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Earner's Guaranteed Minimum

Volume 897: debated on Monday 4 August 1975

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

Lords amendment: No. 12, in page 27, line 9, at end insert:

"In this subsection "week" means any period of seven consecutive days."

I beg to move, That this House doth agree with the Lords in the said amendment.

The amendments were introduced to define "week" in Clause 35(6) as any period of seven consecutive days and to make clear that it is not covered by the definition of "week" in Schedule 20 of the Social Security Act 1975. The purpose is purely beneficial, to ensure that in whatever period of the week a person retires he will be able immediately to receive increments. I hope that it will be acceptable.

Of course we must agree with the Lords in the amendment, and I go along entirely with what the Minister said. In any other assembly than the House of Commons to say that a week means any period of seven consecutive days would presumably be unnecessary.

Question put and agreed to.

Lords amendment: No. 13, in page 27, line 25, at end insert—

" or
(c) such fixed compound rate for each relevant year after that year as may be in force at the time when contracted-out service is terminated and which is, in the opinion of the Government actuary,—
  • (i) equal in value to an increase of 5 per cent. plus the further increase secured by the premium calculated in accordance with section 43; and
  • (ii) consistent with other assumptions made as to increases in earnings."
  • 5.0 p.m.

    I beg to move, That this House doth disagree with the Lords in the said amendment.

    With this we are to take the following proposed amendments to the Bill in lieu of the said amendment: in Clause 44, page 36, line 26, after "unless", insert "either—(a)".

    In page 36, line 28, after "above", insert
    " or (b) those provisions conform with such additional requirements as may be prescribed".
    both standing in the name of the hon. Member for Somerset, North (Mr. Dean).

    Perhaps I may briefly explain what these amendments mean, because our procedure for dealing with Lords amendments is somewhat mysterious in this House let alone outside it. I hope, in fact, that the Government will accept Lords amendment No. 13, which is my first choice, but if they do not I hope that they will accept my amendments, which I regard as second best. I put my amendments down, having read the debate in another place and the Government's response to it, as a fall-back position because, as this is the last stage of the Bill when amendments can be considered, I did not want to risk both losing Lords amendment No. 13 and having nothing on the Order Paper to fall back on in its place.

    I again declare my interest in pensions. This is not an occasion for a long speech or for going over all the detailed arguments which have been deployed so often on the question of early leavers. It is an occasion more to remind the House of the background to the amendments and why I think they are of great importance.

    The Bill has a fairly long pedigree, and one of its encouraging features is that there has been broad agreement in Parliament about it. The Opposition recognised in the very early days the need to try to get some political stability into pensions, and the Government, to their credit, responded to that view and have done their utmost not only to listen carefully to what has been said by the interests outside but also to try to respond to amendments put forward by the Opposition. There has been give and take; there has been compromise, and I believe that, as a result, we are going to get a great prize for pensioners—some political stability at long last in pension planning. So it would be a pity if at the very end we were in disagreement on this important matter.

    The Bill, as the Government have said all along, is based on partnership between the State scheme and the occupational—between the State and the private sector, or, to put it another way, between the "pay as you go" arrangement, with all the dangers involved in that, with a blank cheque written for the future, and the funded occupational pension schemes. I believe that this partnership can work, but there are some important provisos. Some important things are threatening to undermine the partnership and make the Bill null and void.

    The first and most obvious of these factors is the ugly spectre of inflation. With inflation running at its present rate, it is in logic nonsense to save because the concept of the negative return means that anybody who puts money aside today is likely to find that that money will be worth less in 12 months' time. Fortunately, human beings are not entirely logical. We are to some extent like the squirrel, who realises come the autumn that unless he gathers some nuts and puts them away for the winter he will be hungry before the spring. He does this in the knowledge that some of the nuts will be eaten by worms or he will lose the place in which he has put them. Human beings are the same. We still put money on one side despite logical considerations which may appear to be against it.

    One of the best and most secure ways in which to put money on one side is in occupational pension schemes. But we have to realise the fears of inflation are spilling over into this Bill, although the Bill of itself clearly cannot provide the cure for inflation.

    Another factor, unhappily, which has been working against the success of this partnership is the pay limits which the Government have recently imposed and the way in which they have to some extent included improvements in pension arrangements within them. I regret that the Government were not able fully to meet the plea put forward by a number of us that pension rights should be completely excluded from the pay limits, as they were in all previous pay policies. However, we have at least got an arrangement which is better than nothing. But I fear that there is another element of uncertainty now and the danger of loss of momentum.

