New Clause No. 1. — (Preservation of Pension Rights.)

Orders of the Day — Finance Bill – in the House of Commons at 12:00 am on 30th June 1964.

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(1) In section 379 of the Income Tax Act 1952 (Approved superannuation funds), there shall be inserted after subsection (1) the following subsection:— (1A) Where the rules of the fund provide that an employee who leaves the employment of an employer in the trade or undertaking for reasons other than fraud or misconduct by the employee shall not thereby be deprived of the benefits provided for him in the fund, the employer may in computing profits or gains referred to in subsection 0) deduct as an expense incurred in the relevant year a sum equal to one hundred and one per cent. of his contribution to the fund".—[Mr. Wade.]

Brought up, and read the First time.

5.45 p.m.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

I beg to move, That the Clause be read a Second time.

The purpose is to encourage superannuation schemes under which the employees are not deprived of the benefits under the fund when they move to other employment. It is also intended to facilitate the transferability of pension rights. There is a distinction between preservation and transferability. I do not propose to go into all the technical aspects of it. However, I think that hon. Members will agree that preservation and transferability are closely related.

Under this Clause, the employing firm would derive certain tax benefits where the rules in the fund contained the required provision ensuring that the employee would not lose his accruing rights under the superannuation scheme when moving to another job. The words used are: … the employee shall not thereby be deprived of the benefits provided for him in the fund. … I make it clear that I do not consider a cash option as in itself satisfying this condition. In a number of schemes approved under Section 379 of the Income Tax Act, 1952, where the scheme is a contributory one, there is option for return of contributions less tax. The matter is rather more complicated, but I use that expression for now.

It may be tempting to an employee leaving one firm for another to take cash when it is offered to him. But he may well regret it later. The cash is worth very less than the accruing rights he gives up. Furthermore, the cash option defeats the object of superannuation schemes, which are designed to provide for retirement to ensure that the person shall have a reasonable income and not have too big a drop in income on retirement.

Subject to that point about cash option, the aim of the Clause is to ensure that the employee shall not lose accruing benefits, whether the scheme is contributory or non-contributory. His rights could be preserved either by a deferred pension or by an ascertainable transfer value, which would enable him to enter another scheme with a new employer without loss of benefit.

I must admit to difficulty in devising a Clause that would be in order and likely to be selected. That is why the Clause is worded in this way. There may be objection to it in detail, but I hope that the debate will provide an opportunity to pay attention to general principles, the importance of transferability of pension rights and the need for some action. I am sure that this subject is likely to be of increasing importance and it has great relevance to mobility.

The N.E.D.C. Report, published in April, 1963, entitled "Conditions favourable to Faster Growth", drew attention to the fact that lack of transferability is an obstacle to mobility, especially managerial mobility. Paragraph 45 of the Report said: The practice of making pension rights transferable on change of employment may well have increased in the private sector although the industrial inquiry indicated that the non-transferability of pension rights continues to be a serious obstacle to the mobility of higher grade staffs. Consideration should be given to making preservation of pension rights on transfer of employment a condition of approval of a pension scheme by the Inland Revenue. According to a report in The Guardian, the Chancellor of the Exchequer made a statement about this on 6th May. The Report said: At yesterday's meeting of the National Economic Development Council, the Chancellor of the Exchequer, Mr. Maudling, said that the Government Actuary would make an inquiry into the facts and figures of private pension schemes and that without waiting for the results of this, discussions would start on the problems. Commenting on this, the labour correspondent of The Guardian wrote: Legislation may be required to sort out the tangle of private pension schemes although the Government will probably first try to bring about voluntary agreement in consultation with employers and the T.U.C. I hope that we shall hear something more about this. Let there be discussions by all means, but it may well be found that legislation is required, especially to clarify the attitude of the Inland Revenue to the approval of superannuation schemes and to rationalise the principles and practices in the approval of those schemes. At present, there are considerable difficulties because several Sections of the Act deal with approval. I raised this matter in a Committee debate on the Finance Bill on 2nd July, 1957.

