomHowe, Rt Hon Sir GeoffreyPattie, Geoffrey
    Atkins, Rt Hon H. (Spelthorne)Howell, David (Guildford)Percival, Ian
    Banks, RobertHowell, Ralph (North Norfolk)Peyton, Rt Hon John
    Bennett, Dr Reginald (Fareham)Hurd, DouglasPink, R. Bonner
    Benyon, W.Hutchison, Michael ClarkPrior, Rt Hon James
    Biffen, JohnIrvine, Bryant Godman (Rye)Raison, Timothy
    Biggs-Davison, JohnIrving, Charles (Cheltenham)Rathbone, Tim
    Blaker, PeterJames, DavidRenton, Rt Hon Sir D. (Hunts)
    Body, RichardJenkin, Rt Hon P. (Wanst'd & W'df'd)Renton, Tim (Mid-Sussex)
    Boscawen, Hon RobertJohnson Smith, G. (E. Grinstead)Rhys Williams, Sir Brandon
    Boyson, Dr Rhodes (Brent)Jones, Arthur (Daventry)Ridley, Hon Nicholas
    Brittan, LeonJopling, MichaelRidsdale, Julian
    Brotherton, MichaelKellett-Bowman, Mrs ElaineRifkind, Malcolm
    Budgen, NickKershaw, AnthonyRoberts, Wyn (Conway)
    Bulmer, EsmondKimball, MarcusRodgers, Sir John (Sevenoaks)
    Butler, Adam (Bosworth)King, Tom (Bridgwater)Rossi, Hugh (Hornsey)
    Carlisle, MarkKirk, PeterSainsbury, Tim
    Clark, Alan (Plymouth, Sutton)Knox, DavidSt. John-Stevas, Norman
    Clark, William (Croydon S)Lamont, NormanScott-Hopkins, James
    Clarke, Kenneth (Rushcliffe)Lane, DavidShaw, Giles (Pudsey)
    Clegg, WalterLangford-Holt, Sir JohnShaw, Michael (Scarborough)
    Cockcroft, JohnLatham, Michael (Melton)Shelton, William (Streatham)
    Cope, JohnLawrence, IvanShersby, Michael
    Costain, A. P.Lawson, NigelSilvester, Fred
    Crouch, DavidLe Marchant, SpencerSims, Roger
    Dean, Paul (N Somerset)Lewis, Kenneth (Rutland)Sinclair, Sir George
    Drayson, BurnabyLuce, RichardSpicer, Jim (W Dorset)
    du Cann, Rt Hon EdwardMcAdden, Sir StephenSpicer, Michael (S Worcester)
    Durant, TonyMcCrindle, RobertStanbrook, Ivor
    Dykes, HughMacmillan, Rt Hon M. (Farnham)Stanley, John
    Eyre, ReginaldMcNair-Wilson, M. (Newbury)Steen, Anthony (Wavertree)
    Fairbairn, NicholasMcNair-Wilson, P. (New Forest)Stokes, John
    Fairgrieve, RussellMarshall, Michael (Arundel)Stradling Thomas, J.
    Fisher, Sir NigelMarten, NeilTapsell, Peter
    Fletcher, Alex (Edinburgh N)Mates, MichaelTaylor, R. (Croydon NW)
    Fletcher-Cooke, CharlesMather, CarolTebbit, Norman
    Fookes, Miss JanetMaude, AngusTemple-Morris, Peter
    Fowler, Norman (Sutton C'f'd)Maudling, Rt Hon ReginaldThatcher, Rt Hon Margaret
    Fox, MarcusMaxwell-Hyslop, RobinThomas, Rt Hon P. (Hendon S)
    Fraser, Rt Hon H. (Stafford & St)Mayhew, PatrickTownsend, Cyril D.
    Fry, PeterMeyer, Sir AnthonyTrotter, Neville
    Galbraith, Hon. T. G. D.Miller, Hal (Bromsgrove)van Straubenzee, W. R.
    Gardiner, George (Reigate)Moate, RogerVaughan, Dr Gerard
    Glyn, Dr AlanMonro, HectorViggers, Peter
    Goodhart, PhilipMontgomery, FergusWakeham, John
    Goodhew, VictorMoore, John (Croydon C)Warren, Kenneth
    Gorst, JohnMorgan-Giles, Rear-AdmiralWearherill, Bernard
    Gow, Ian (Eastbourne)Morris, Michael (Northampton S)Whitelaw, Rt Hon William
    Grant, Anthony (Harrow C)Morrison, Hon Peter (Chester)Wiggin, Jerry
    Gray, HamishNeave, AireyWinterton, Nicholas
    Griffiths, EldonNelson, AnthonyWood, Rt Hon Richard
    Grylls, MichaelNeubert, MichaelYoung, Sir G. (Ealing, Acton)
    Hall, Sir JohnNewton, Tony
    Hall-Davis, A. G. F.Normanton, Tom
    Hamilton, Michael (Salisbury)Nott, JohnTELLERS FOR THE AYES:
    Hannam, JohnOppenheim, Mrs SallyMr. Micbael Roberts and
    Hayhoe, BarneyOsborn, JohnMr. Anthony Berry