    It is such factors which largely explain the growing unease of employers and the pensions industry about the Bill and the contribution that funded occupational pension schemes can make under it. This unease was well expressed in a letter to the Financial Times a few days ago. It was written by the Chairmen of the National Association of Consulting Actuaries, the National Assocation of Pension Funds and the CIB Society of Pension Consultants. It referred to the early hopes which existed for an agreed and, therefore, enduring pension scheme, and went on:
    "Regrettably, these hopes have suffered serious setbacks in the discussions which have taken place on amendments suggested by the pensions industry, although we recognise that some of the proposed amendments have been, at least in part, accepted by the Government. Of course the acceleration in recent months of an already alarming rate of inflation has had much to do with the erosion of confidence. But this makes all the more important modification of features of the scheme which must constitute a major disincentive to employers to contract out."
    I understand that the other pensions organisations feel very much the same as the three signatories of that letter.

    But, of course, the biggest single worry is the obligation for early leavers. We all recognise that there must be a potential clash between what an employer does for the leavers and for the stayers. This is one of the inevitable factors. We have to take into account that the normal human reaction on the part of an employer will be to do more for those who stay with him than for those who leave. We also have to take into account the preservation requirements of the 1973 Act which have recently put additional obligations on employers.

    That is the background to what is a very technical matter, and I fully concede that very few people will understand what it is really about. I also concede to the right hon. Gentleman that I think that the pensions industry—quite understandably, however—does tend perhaps to over-emphasise the extent to which employers will be influenced by highly technical arguments when deciding whether to contract out or what to do about their schemes. They will be influenced very largely by broad considerations and only secondarily by technical matters. I do not wish to over-emphasise the amendment as a technical point, but I wish to return to the most important aspect of the broad context against which this matter should be considered.

    I turn to the details of the arrangements. I have never liked the concept of a premium, although I recognise that the concept first arose because the Government—and I give them credit for it—responded to the criticisms made of the arrangements which appeared in the first White Paper. I know that the Minister of State is fond of saying, and will probably say again, that the idea of a premium was conceived by the pensions industry. But it is true to say that there are few friends of the premium left in the industry today, and, indeed, most people would deny paternity for the proposal. We are dealing here essentially with an open-ended commitment which still to some extent exists, despite the modifications which have been made. That is the kernel of the argument against the premium and for the amendment which was successfully moved in the other place by Lord Byers.

    Apart from the open-ended commitment of the matter, I should like briefly to rehearse the arguments against the premium. Again I can do no better than to quote from the letter from the three chairmen of the main pensions organisations. The argument which they used against the premium was as follows:
    "It partially defeats the object of contracting out by channelling money back into the State scheme, where it will be spent, instead of allowing it to remain in the occupational pension fund, where it becomes a productive investment; and it creates a psychological disincentive to contracting out at all by requiring an employer, whenever employees have left his service, to make payments to the State out of the fund, and that just at a time when his business may be contracting and his financial position difficult."
    That summarises the arguments.

    Amendment No. 13 tries to meet these criticisms. It does away with the premium and also takes into account the objections put forward by the Government to a straight 8 per cent. per annum without a premium. Therefore, I hope that, having reflected on the arguments used, the Minister will accept Lords amendment No. 13. However, if that is not the case, I hope that the Government will agree to accept my proposed amendment which provides for power to deal with the problem by regulation.

    We are always careful when we seek to give Governments regulation-making powers. We have all argued against them on many occasions, but in this case the argument for such powers is very powerful. It can provide flexibility to deal with detained points which are better dealt with by regulation than as part of the main Bill. Secondly, it can provide time to enable the dialogue to continue so that the search for an acceptable solution to the problem can go on. That is the main reason behind my proposed amendment.

    My amendment asks the Government for action. It is no good having regulation-making powers which lie on the statute book unused. It provides an opportunity for continuing discussion and negotiation in seeking a solution to the problem. I do not ask the Minister of State tonight to prejudge the outcome of any discussions that may take place if he feels able to accept the amendment, but I would ask him for an assurance that he will discuss the matter with the CBI, the TUC and the pensions industry to see how the regulation-making power can best be used. I hope that he will make a genuine effort to obtain an agreed solution through the regulation-making power provided by the amendment.

    5.15 p.m.