The N.E.D.C. Report refers to the difficulties of managerial staff, but a wide variety of employees are affected. Commercial travellers are an example. I have discussed this matter with the United Commercial Travellers Association. A commercial traveller may have been working for a number of years for a firm which has a superannuation scheme offering him the prospect of a reasonable pension on retirement. He may wish to move and become the representative of some other firm, or the firm for which he has been working may suddenly become involved in some merger or take-over so that he finds himself out of employment and with all his accrued pension rights lost, or at any rate at a negligible value.

This can be a serious matter for a man in his 40s. For many people over 40, non-transferable pension rights can be a serious obstacle to advancement and sometimes an obstacle to getting a job, because firms do not always want to bring into a superannuation scheme people already over 40. There was a time when all these schemes were regarded merely as a means of encouraging a good employee to remain with a firm, but they must now be considered in a much wider context, for they have become one of the important conditions of modern employment.

Mr. Basil Taylor has had some forthright comments to make on this subject. In an article in the Statist on 22nd March, 1963, he said: No employer can argue that the general body of taxpayers—the electorate in fact—intended to subsidise pension schemes in order that that could be a means of compelling older employees to stay with their firms for fear of loss of all or much of their 'pension rights' if they left. In a broadcast reported in The Listener on 19th September, 1963, he said: I cannot believe it is in the public interest or just (by democratic standards) that a system of valuable tax relief should operate so as to tie the employee to his employer. That is the first problem: lack of transferability of pension rights—the danger (or even certainty) of losing some or all of your pensions rights accumulated hitherto, if you change your job. It is not easy when an employee goes from employer A to employer B to place him in precisely the same position as he would have had if he had remained in his original employment. Much can be done by reciprocal arrangements, for example, in an industry as a whole. There are reciprocal arrangements in the Civil Service and local government service. I understand that the transfer values are determined by standard tables prepared by the Government Actuary. It is a more difficult problem when a man moves into or out of Government service, or from one private firm to another.

The late Lord Beveridge had an interesting comment to make on this subject of moving from the Civil Service to the private sector of industry. In a foreword to a book entitled "Pension Schemes", by Michael Pilch and Victor Ward, he said: After ten years of extremely strenuous service, first in starting Labour Exchanges and Unemployment Insurance, and then in the First World War on Munitions and Food, I left in 1919 on my own account to become Director of the London School of Economics, and I asked the Treasury if I could get anything on account of pension for my years as a Civil Servant. The answer, as I described it later, became one of my greatest treasures: 'Since I was less than 60 years old, they could do nothing for me without evidence that I had become either physically or mentally incapable'. Many years have elapsed, but the anomaly remains.

Mr. William Phillips, who is an expert on this subject, refers to it in an article which has been reprinted from the British Tax Review. He refers to the arrangements in the Civil Service and in local government and goes on: … it has so far been a fixed rule that no such scheme shall pay a transfer value to any private scheme … Later in the same article he says: Naturally, that being the position no one can sensibly advise a private scheme to pay transfer values to a Government or local government scheme. To come even more up to date, this subject was mentioned in a very interesting document prepared by the Engineers' Guild and entitled, "Preserving Pension Rights for Professional Engineers". I give one quotation dealing with the problem of moving from Government to other kinds of service: Thus, we have the irrational situation that a professional engineer leaving government service voluntarily, below the age of 50, can preserve all his pension rights if he goes to a local authority, a nationalised industry such as coal, electricity, or railways, to teaching, the B.B.C., the I.T.A., B.E.A., or B.O.A.C. … However, should he go from government service to, say, a consulting engineer, a contractor, or manufacturer … he will lose virtually all pension rights. The main problem, however, arises in the private sector, moving from one private firm to another. This is partly due to the mass of piecemeal legislation and the need for reform.

The Clause does not go all the way to making transferability of pension rights compulsory. There may be better ways than the Clause proposes and I tabled two alternatives in Committee. Obviously, I cannot discuss those now, but I merely mention as a possible solution the laying down of certain conditions to approval under Section 379 of the Income Tax Act, 1952, to make it necessary to have preservation of pension rights, whether the pensions are contributory or non-contributory.

