I congratulate my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on his ingenuity in devising the new clause, getting it on to the Amendment Paper and ensuring that it is debated, because it is not a clause about taxation at all. It relates to occupational pension schemes, and my hon. Friend has included within it a device to ensure that it is a taxation clause because he wants to withdraw tax privileges for any occupational pension scheme that refuses to comply with the arrangements which he believes to be desirable.
The first objection to the new clause is that that is the wrong way to go about it. It is justifiable for the law to intervene in occupational pension schemes notwithstanding the fact that they are voluntary. Social Security Acts have done so in the past, and will no doubt do so in the future. To use the blunt weapon of tax privileges to say, "Either go along with my new clause by 1 January 1988 or lose your tax advantages", is rather unreasonable. Unless I have misread it, that is what my hon. Friend's new clause would do. He must make a better case. The new clause includes the words, "It shall be permissible", as though it would be permissive, but it is not. If the occupational pension scheme does not comply with the new clause within a very short period, it will lose all its tax benefits.
My hon. Friend has a great interest in these matters, but sometimes he goes too far. He is hostile to the final salary scheme to the point where he would like it to be broken up so that each member can have his own pension scheme. I think that it is good to have a diversity in pension provision and good that, in the future, individuals will be able to choose between an occupational scheme and a personal pension scheme.
When the time comes, it will be important properly to explain the differences between the two, because as 1 January approaches and people decide whether to opt for personal portable pensions a great campaign will be launched by the companies that wish to sell the schemes. They will be trying to sell the virtues of opting out of SERPS and occupational schemes and going into their personal schemes. It will be important for employers and others to explain to employees the benefits of occupational pension schemes. Listening to my hon. Friend, one would think that there were no benefits worth talking about in occupational pension schemes. But I believe that there are, and that those benefits have been substantial at times of fairly high inflation. The opportunity to have a guaranteed pension related to one's final salary has been a great advantage, and I hope that when the time comes there will be a balance in the debate that takes place and that employees will be told about the pros and cons of both.
The other day, I received a paper from the National Association of Pension Funds which is naturally concerned about the matter and which will do what it can to explain the virtues of occupational pension schemes.
The new clause deals with the problem of the early leaver, and there is no doubt that, in the past, the early leaver has been ripped off. I have been ripped off as an early leaver. But we have made improvements since then. My hon. Friend belittled the improvements that were made in the Social Security Act 1985. One has to strike a balance here. As well as having been a member of a private occupational scheme, I have had to run one. We must realise that the schemes are voluntary and that, in theory at any rate, an employer could wind them up at fairly short notice.
What is the object of an employer putting money into a scheme? He does so to attract employees to his company and to make them stay. He wants people to stay with the company, not to leave early, so he sees no reason why he should bend over backwards to help the early leaver. That is why the legislature is justified in intervening and making sure that the early leaver gets a reasonably good deal.
The question then arises: what is a reasonably good deal? Where should the balance of public policy be on this matter? At present, the Social Security Act says that if one takes out a deferred pension now, it must be revalued by the increase in the retail price index every year up to a maximum of 5 per cent. My hon. Friend belittled that and said that inflation may increase above 5 per cent. He is right, but there must be a ceiling. An open-ended commitment for a pension scheme would be unfundable, and at present 5 per cent. seems to be a reasonable figure.
I am sorry that I did not have the opportunity to hear the debate on the new clause last year, but, as I understand it, my hon. Friend wants to give to the early leaver all of his expectations up to retirement, to say to him, "You might have been very successful in this company and you might have been promoted to chief executive, so we should take all that into account and try to evaluate what your final salary would have been on a rather optimistic basis", and then offer him a guarantee on that basis. If that is what my hon. Friend wishes to do, it is going too far.
We must allow the actuarial profession some discretion in these matters. My hon. Friend is trying to impose rules upon a profession in which a considerable amount of judgment is involved. All sorts of assumptions must be made when calculating the value of a transfer payment, especially about interest rates, inflation and earnings growth, and to impose rigid formulae on the actuaries would be unreasonable. It is not surprising to me that the actuary acting for an employee leaving a scheme may take a different view from the actuary dealing with an employee entering a scheme.
My hon. Friend's new clause would calculate that amount by reference to the amount which would be payable by someone coming into the scheme. That is a purely notional concept, because people bring into a scheme something that is related to their previous pension scheme. My hon. Friend is talking about something that does not exist in practice—a notional sum that would be needed to fund all the back service of that individual had he been the individual who was leaving in the first place. That can be calculated only by reference to the current salary. It does not take us all the way that my hon. Friend wishes to go.