Calculation of Guaranteed Mimimum Pensions Preserved Under Approved Arrangements

New Clause D – in the House of Commons at 12:00 am on 24th March 1977.

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Lords amendment: No. 8, in page 17, line 24, at end insert new Clause D: D.—(1) Where an occupational pension scheme ceases to be contracted-out and guaranteed minimum pension rights or accrued rights to guaranteed minimum pensions under the scheme are subject to approved arrangements (as defined in section 44 of the Pensions Act for the purposes of subsection (2) of that section) for their preservation, then, except in such circumstances as may be prescribed, section 35(5) of that Act shall have effect, unless the prescribed person otherwise elects in the prescribed manner, as if the following words were added at the end thereof: "except such an order made in any of the tax years comprised in the period of five years ending with the tax year in which the scheme ceases to be contracted-out and as increased by 12 per cent. for each of those five tax years except any in which an order under section 21 of this Act was made which did not relate to the factor and any in which such an order was not made and would not have related to the factor if it had been made".(2) Regulations may provide that subsection (1) above shall have effect with prescribed modifications in relation to a scheme which, immediately before it ceased to be contracted-out, contained provisions authorised by section 35(7) of the Pensions Act.(3) In this section expressions used in Part III of the Pensions Act have the same meanings as in that Part.

Photo of Mr Eric Deakins Mr Eric Deakins , Waltham Forest Walthamstow

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

The effect of this amendment is that, where a scheme ceases to be contracted out, the earnings factor from which guaranteed minimum pensions will be calculated may be revalued, subject to prescribed exceptions, at 12 per cent. a year for the five-year period immediately preceding the cessation, as an alternative to revaluation by reference to the rise in earnings generally. This concession in no way diminishes a contributor's combined pension rights from the State and occupational pension schemes.

The concession already exists for employers who, on cessation of contracting out, would decide to discharge their liabilities for guaranteed minimum pensions by paying premiums into the National Insurance Fund in order to buy back into the State scheme. Section 44(6) of the Pensions Act permits the premiums to be calculated on the assumption that the pension rights so bought were to be revalued on this basis.

This amendment will make the concession similarly available where, instead of buying back into the State scheme, the guaranteed minimum pensions will be preserved under arrangements approved by the Occupational Pensions Board, other than by transfer of rights to another contracted-out scheme. The regulation-making powers in the amendment are intended to be used principally to ensure that a similar concession may be available in respect of employees who had left the employment with preserved pensions before the scheme ceased to be contracted-out.

Earlier this year, in Committee in this House, we resisted Opposition amendments which were designed to grant this concession and in doing so referred to the extra cost which would fall on the National Insurance Fund. I refer to the Official Report for Standing Committee A on 27th January 1977, at cols. 511–524. In the light of further advice and the new points raised by the pensions interests, we now accept that the net long-term cost would, so far as one can reasonably foresee, be unlikely to amount to a serious and substantial additional commitment except in the sort of very severe inflationary situation which would probably call for exceptional measures in any event. The potential cost is still a very relevant consideration, but we feel that the overall balance of considerations justifies this further concession.

This concession, in effect, closes the last remaining open-ended commitment for employers and underlines the partnership between State and occupational pension schemes. It has, of course, been welcomed by the pensions organisations.

There is one additional point I wish to make. There must be a limit to the extent to which the financial balances between State and occupational burdens are adjusted against each other. The amendment must be regarded as reaching that limit.

Photo of Mr Patrick Jenkin Mr Patrick Jenkin , Redbridge Wanstead and Woodford

Once again we are happy to acknowledge that the Government have yielded to wisdom and accepted the amendment that we moved in Committee. The Minister was kind enough to say that I had argued the matter powerfully. However, I was given a dusty answer in Committee, but obviously that power continued to work and the Government have been persuaded that it is right. I should like to thank the Minister for what he has done.

The importance of the amendment is that it underlines the concept of the partnership between the public and private sectors and the fact that a large number of schemes will involve contracting out. That was always envisaged. The schemes will cover 8 million workers, but time is marching on. We have debated the effect of pay policy on pension scheme improvements. We have now had an indication from a number of the pensions interests that the method by which they are expected to apply for contracting out is now obscure. I have tabled a Question on this subject, but I do not know whether the Minister has seen it.

There is now criticism that people do not know what the Occupational Pensions Board will require. That is one reason why so few applications have been made. But I repeat that time is running out. There is to be a long consultation period, application must be made to the Occupational Pensions Board, and there must be time for the matter to be considered and also time after the certificate is given for the necessary changes to be made and for the new scheme to come in. It must all be done by the end of the year.

I am glad that the Secretary of State for Social Services has now come into the Chamber. He always comes in at the important points. I must tell him that this matter involves the impact of pay policy and contracting out on pension schemes. I know that he and his Department are familiar with these matters—indeed, they are tearing out their hair in frustration. They know that their policy is in serious danger because of the effect of pay restrictions in phase 2, and the slowness of the negotiations in phase 3 has been such that firms have not taken advantage of this proposal. The Government have repeatedly said that they wish to back the partnership in pensions, yet it is clear that a large number of firms that would like to contract out still do not know whether they will be able to put such proposals in operation.

I hope—perhaps this may be conveyed to the Chancellor of the Exchequer, whether through the joint consultative committee or otherwise—that even now the Chancellor will be able to say something about this subject in his Budget Statement. People must know where they stand. It may not be possible for the Government to give a categorical assurance on a quantified limit or anything of the sort, but we must know within a matter of weeks how far firms will be allowed to improve their schemes to make it worth while for them to go to the trouble of contracting out and of making a reality of the partnership so often underlined by the Government. I know that it is the wish of firms to make this a reality. A determination was shown during the proceedings on the 1975 legislation that a reality should be made of that partnership. We know that that is the right way to proceed. But the Government are currently frustrating that aim, and it is up to them to put matters right. I hope that in the Budget Statement there will be some indication of that attitude.

This provision is immensely valuable. As the Minister said, it closes the last open-ended commitment. However, it will be as dust and ashes unless the Government can give the pensions movement in the private and public sectors—in nationalised industries and private companies—freedom to negotiate with the unions improvements in schemes which can operate from April 1978.

Question put and agreed to