I raised this subject in the debate on 2nd July, 1957. I think that the climate of opinion has been gradually changing, but very little has been done. The opposition to any legislative action was expressed at that time by the present Minister of Housing and Local Government. I do not know whether he was expressing his own private view, or the Government's official view, on this subject when he said: If there was ever to be legislation—and I hope that it may not be necessary—account will have to be taken of the solvency of these schemes. It is true that actuaries in setting up these voluntary schemes do have to take into account the fact that certain individuals are inevitably going to leave at an assumed average rate and that they will forfeit any contributions that have been made on their behalf.Any windfalls falling into the hands of the fund in this way are discounted by the actuaries, and any obligation to preserve pension rights would remove these windfalls which have already been taken into account in making the scheme solvent …"—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 897.] I should have thought that to describe the movement of an employee from one firm to another as a windfall displayed a rather complacent attitude to the whole subject of mobility in industry.

6.0 p.m.

We must recognise that contributions to superannuation schemes are, in effect, forms of deferred pay. Moreover, substantial tax reliefs are involved. There are today enlightened firms which recognise this and try to arrange for the transferability of pension rights, but I do not think that one can leave it entirely to the discretion of trustees of particular funds, or leave things in the haphazard state in which they are today.

What is the remedy? There is no simple solution. In theory, one could get over the problem by making everybody an employee of the State, but heaven forbid that that should ever happen in this country. Again, I suppose that we could have only one superannuation scheme drawn up by the State, and nationalise, directily or indirectly, all the insurance companies, but I would not advocate that either. I think that one has to remember that much of the initiative and pioneering work have been carried out by enlightened firms and life offices specialising in this kind of work. I believe that there could be great advances in reciprocal arrangements.

The party to which I have the honour to belong has worked out its social security plan, but I believe that these private schemes must play an important part in the future. I think that they will always be necessary to supplement whatever State scheme is devised. I believe that there is an important rôle for the trades unions and life offices to play in the evolving of these schemes, and that the time has arrived when the whole subject should be taken much more seriously and regarded as a matter of urgency. I suggest that the steps to be taken should include, first, rationalisation of the provisions dealing with the approval of schemes, and, secondly, recognition of the importance of approving schemes and including in them some provision relating to the transfer of pension rights. There should be a rule in every scheme which will provide at least minimum conditions for the preservation of the transferrabiilty of pension rights, and, if necessary, there should be added tax inducements on the lines suggested in the new Clause.

This is a key subject in a modern industrial society. There has been much pious talk and many general commendations from the Government of the idea, but what is required today is action.

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

I congratulate the hon. Member for Huddersfield, West (Mr. Wade) on having the ingenuity to be able to frame a Clause in such a way that it is selected for discussion by the Chair.

This is a fundamental issue in the future of pensions legislation in this country, and it is very fitting that my right hon. Friend should be on the Front Bench waiting to reply to the debate because, although I am not sure what he knows about these damned dots—I am not being offensive; I am quoting from a document—he knows a lot about pension schemes. The hon. Member for Huddersfield, West and his party have a forward-looking view on pensions, and I am glad to be associated with the hon. Gentleman in paying a tribute to the good employers and the life officers for the work which they have done in the past. They thought about pensions long before politicians collared the field for party purposes. When the Government Actuary completed his review of private schemes 10 years ago, there were no less than 40,000 private schemes in operation.

Good employers brought in the schemes for two reasons: first, they wished to reward long and faithful service by providing an adequate retirement pension and removing the worry of old age. The purpose was to provide what in insurance parlance—and I ought to have declared my interest in insurance—is called happy old age. The second reason was to retain their employees, because intelligent employers realised that the most important thing was not the stock, the machines, or the buildings but the staff who worked in those buildings and at those machines.

Those ideas are to a great extent now out of date, because we are entering into a new phase in industry when men move not merely from one job to another but, because of technological advances, change their occupations, and perhaps move from one part of the country to another. At the wish of both sides of the House, men are being asked to move to the North and to Scotland so that those areas can enjoy the advancing prosperity of the South. This makes it essential to try to achieve mobility.