    Allaun, FrankAtkinson, NormanBean, R. E.
    Anderson, DonaldBain, Mrs MargaretBeith, A. J.
    Archer, PeterBarnett, Guy (Greenwich)Benn, Rt Hon Anthony Wedgwood
    Armstrong, ErnestBates, AlfBennett, Andrew (Stockport N.)

    with no premium is preferable to 5 per cent. plus a premium.

    It is our intention, as this is an important point between us, to press the matter to a Division.

    Question put, That the amendment be made:—

    The House divided: Ayes 172, Noes 226.

    Bidwell, SydneyHenderson, DouglasReid, George
    Blenkinsop, ArthurHooley, FrankRichardson, Miss Jo
    Booth, AlbertHooson, EmlynRoderick, Caerwyn
    Boothroyd, Miss BettyHowells, Geraint (Cardigan)Rodgers, George (Chorley)
    Bottomley, Rt Hon ArthurHoyle, Doug (Nelson)Rodgers, William (Stockton)
    Bray, Dr JeremyHughes, Rt Hon C. (Anglesey)Rooker, J. W.
    Brown, Robert C. (Newcastle W)Hughes, Robert (Aberdeen N)Roper, John
    Butler, Mrs Joyce (Wood Green)Hunter, AdamRose, Paul B.
    Callaghan, Rt Hon J. (Cardiff SE)Irving, Rt Hon S. (Dartford)Ross, Stephen (Isle of Wight)
    Callaghan, Jim (Middleton & P)Jackson, Miss Margaret (Lincoln)Ross, Rt Hon W. (Kilmarnock)
    Canavan, DennisJanner, GrevilleRowlands, Ted
    Carmichael, NeilJay, Rt Hon DouglasRyman, John
    Carter, RayJeger, Mrs LenaSandelson, Neville
    Carter-Jones, LewisJenkins, Hugh (Putney)Shaw, Arnold (Ilford South)
    Cartwright, JohnJenkins, Rt Hon Roy (Stechford)Sheldon, Robert (Ashton-u-Lyne)
    Castle, Rt Hon BarbaraJohnson, Walter (Derby S)Shore, Rt Hon Peter
    Clemitson, IvorJones, Alec (Rhondda)Short, Rt Hon E. (Newcastle C)
    Cocks, Michael (Bristol S)Jones, Dan (Burnley)Short, Mrs Renée (Wolv NE)
    Cook, Robin F. (Edin C)Kaufman, GeraldSilkin, Rt Hon John (Deptford)
    Cox, Thomas (Tooting)Kelley, RichardSilverman, Julius
    Crawford, DouglasKerr, RussellSkinner, Dennis
    Crawshaw, RichardKilroy-Silk, RobertSmall, William
    Cryer, BobKinnock, NeilSmith, John (N Lanarkshire)
    Cunningham, G. (Islington S)Lamborn, HarrySnape, Peter
    Dalyell, TamLamond, JamesSpearing, Nigel
    Davidson, ArthurLeadbitter, TedSpriggs, Leslie
    Davies, Bryan (Enfield N)Lee, JohnStallard, A. W.
    Davies, Denzil (Llanelli)Lipton, MarcusStewart, Donald (Western Isles)
    Deakins, EricLitterick, TomStewart, Rt Hon M. (Fulham)
    de Freitas, Rt Hon Sir GeoffreyLomas, KennethStoddart, David
    Delargy, HughLoyden, EddieStott, Roger