    I begin on a somewhat flippant note by hoping that the "nuts" of the pensions industry were listening carefully to what was said by my hon. Friend the Member for Somerset, North (Mr. Dean) about squirrels gathering nuts for the future. However, that is the only piece of levity I shall permit myself, because we are dealing with an important and serious matter.

    I agree with my hon. Friend that, ideally, the Government would accept the Lord's amendment. However, if we are to be told, as I suspect, that such a course is not possible for the Government, we shall move into a fall-back position. In our proposals we are animated by a genuine desire for some give and take between the State scheme and the private pensions industry. That probably means that we must be prepared to accept compromise solutions. It means that on both sides we must do our best to restore and maintain the stability of the pensions industry—an industry which has been under attack in recent months largely because of the sheer uncertainty of the prevailing situation.

    Partnership between the Government and the pensions industry cannot be overemphasised. All the time spent on this Bill in both Houses will have been wasted if the basic aim of the legislation—namely, to take pension provision out of the political arena and to emphasise the need for partnership—is lost. There is a genuine fear among employers and in the pensions industry as they view the difficulties which have been developing in the past few months in regard to inflation.

    It is significant that as we come to the end of this long parliamentary examination of the Bill, the point that continues to exercise our minds is what has been called the open-ended liability. A major purpose of the Bill is to encourage the development of good occupational pension schemes in partnership with the Government. That means encouraging employers to contract out of the State scheme, with all the responsibility which that entails for the employers. The task has been made no easier during the passage of this measure through Parliament by repeated reports that large amounts of money have had to be transferred by employers to their pension schemes to keep them afloat in this excessively inflationary period. Let us imagine the feelings of the good employer who wants a scheme to cover his employees but is becoming more and more alarmed that he is taking on an unknown commitment—in other words, that he is entering a dark tunnel with not the slightest indication of what lies ahead.

    To try to assuage the fears to which I have made reference, the Opposition have pressed upon the Government, during the passage of the Bill, that they must limit the liability and, as far as possible, make clear to an employer the very worst that could happen if he embarked upon an occupational scheme. It would be churlish for me not to concede that the Government have certainly appreciated that point during the parliamentary progress of the Bill and have made several changes from the original Bill to try to specify the commitment. No one underrates the difficulties of being exact or of finding exactly the right formula which takes account, on the one hand, of the loss to the State of contracted-out contributions—a point to which the Government must pay attention—against, on the other hand, the need, in certain circumstances, for the State to bolster-up a private pensions entitlement in the interests of the contributor.

    It was against that background that Lords amendment No. 13 was carried. One of the difficulties facing employers and the pensions industry has been to try to establish what liability arises if a member leaves the scheme before retirement date, remembering the highly inflationary times in which we live. The amendment seeks to provide a third option, to those already written into the Bill, in the case of early leavers. In so doing it has sought to make the position of the scheme even more watertight, and the maximum liability in the circumstances I have described even more specific. Yet, in saying that perhaps I can now begin to question whether that is not in itself the undoing of the amendment.

    I hope that Lord Byers, who has been so prominent in trying to improve the scheme, will not take it amiss if I ask aloud whether what the amendment does is not to be more specific but perhaps in a way to be too specific.

    Many of the fears expressed in this matter relate to the impact of inflation. If it were to be controlled, as all hon. Members must hope that it will, many of the fears to which I and other hon. Members have spoken today would begin to fall away. Remembering that the Bill will be the basis of pension arrangements for many years to come, it would perhaps be unwise to be too inflexible, and to some degree I believe that that is what might be said of Lords amendment No. 13.

    Under the present provisions of the Bill when an employee leaves having qualified for a reserve pension, the employer has the choice of revaluing the pension either in full or at a fixed 5 per cent. per annum and, in addition, paying a premium to the State. Lords amendment No. 13 would allow the employer to pay no premium and to revalue the pension at the fixed rate assumed for the purpose of calculating the premium that he would have had to pay if he had chosen the second existing alternative.

    I apologise to the House for what may seem to many a rather obscure quotation, but, unfortunately, as we move forward in social security matters it becomes increasingly difficult to simplify the position.

    At this stage it would perhaps be wrong to suggest that the additional option that Lords amendment No. 13 would provide is likely to affect materially the situation whether an employer embarks upon an occupational pension scheme to any major degree. It is clear from what I deduce that the Government are unhappy about accepting it.

    In those circumstances, I turn to my hon. Friend's amendment, because I believe that both the Lords amendment and the amendment moved by my hon. Friend the Member for Somerset, North represent an understanding of the difficulty, the need for reassurance and the desirability—if it can be achieved—of moving forward without too much controversy, at the end of our deliberations, between the Government and the Opposition.