In most pension schemes, apart from the fact that pensions are withheld for fraud and misconduct, the only other condition which prevents an employee from obtaining the whole benefit of the scheme is a change of job without the permission of his employer. For instance, if a firm goes into liquidation, or if there is a take-over bid, or if the firm meets with hard days and its scheme is brought to an end, the members of the scheme receive the full benefit of it up to that moment. They receive their contributions and those which have been made by the company. The only deterrent to the well-being of pension schemes in the future is the point about mobility, because employers, especially those with non-contributory schemes, did not encourage their employees to move from one job to another. If a man went from one job to another without the consent of his employer, he was precluded from benefiting from the contributions which had been paid. Many enlightened employers have, however, allowed their employees to take full advantage of their schemes when they have moved to other jobs.

My right hon. Friend is an expert on pensions. We must find a way of achieving what the Clause sets out to achieve, namely, mobility, but we must be careful how we achieve this, because there are in being thousands of private contracts which have been effected on the non-contributory pension arrangements for the benefit of the employer, paid for by the employer, and this Clause would seek to break all these private contracts.

Photo of Mr Eric Lubbock Mr Eric Lubbock , Orpington

Would the hon. Gentleman consider the way it has been done in France, where there was a gradual approach to this by the protocols of co-ordination between a number of different schemes?

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

Yes. I should think that an agreement could be achieved by consultation between both sides of industry and the trade unions on the way in which to deal with schemes which are already on our books.

I would have been happier if the Clause had contained a provision which prevented a man withdrawing from a pension scheme and taking a cash payment. The whole idea behind the pension scheme, whether it is a matter of deferred pay or not—and the reason why the Inland Revenue tax rebate is given—is that it provides, year by year, for the day when a man retires. Far too many people have left pension schemes merely to get hold of the cash. I know of some very sad cases. Only a few weeks ago a man left his pension scheme and took about £1,000 in cash because he wanted to live in a cottage with a mistress.

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

The hon. Member for Cardiff, South-West (Mr. Callaghan) is always a sport. He will enjoy the General Election, together with his adversary.

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

That is all very well, but that man will have lost a pension of £500 or £600 a year which he had paid for. It would have been there for him at 65. Now he will be "playing pop" because the National Assistance benefits are so low. That is the sort of thing that we must discourage.

I want to see transferability, but I want to make sure that pensions are transferred, and not the right to demand a cash payment. Some help will be required from the Government. We must create a clearing house for frozen pensions. We have set up a clearing house for the graduated pension scheme, under which records of millions of contributions are kept year by year. We have a computer in the north of England to do the job, and I see no reason why we should not adopt this method of frozen pensions.

The computer can ensure that whatever contributions may have been paid while a man is working for one firm, at the moment of leaving it can be established what his pension rights are. We could easily find a way of transferring a frozen credit to a bank, where the pension will remain until pension age is reached.

I hope that my right hon. Friend will agree to consider this important question, because the whole subject of pensions—whether it is the State against private insurance does not matter—is dependent on achieving mobility. Our future industrial well-being is dependent upon our harnessing to all the changes that will take place in jobs and in employment in various parts of the country, the administrative data the details of which are provided for us. It is our job to find a way to achieve this, and I hope that my right hon. Friend can show us how the Government can take a lead in this matter.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I should like to thank both the mover of the new Clause and the hon. Member for Huddersfield, West, who has just spoken—

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

I am sorry—I meant the hon. Member for Bradford, West (Mr. Tiley)—

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

The right county, anyway.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

Never forget Glamorgan. Glamorgan did win the county cricket championship. The hon. Member for Bradford, West speaks with a great deal of experience of this matter.

I do not know what the Chief Secretary will say about the Clause, but I do not think that my hon. Friends and I can support it. The reason is contained in the name of Beveridge. The hon. Member for Huddersfield, West (Mr. Wade) spoke of Lord Beveridge's pioneering work in this matter. He will agree that Lord Beveridge would hardly regard this as a revolutionary innovation.

6.15 p.m.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

I can assure the hon. Member that in this case it was not so much the influence of Beveridge that resulted in the wording of the Clause; it was rather the difficulty of devising a Clause that would be called at all.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

If the hon. Member says that, I withdraw my remarks immediately. I have every sympathy with him. We frequently do the same thing ourselves.

I congratulate the hon. Gentleman on having found this way of drawing attention to the matter. In that case I will devote no more time to the argument why I feel that the Clause, as it stands, would not achieve the purpose which the hon. Member and his colleagues have in mind. I do not think that any of those employers who value the immobility conferred by their schemes will give them up for the sake of the odd 1 per cent.

