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Guaranteed Minimum Pensions Increase (No2) Order 2000

Volume 620: debated on Tuesday 16 January 2001

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7.42 p.m.

rose to move, That the draft order laid before the House on 30th November be approved [1st Report from the Joint Committee].—(Baroness Hollis of Heigham.)

The noble Baroness said: My Lords, I have already spoken to this order with the previous order that referred to pensions.

My Lords, I have to confess that I had not realised that. As I understand it, this order is concerned with occupational pensions. That is not what we were discussing earlier. Perhaps the noble Baroness could tell me if I am right about that.

I believe that we are now referring to the order covering the guaranteed minimum pension increase. Is that not right?

My Lords, this does not concern MIG or MFR, but rather GMP, which refers to occupational pensions contracted out of SERPS. I may be quite mistaken. Perhaps I should give the noble Baroness a moment to think about the matter. I shall declare an interest, as I have done on many previous occasions, as the chairman of an occupational pension scheme. I am puzzled by what the noble Baroness has just said.

My Lords, my understanding is that this is always taken together with the uprating statement and forms a part of the general debate. However, if the noble Lord wishes to raise any particular points, I shall do my best to answer them. If I am unable to do so, I shall write to him.

My Lords, we may be totally at loggerheads on this. I believe that this order is quite different from the other order. A few moments ago we were discussing the government uprating of state pensions and benefits of one kind or another. This order is not concerned with the uprating of government pensions, but rather concerns the uprating imposed by the Government on schemes which operated before 1997. These are occupational schemes and the order concerns the extent to which the occupational pension has to pay an increase and thus is only tenuously related to what the Government are doing. Indeed, the rates are quite different as well.

My Lords, I am slightly baffled about this. Perhaps I should read into the record the Guaranteed Minimum Pensions Increase Order:

"Whereas the Secretary of State has reviewed the general level of prices obtaining in Great Britain for the period of 12 months commencing on 1st October 1999;
And whereas it appears to him that the general level of prices was greater by 3.3% at the end of that period than it was at the beginning of that period;
And whereas the draft of the following Order was laid before Parliament and approved by resolution of each House, now therefore the Secretary of State for Social Security … makes the following Order";
namely, that pensions will be raised by that amount as a part of the general uprating. These have always been taken together.

I am a little wrong-footed by the noble Lord. The uprating by 3.3 per cent applies across the board and is therefore included.

My Lords, perhaps I may say that my recollection on this subject is the same as that of the Minister. On this point, we live in the same world.

My Lords, the Minister may be right in saying that this is the way in which this matter has been debated previously, but it seems to me that somewhat different issues are raised here. Perhaps I may put this question to her: who will pay for this increase?

My Lords, my understanding is that this will ensure that the core of an occupational scheme will contain a guaranteed minimum no less than a specified amount; effectively, it will be brought into line with the RPI. In that sense, it would depend on whether it was a money purchase scheme, but these would normally apply to a scheme which was a defined salary benefit. That means that there is a minimum standard of pension which it must meet in order to be eligible for the opted-out rebates from a private scheme, SERPS or any other scheme.

I do not see what is the issue here. Each year, guaranteed pensions better than SERPS must be uprated to reflect the standard of living, otherwise they would deteriorate in value. That is what the uprating order achieves: it ensures the core such that the national insurance rebates fund that guaranteed minimum core so that the occupational scheme is a valid and appropriate scheme. It is raised so that it does not lose its value. For that reason, it is uprated across the board. I am not sure what the noble Lord seeks to press me on here.

My Lords, I understand what the noble Baroness and the noble Earl have said; namely, that on previous occasions this has been taken together with the previous order. That may be the tradition. Nonetheless, it is somewhat different, in as much as the previous order is concerned with government pensions. In effect, as the noble Baroness pointed out in our previous debate, it comes out of the national insurance fund. However, this order is a burden placed by the Government on occupational pension schemes It uprates not a government scheme, but an opted-out scheme. That, I believe, raises different issues. For example, how is that to be dealt with? What other burdens, in particular the change in advance corporation tax and so forth, have been imposed on occupational schemes? Given those questions, it seemed to me appropriate to deal with the order separately. That is why I was puzzled by what the noble Baroness said.

Perhaps the noble Baroness would answer only the simple question I put to her. We can then let it go at that and consider the matter later. Who will pay the 3 per cent? Let us deal only with that simple question.

My Lords, if I am wrong on this then I shall write to the noble Lord, but my understanding is it is a question of whether a pension is backed by the pension promise. If it is backed by the pension promise—which is what a defined final salary scheme would constitute—then clearly the employer must pay. If it is a money purchase scheme, then that is the responsibility of the individual to ensure that his scheme is adequate. What this order does is interlock the level of national insurance rebates and the grounds on which they may be recyclable into the schemes, into personal pensions and occupational pensions, and obviously this interacts with SERPS. Where the commitment to delivering the pension promise lies will depend on the type of scheme, whether it is money purchase or final salary. If it is a defined salary scheme it will ultimately lie with the employer. When I last looked at this, more than half of all occupational pension schemes were in surplus—in many of them they were enjoying a holiday—and this would not be difficult to achieve.

My Lords, I intervene briefly. We can take the matter no further today. As the noble Baroness said, it depends on the extent to which a particular scheme is in surplus. That, in turn, has been radically affected by the change which has been made in corporation tax. But let us leave it there and pursue it, if necessary, by way of oral questions or whatever.

On Question, Motion agreed to.

House adjourned at nine minutes before eight o'clock.