    My hon. Friend's amendment can be described as keeping the options open while making very clear the continuing alarm and concern which exist. It accepts that we cannot tell what the future holds, especially concerning inflation, and that if employers were to be seen—I hope that the Minister will take note of this—in the comparatively early stages of the working of the Bill to be holding back for fear of commitments, the Government would have to take specific and, it is hoped, perhaps less complicated action than is at present recommended in the Lords amendment.

    Therefore, perhaps it is more important to obtain agreement across the Floor of the House between the Government and the pensions industry than it is to be specific and to provide a third option. I believe that in some ways my hon. Friend has had the better approach, and, provided that the Minister can tell me that the Government will provide specific proposals if it became evident that they were necessary, the House would be wise to support my hon. Friend and keep its options open.

    I should like to refer to two quotations. The first is a letter which I received from the Life Offices Association, which, as hon. Members will know, is among the leading interests in the pensions industry. When referring to the amendment put forward by my hon. Friend it says:
    "I should like you to know that the Life Offices Association support fully the amendment, in the hope that it will lead to a genuine attempt by all concerned to find an acceptable solution to a problem which, if unresolved, will militate against contracting-out when the State scheme is introduced in 1977 or 1978."
    In other words, the Life Offices Association, which is one of the principal providers of pensions, is saying, in effect, that my hon. Friend's approach, accompanied, one hopes, by an undertaking from the Minister that a continuing understanding of the problem is present in the Department, would perhaps be the best one.

    I refer to the letter which my hon. Friend quoted on two occasions during his speech. The letter is from three leading people in the pensions industry. In the last paragraph, referring to Lords amendment No. 13, they say:
    "It is therefore our most earnest hope that something on the lines of the amendment agreed to in the Lords on Wednesday will be retained in the Bill when it returns to the Commons today."
    I believe that my hon. Friend is giving the House and the Government an opportunity to introduce something on the lines of the amendment by Lord Byers. To that extent I commend my hon. Friend's approach, and I hope that the Government will be able to accept his amendment.

    This is, perhaps, almost the last debate on a substantial point which we shall have during the proceedings in this House, or, indeed, in Parliament, on the Bill.

    We are dealing with a matter of some concern and worry to the pensions industry. I hope that the House will accept what I have to say on both the amendment from the noble Lords and the counter-amendment, or the alternative proposition, which the hon. Member for Somerset, North (Mr. Dean) has explained. I believe that the House understands that throughout the whole of the proceedings on the Bill there has been a willingness, certainly on the part of the Government and I should like also to say certainly on the part of the Opposition in this House, to bring to an end 15 years of disagreement about pension provision. We have tried jointly and collectively in the House to achieve a legislative structure in which we can have a viable and thriving partnership between occupational pension provision, on the one hand—whether in the public sector or in the private sector—and the national insurance scheme arrangements, on the other hand.

    5.30 p.m.

    The House will recognise that the Government have already moved substantially on the question of preservation. It should be pointed out that when the White Paper was published it was proposed that the whole of pre-award dynamism in respect of early leavers was and should be the responsibility of the employer in occupational pension schemes. Proposals were made to the Government from a number of major and important sectors of the pension industry. As the hon. Member for Somerset, North said, one important sector of the industry suggested that as an alternative to the proposals put forward in the White Paper we should place a limited obligation upon employers and upon the fund and that the remainder of any obligation should immediately be bought out by the payment of a premium at the time when the employee left his employer after working for him for a period of more than five years.

    The Government had hoped at that time that, whatever other discussions and divisions there might be on the Bill, agreement had been reached on the situation of the early leaver. One thing that we were determined to achieve and determined to maintain whatever changes were made in the structure of the Bill, was that when men and women change their employment, rather than having one employment during the whole of a 40–year working life, they should not lose inflation proofing as a result of this change, because he is an exceptional man and she is an exceptional woman who stays in one employment in the kind of industrial and economic background that we have for the whole of his or her working life.

    Nevertheless, it was the case that other sections of the pension industry objected from the outset to any idea of a premium. The representative organisation which came forward with the concept of the premium has now changed its mind and said that it would prefer an alternative arrangement. I do not condemn the organisation for that. It is not uncommon in the conduct of human affairs for individuals or groups of individuals to change their minds.