But the problem is a real one. As the hon. Member for Bradford, West said, many employers devised their schemes in order to conserve their labour force and to ensure that it was stable and not mobile. Furthermore, there is no doubt that a number of employers originally entered this field because they felt that the State superannuation schemes were not adequate to meet the needs of old people.

One of the problems of the 1960s arises from the great gulf that exists between the man at work at the age of 59 and the man who has retired at the age of 61, and the decline that takes place in the standard of life of himself and his wife. That decline is becoming of increasing importance to the conscience of the nation, and we must do something to put the situation right.

I would tell both hon. Members that I do not think that we can deal with this problem in the way that they propose. A much more radical solution is required. I see the possibility of introducing clearing houses, and that sort of thing, but this is a situation in which we have to make a clean break. People today want to see the elderly given a much higher standard of living in retirement. I do not think that we can achieve this aim by a continuation of this kind of scheme.

Old age is universal; these schemes are not. Old age overtakes us all; these schemes do not embrace everybody. It is still true that only half our population is covered by these schemes, despite what can be called lavish tax concession to those who have introduced the schemes. By the very nature of our industrial system it is quite impossible for the whole industrial population ever to be covered by this type of scheme. If the time has come to make a great step forward—and my hon. Friends and I believe that it has—it must be a universal step forward.

Without embarking on a great pensions discussion, which I am sure would be out of order, I must point out in my view the graduated pension scheme has not caught the imagination of our people; nor do they believe that it provides a sufficiently good bargain. Those who take the trouble to work out what they get under the graduated scheme, and compare it with the benefits of other schemes, feel that they are not getting all that they might. I shall not go into the finances of the matter; that must be reserved for another day. But the time has come when, rather than provide extensions of this type of scheme, or concessions for it—worthy and useful though it has been, and covering many people though it does—we should make a much bolder step forward in national superannuation. That is why we feel that we cannot support the Clause. We want to see these schemes becoming all-embracing and universal.

I say to the hon. Member for Bradford, West, with some personal feeling, that it is not enough to introduce a scheme under which a man's benefits are frozen at the moment when he leaves his occupation. I am a victim of such a scheme. After 13 years of Tory misrule my little pension is worth very much less than it was at the beginning.

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

The hon. Member must bear in mind that he stepped out of the scheme of his own choice—

Photo of Mr Arthur Tiley Mr Arthur Tiley , Bradford West

—and that he had the ability to choose to remain in, with the firm that he was then with, or to step out of pensioned employment.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

The hon. Gentleman must not probe into the direct relationship between my hon. Friend the Member for Sowerby (Mr. Houghton) and myself. I am not sure whether my hon. Friend would agree that I stepped out.

I believe that we must have a transferable system to enable people to carry their benefits from one occupation to another. That would make for a tremendous change in a number of aspects of the question, not all of which have been thoroughly explored. I think that is the next move which must be made and for that reason I hope that the Liberal Party will not press this Clause, realising that it was put down so as to provoke a discussion. In that respect, it has been successful.

We need more mobility in our industrial life and the way to get it is to ensure that benefits which have accrued to a person employed in one company or firm are transferred, and are transferable, to another company or firm. That could be done by legislative action and it would be the simplest way round the difficulty. Regarding the increased superannuation benefits that would accrue, I believe that here again the country is ready to pay for old age, provided that the contributions are raised equitably and based on the capacity of a person to pay.

Hon. Members on this side of the House reached the conclusion some time ago that the present poll tax has reached the maximum of its usefulness and must be replaced by a wage related superannuation scheme in which superannuation is paid for according to the level of a person's income. If we introduce this reform of carrying benefits throughout the whole of a person's working life and relating the payments to wages, it would be a bold step forward along lines which I think would have been agreeable to Lord Beveridge, and which he might have envisaged had he been thinking about the next step forward.

