I beg to move,
That leave be given to bring in a Bill to define the duties of trustees of occupational pension schemes; to require the Occupational Pensions Board to issue guidelines for the conduct of such trustees; to give further protection to the rights of early leavers; to require employers to make minimum contributions for pension provision as deferred remuneration; and for related purposes.
I dealt with these points in an Adjournment debate on 19 March, but as is the practice, unfortunately, with such debates, the conclusions were somewhat nebulous. However, we have a matter here which is of sufficient importance to justify our proceeding by way of legislation.
The reasons why I consider that such a Bill is particularly needed now may be summarised as follows: the changes in the tax treatment of pension funds in last year's Budget and in this year's Budget, particularly the tax treatment of apparent surpluses; the reforms in the law which offer great new opportunities for employees and employers to accumulate capital to provide for retirement in different ways; the spate of recent takeovers and company amalgamations, in which pension funds are often conspicuously involved; and the very rapid growth in the value of the assets of the funds held in trust, coupled with the fall in current inflation and inflationary expectations. All those things are creating a new context for pension fund managers or, as I prefer to call them, pension fund trustees.
Obviously, in seeking to introduce a Bill on this subject, I am aiming particularly at the trustees of final salary schemes, because in the case of money-purchase schemes the obligations of the trustees are much simpler and there is not so much controversy about them. I have often wondered why the term "defined benefit" schemes is used by professionals in describing final salary schemes, because it seems to me that the benefits are not precisely defined either as at the date of retirement or after the retirement of the beneficiaries. I also dislike the final salary principle, because the final salary schemes tend to favour long stayers and high flyers at the expense of the early leavers and the humbler members. Pension funds should treat all the beneficiaries with equal fairness.
I mentioned the treatment of the beneficiaries at the date of retirement or after retirement. I should like to draw the attention of the House to a parliamentary answer that I received yesterday from the Department of Health and Social Security. Unfortunately, the figures are available only up to 1983, but I understand that of about 2,000 schemes only about 2 per cent. had then decided fully to uprate the benefits that they were paying to people who were already in retirement in accordance with the retail prices index. That is to say, while the funds had been rising at least in line with inflation—and in some cases rising very much more rapidly than inflation—the trustees did not think it necessary to give justice to the beneficiaries already in retirement.
As I said, those were the figures available up to 1983. Even if I have misinterpreted them, I think that we can certainly say that the great majority of occupational pension schemes in the private sector — but not, of course, in the public sector, where this aspect is totally protected—have not looked after those in retirement so as to maintain their purchasing power in accordance with the change in the value of money. This is one of the things that the House ought to bring home to the trustees—that it is indeed their responsibility.
Just now we are in the process of considering the return to the sponsoring employers of sometimes very substantial funds which are deemed to be in surplus in the hands of occupational pension fund trustees. I consider that the trustees are justified in returning money to the sponsoring employers only when all the other possible options have been exhausted. At present that is certainly by no means clear to the trustees of these schemes.
My second suggestion is that we should require the Occupational Pensions Board to issue guidelines about the conduct of such trustees. It should be clear to the trustees that they are acting, not for the sponsoring employers, but for the beneficiaries. That is where their duties lie, just as if they were trustees of any other settlement. The duties of trustees should be clearly set out in writing, if only to enable the trustees to resist improper pressures from sponsoring employers or other interested parties.
Thirdly, I suggest that we should give further protection to the rights of early leavers. This is a very long-standing campaign of mine. I made my maiden speech on the subject nearly 20 years ago. It is a disgrace to the private sector occupational pensions movement—and certainly a serious criticism—that it has not adopted this practice long ago in the interests of elementary justice and good employment practice.
This is, of course, a very technical matter, but if hon. Members are interested I believe that a satisfactory recommendation was made in the amendment that I proposed to the Finance Bill under new clause 34 on 17 July last year. I shall not weary the House by reading again the suggestion that I made at that time, except to say that it was drawn up with the help of some of the most prominent people in the actuarial profession.
Next, I should like to require employers to make minimum contributions for pension provision as deferred remuneration. That is because it needs to be made clear that a pension fund set up in the private sector is not some kind of frill, or a special privilege, or bonus for employees, but that a pension is a matter of entitlement resulting from their service in the course of their careers. Ideally, I should like employers' contributions to be specified at at least 10 per cent. Anything lower than that is unlikely to produce the sort of pension that most people would regard as reasonable continuity of spending power into retirement after a full career of service.
I understand that in the public sector the cost of providing the two-thirds schemes is between 17·5 and 20 per cent. on top of current remuneration. Of course, one cannot put this burden on employers in the private sector until we have had the wholesale reform of national insurance, which obviously has to come very soon. In the meantime, the employers' contribution to the occupational pension scheme should be recognised as deferred pay. Making this payment is a practice that cannot be discontinued or adjusted from time to time simply because of the size of the fund that has accumulated from previous years, or the chances of the way in which the trustees have invested the fund. The employers' contribution should be at a rate determined as part of the contract of employment and should be quite unrelated to the amount of the fund that has accumulated at any particular time.
I have asked the leave of the House to add certain measures as related purposes in the conclusion of my Bill. I should like to mention three. We should increase the margin that it is permissible for trustees to hold on top of their currently foreseeable obligations. I suggest that that margin should be raised to 10 per cent. from the current 5 per cent. I remember from our discussions in Standing Committee when this proposal was introduced that it was said that the 5 per cent. margin could be interpreted on a quite liberal basis. Nevertheless, the exceptional wealth of some of the occupational pension funds at the present time may be transitional and I feel it is therefore unfair to oblige them to run down their funds when more difficult times may lie ahead.
We should make private sector occupational pension schemes fully unisex, and should do that by the adoption of suitable provisions in respect of the entitlement of surviving spouses. The House had an interesting debate on this subject yesterday when we considered the pension provisions for the widow of one of our former Speakers. The public consensus is that pension schemes should give strictly unisex treatment. There is no reason why that should not be possible.
Finally, I should like to specify a limit to self-investment by the trustees of occupational pension schemes to a maximum of 1 per cent. in the sponsoring employer's shares. That is one of the recommendations that I included in the Bill that I introduced by leave of the House as long ago as 1969. I think that it is also one of the recommendations which the House would have found helpful if it had adopted it at that time. Unusually, in view of the great technicality of this subject, I have not invited any other hon. Member to join me in preparing and presenting the Bill. I should like, however, to take this opportunity to say that I believe my Bill is supported by many right hon. and hon. Members in all parts of the House.