    I regard this not as an issue of principle but as a technical issue which we should do our best to solve. Even after the publication of the Bill with the premium system, I introduced a number of substantial easements which I thought would reassure the pension industry on the problem of the open-ended commitment. I need not recount to the House what those attempts were to close what became known as the open-ended commitment.

    I have now been pressed by the industry and in this House, as was my hon. Friend in another place, to have alternative arrangements, because it is being suggested that to leave the arrangements as they are could act as a substantial barrier, albeit a psychological rather than a financial barrier, to employers who were considering contracting out.

    I have nothing to add to the comments which were made in another place when the amendment of Lord Byers was resisted. I would merely say briefly that that amendment was at that time unacceptable to the Government and remains unacceptable, for a number of reasons, including complexity, uncertainty for all those concerned, and potential cost on the national insurance fund.

    Therefore, I certainly support the motion—I recognise the technical problems in which the hon. Member for Somerset, North would have been involved in tabling his amendment—which asks the House to disagree with the amendment which has been brought from another place.

    Having said that, I must go on to say that I am still not convinced that it is necessary to put any substantive provisions in the place of that amendment. However, I recognise that there are still some genuine apprehensions in the pension movement about the effect of the early leaver provisions and the volume of contracting out. I am prepared, as I have been requested to do this afternoon by the hon. Members for Somerset, North and for Brentwood and Ongar (Mr. McCrindle), to go on talking about those apprehensions with the pension industry. Indeed, the House will wish to know that only on Wednesday of last week I met the representatives of a number of organisations in the pension industry.

    Very difficult technical problems are involved. I have said that I do not think that there is a matter of principle involved, but if we are to have other options—other alternatives—rather than the 5 per cent. plus the premium, or the employer taking on the whole of the pre-award dynamism in respect of the early leavers, first, under any such option the individual himself or herself must not be adversely affected and, secondly, we must pay regard to administrative complexity.

    However, I am prepared, if it is the wish of the pension industry, to add some complexity to the Bill, because any other option would cause more complexity, if we can reach an agreed solution on this part of the structure of the Bill.

    The third factor must clearly be that any other options must not involve the national insurance fund in any additional burdens.

    Therefore, I am prepared to accept the amendment in the name of the hon. Member for Somerset, North, but I make it clear to him and to the House that I am not at this time entering into a commitment of any kind. I can give no positive undertaking that the Government will use the power in any particular way or, indeed, at all. If the Government were to use this power, our aim would be to be fair as between those contracted out and those contracted in and to avoid adding to the burdens of the national insurance fund.

    We are seeking partnership. That is why I am prepared to continue the consultations with the pension industry. Provided that it is clearly understood that I am making absolutely no commitment of any kind other than to the willingness of the Government to continue to consider this technical problem with the pension industry, I am prepared to continue with the dialogue and to accept the amendments which have been moved by the hon. Member for Somerset, North.

    I hope that that will be helpful to the House, but, more than that, I hope that it will mean that having over the months disposed of issue after issue which divided the pension industry and the Government on the structure which we were putting forward we shall be able in the future to resolve this problem so that we can have the best auguries for a successful start to the proposals and the structures laid down in the Social Security Pensions Bill 1975.

    I am sure that the whole House is grateful to the right hon. Gentleman for what he says and for recommending the House to accept the amendment. I fully understand that he cannot make any absolute commitment, but I am sure that the whole House will cheer him on in the continued discussions and negotiations that he is to have in order to try to reach an agreed solution to this difficult matter and one which will provide an additional measure of confidence to those who have to make decisions about the future of pension schemes and to those who advise them.

    This has been a good example of a parliamentary process of which we in the House and, indeed, in Parliament can be proud. The Government have shown themselves ready to consult and to meet points when the need for these points has been established. Equally, we have done our utmost to assist the Government in improving the Bill. Equal credit is due to those outside who have advised the Government and the Opposition in trying to reach this solution.

    We now have, one hopes, political stability in pensions for the first time for many years. Our need is to be able to put our economic and financial house in order, so that this Bill can really mean something in practice. But, having done that, I think we can fairly say to those outside that the ball is now in their court to carry this legislation forward and to see that what we have tried to achieve in this place becomes a success in practice.

    Question put and agreed to.

    Amendments made to the Bill in lieu thereof.

    In page 36, line 26, after 'unless', insert:


    In page 36, line 28, after 'above', insert:

    (b) those provisions conform with such additional requirements as may be prescribed'—[Mr. Paul Dean.]