It is no disgrace to anyone to say that it was not done 20 years ago. The attitudes and minds of people change. I think that now we are ready for the next change and on those grounds I cannot support the Clause.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

For reasons almost diametrically opposed to those deployed by the hon. Member for Cardiff, South-East (Mr. Callaghan) I have come to the same conclusion as he did, that I cannot recommend the House to support the Clause. I proffer this advice rather sadly, because I recognise the purpose and intention which are admirable. The Clause also has the rare distinction, judging from the Notice Paper, of having attracted the unanimous, or nearly unanimous, support of the Liberal Party.

When he moved the Motion the hon. Member for Huddersfield, West (Mr. Wade) gave a broad hint—which he amplified later—that this was not the new Clause which he would have moved had he felt free to do so. The hon. Gentleman made abundantly clear that his sympathies were with a Clause in the form tabled last year by his hon. Friends, which would have made preservation of rights a condition of Inland Revenue approval of pension schemes. That, Mr. Speaker, you ruled was not in order on that occasion and the hon. Member for Huddersfield, West—no doubt wisely-apprehended that you might so rule again this year. Therefore, I sympathise with him that, in endeavouring to find a peg on which to hang an argument on a subject of major importance, he has had to put forward a proposal which, I must tell the House, cannot, I think, stand up.

May I, as hon. Members preceding me have done, say a word or two about the intention before coming to what seems to me the fallibility of the method. For a number of years I have had an interest in this question of promoting the preservation of rights and transferability of benefits in private pension schemes. I would remind the hon. Member for Huddersfield, West, that one of the major advances in the spread of preservation and transferability in private schemes flows from the National Insurance Act, 1959.

It was a condition of contracting out—a condition deliberately put into the Act—that if a scheme was to be contracted out it must, in one way or another—either by transfer payments, payments in lieu or by providing a frozen pension—preserve at least up to the level of what the person concerned could have earned had he been in the State scheme for the same period. As a consequence, for about 4¾ million people at present contracted out under the 1959 Act there exists some form of preservation in respect of that section of their pension rights.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

I am sure that the right hon. Gentleman will agree that in terms of money values that is only a very limited proportion of the total money provided by superannuation schemes.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

Certainly, and probably quite a small proportion, but it has introduced this principle, or concept, of preservation into a very large number of private schemes. While it is obligatory, as a condition of contracting out, to preserve up to the equivalent of what might be earned in a State scheme, it provides some measure of encouragement to go further.

I think that I am right in saying that approval of the 1959 Act gave the biggest impetus provided so far for the spread of preservation among private schemes. I am very far from being satisfied that it has gone anything like far enough. There is a great distance still to go. I should like to see any sensible and workable provision which gave further encouragement, were it possible to devise such a provision. I should not at this stage want to rule out the possibility of some fiscal method.

Photo of Mr Merlyn Rees Mr Merlyn Rees , Leeds South

I am interested in the point about the concept of preservation which came about in private schemes because of the 1959 Act. Does the same concept affect people who have opted out of the scheme because they are in local government employ? Do local government authorities have to apply the same concept as people in private schemes?

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

My recollection is that they do. I understand that if someone is in a local government scheme and leaves that employment, as a matter of general practice, a local authority complies with the Act of 1959 by a payment in lieu into the national scheme.

This Clause has a serious defect in that it applies only to funds approved under Section 379 of the Income Tax Act, 1952, and not Section 388. As was said by the hon. Member for Cardiff, South-East, normally, if a scheme is approved by the Inland Revenue, the contribution of the employer ranks 100 per cent. as an allowable expense for tax purposes. It would seem unlikely that any employer would alter his arrangements for 1 per cent. of his contribution to his pension scheme.

That would seem the more so when one recalls that the introduction of preservation into a private scheme costs the scheme a substantial amount, because it does not gain the savings of at least the employer's contribution which otherwise comes in when an employee leaves.

6.30 p.m.

Thirdly, it is not at all clear what benefits, 1o quote the new Clause, would have to be preserved to earn this additional 1 per cent. allowance for tax purposes. The hon. Member said that a cash option would not satisfy that, but he has to face a very difficult problem. Many progressive schemes give three choices, a frozen pension, transfer payment, or repayment in cash. It is the unhappy experience of many firms that the great majority of employees who leave opt for the cash payment. If the proposal were to act at all effectively it would have to apply to schemes which did not give that option, namely, to schemes where there was no option to take a repayment at the discretion of the employee and where he could receive only a frozen pension or transferability payment into the new scheme.