    Dell, Rt Hon EdmundLuard, EvanStrang, Gavin
    Dormand, J. D.Lyon, Alexander (York)Summerskill, Hon Dr Shirley
    Douglas-Mann, BruceMacCormick, IainTaylor, Mrs Ann (Bolton W)
    Dunn, James A.McElhone, FrankThomas, Mike (Newcastle E)
    Dunnett, JackMacFarquhar, RoderickThomas, Ron (Bristol NW)
    Dunwoody, Mrs GwynethMcMillan, Tom (Glasgow C)Thompson, George
    Eadie, AlexMcNamara, KevinThorne, Stan (Preston South)
    Edelman, MauriceMadden, MaxTierney, Sydney
    Edge, GeoffMagee, BryanTomlinson, John
    Edwards, Robert (Wolv SE)Marks, KennethTomney, Frank
    Ellis, Tom (Wrexham)Marquand, DavidTorney, Tom
    English, MichaelMarshall, Dr Edmund (Goole)Tuck, Raphael
    Ennals, DavidMarshall, Jim (Leicester S)Varley, Rt Hon Eric G.
    Evans, Gwynfor (Carmarthen)Mason, Rt Hon RoyWainwright, Edwin (Dearne V)
    Evans, Ioan (Aberdare)Maynard, Miss JoanWalden, Brian (B'ham, L'dyw'd)
    Evans, John (Newton)Mellish, Rt Hon RobertWalker, Terry (Kingswood)
    Ewing, Harry (Stirling)Mendelson, JohnWard, Michael
    Faulds, AndrewMikardo, IanWatkins, David
    Fernyhough, Rt Hon E.Millan, BruceWatkinson, John
    Flannery, MartinMiller, Dr M. S. (E Kilbride)Watt, Hamish
    Foot, Rt Hon MichaelMiller, Mrs Millie (Ilford N)Weetch, Ken
    Ford, BenMitchell, R. C. (Soton, Itchen)Welsh, Andrew
    Forrester, JohnMorris, Alfred (Wythenshawe)White, Frank R. (Bury)
    Fowler, Gerald (The Wrekin)Newens, StanleyWhitehead, Phillip
    Fraser, John (Lambeth, N'w'd)Noble, MikeWigley, Dafydd
    Freeson, ReginaldOakes, GordonWilley, Rt Hon Frederick
    George, BruceO'Halloran, MichaelWilliams, Alan Lee (Hornch'ch)
    Gilbert, Dr JohnO'Malley, Rt Hon BrianWilliams, W. T. (Warrington)
    Ginsburg, DavidOrbach, MauriceWilson, Alexander (Hamilton)
    Golding, JohnOrme, Rt Hon StanleyWilson, Gordon (Dundee E)
    Gould, BryanOvenden, JohnWise, Mrs Audrey
    Graham, TedOwen, Dr DavidWoodall, Alec
    Grimond, Rt Hon J.Pardoe, JohnWrigglesworth, Ian
    Grocott, BrucePark, GeorgeYoung, David (Bolton E)
    Hamilton, W. W. (Central Fife)Pavitt, Laurie
    Harper, JosephPendry, Tom
    Harrison, Walter (Wakefield)Penhaligon, DavidTELLERS FOR THE NOES:
    Hatton, FrankPerry, ErnestMr. James Hamilton and
    Hayman, Mrs HelenePhipps, Dr ColinMr. John Ellis
    Healey, Rt Hon DenisPrice, William (Rugby)
    Heffer, Eric S.Radice, Giles

    Question accordingly negatived.