That is a very substantial matter, involving relations between employer and worker. I doubt very much whether a 1 per cent. tax repayment would have the effect of making the employer want to take that step, or whether it would be agreeable to many employees. It is true that there are still fairly severe restrictions, but the tendency is towards relaxation. Nowadays a public servant, unlike Lord Beveridge's experience, when he leaves and is over 50, has his frozen payment available at 60.

I announced the other day in the House a modest advance in respect of people leaving the Civil Service at a younger age. There is a tendency towards relaxation. I do not think it right to expect the public service to be too far ahead of the practice of the best private employers, but I claim that we have set a good example in this respect.

What is the best method of handling this matter? As the House knows, the National Economic Development Council is very concerned about it from the point of view of mobility of labour as well as social justice. As has been said, following those discussions the Government Actuary has been asked to produce a further report on private schemes. Some years ago he produced an extremely useful one which helped us very much in our consideration of the 1959 Act. I am sure that it will be valuable to have that review brought up to date.

Here, I think we come to the nub of the matter, the clash between the pension development concept held by the hon. Member for Cardiff, South-East and the concept which I, the hon. Member for Huddersfield, West and certainly my hon. Friend the Member for Bradford, West (Mr. Tiley) hold. We want to see the private schemes developing and expanding and covering an ever larger part of the working population as a complement to the State scheme. We do not want to see a universal State scheme or the nationalisation of provision for old age.

Those of us who take that view, however, must face the fact that unless increased preservation and transferability come about in the private sector it will be more difficult to defend it against the onslaughts of the State scheme because, whatever the merits or demerits the State scheme on a reasonable basis might have—and this is not the time to debate them, there will be other occasions for mat—we must agree that it has certain advantages in respect of transferability.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

Would the right hon. Gentleman call his 1959 Act an onslaught?

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

The hon. Member for Sowerby (Mr. Houghton) apparently so regarded it at the time, because his reaction to the onslaught was not only vigorous, but, if I recall correctly the length of the Committee stage, it was prolonged. However, if we seek to debate the 1959 Act again I fear that we shall incur your displeasure, Mr. Speaker.

Photo of Mr James Callaghan Mr James Callaghan Shadow Chancellor of the Exchequer, Member, Labour Party National Executive Committee

It is not just that it provides for mobility, but that it is universal. What many of us fear, without having any particular prejudice, is that we can never devise private schemes which can be universal. It will be the employees who are worst paid who are excluded.

Photo of Mr John Boyd-Carpenter Mr John Boyd-Carpenter , Kingston upon Thames

It is a mistake to under-rate the expansion that private schemes can reach, but I fear that you, Mr. Speaker, would not permit us to debate this fascinating topic, much as I should like to argue it for a considerable time.

The relevance of the new Clause is that if we are to see the proper development of the private schemes and their continuance and success against the challenge which the hon. Member for Cardiff, South-East represents, I am quite sure that we want to see as a necessary condition a great development in preservation of rights and of transferability on leaving employment. Because that is the reason behind the new Clause I am particularly sorry to have to advise the House that it would not have that effect. But the object of greater development of preservation which I have been seeking to describe is a matter which the Government regard as of importance and which we should seek to forward.

Photo of Mr Donald Wade Mr Donald Wade , Huddersfield West

I think that I have already made it clear that, had I been free to devise the kind of Clause I should like, the Clause on the Notice Paper would have been worded somewhat differently from the one we have been discussing. For that reason I do not propose to press this Motion to a Division.

I am a little disappointed that the right hon. Gentleman has not been able to give us any clear indication about what the Government intend to do. I should like to have introduced some very radical reforms in the State scheme. It is essential that the State scheme should be coupled with some form of private superannuation scheme. That would fail unless there were a better method of enabling employees to carry their pension rights with them as they moved from job to job or unless there were some assurance that their pension rights would be preserved so that they would have a pension when they retired under such a private superannuation

scheme. The sooner something is done about that the better.

I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

Photo of Sir Harry Hylton-Foster Sir Harry Hylton-Foster , Cities of London and Westminster

I understand that it is proposed formally to divide on new Clause No. 6.