Transfer Payments and Preserved Benefits

Part of New Clause 1 – in the House of Commons at 4:15 pm on 20th July 1987.

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Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington 4:15 pm, 20th July 1987

I know that occupational pension schemes have often in good faith made a gesture to their pensioners after retirement and have sometimes uprated benefits substantially. The figure up to 1983 that I was given in a parliamentary answer—if the figures were up to date they might be different, and admittedly they were out of date — was that only 2 per cent. of schemes had uprated fully by the amount of the retail price index. That does not seem to be a frightfully good record. I understand that it is difficult in dealing with fluid funds and unidentifiable assets to give justice to all concerned. That is an intrinsic fault of the final salary system. Money purchase obviates that weakness altogether, because the position is as clear as if one had one's money in a bank account.

My hon. Friend then said that the schemes were voluntary and that it was possible for employers to wind them up. I mention that as one of the bad reasons why we are where we are. Employers still tend to regard their pension funds as a bonus, not as an obligation. In the 1920s or 1930s it may have been a reasonable aspect of personnel management to run a pension scheme as a sort of Venus's flytrap, to get people to join one's fund and then to find themselves stuck because if they leave they have to write off so much. I do not think that nowadays that is regarded as an acceptable form of personnel management.

It is not healthy to have senior people in one's firm who wish to leave if they could only do so without losing their pension rights. To keep people doing work which is less good than they are capable of is only breeding sickness. I can speak from personal experience of working in industry where people were kept back by their pension fund and did not have a happy end to their career. Unfortunately, one sees similar effects in many Civil Service departments, where people mark time and block promotion lanes because of the nature of the final salary scheme.

Naturally, the employer who runs a super-generous scheme can change the policy and wind it up. But in setting the state earnings-related pension scheme and deciding to retain it, which the Conservative Government wrongly did, we have accepted that there is an element of deferred pay in the pension scheme and employers are obliged to pay deferred pay. We now need to bring the private-sector pension schemes up to the level of the public-sector schemes. I do not see why people working in the private sector should be second-rate citizens in retirement. We must do something about all our thinking regarding the deficiencies of the occupational pension schemes in the private sector.

4.45 pm

My hon. Friend said that my new clause was obligatory, not permissive as it seems. With respect, he has not quite penetrated to the actual meaning of my suggestion. Suppose the sponsors or the trustees of the scheme refused to do what I am suggesting in this new clause after it has become law. They would not lose their tax concessions in respect of the whole of that accrual of value up to the date when my new clause would become operable. That is why it is not a retrospective provision. One must find a way of overcoming the argument that anything which benefits the early leaver who has a long record in his fund will be of a retrospective character. I would like to suggest to my right hon. Friend that he has not given sufficient attention to this aspect of the problem.

If one benefits someone who has had perhaps 30 years in the pension fund in relation to those assets which he has accumulated over that period, it might well be said that one would be making a retrospective change in the law, because the pension fund did not originally expect that it would have to give a fair deal to the early leavers—to those who chose to leave before the normal age of retirement. If we make it obligatory on the fund to do so in respect of those past years, we are putting a debt on the fund in respect of years which have gone by and where the accounts have already been closed. That is why it is important to say that it is only in respect of future years that pressure will be brought on the fund by the new clause.

Why should we not bring pressure on funds which are holding people unjustly in jobs where they are not doing their best? Why should we give tax concessions of this enormous value to funds which are not acting in the public interest or in the interest of their employees? My right hon. and hon. Friends must ask themselves why we give these enormous tax concessions to these schemes if they are not delivering the goods, but are treating people unfairly and acting against the public interest.

My right hon. Friend the Financial Secretary mentioned extensive consultations over the problem of the future of occupational pension schemes in general. It is true that there have been consultations, but one of the difficulties is that all the people who understand the law and practice of occupational pension schemes are employed by the sponsors of those schemes. They tend naturally in time to orient themselves towards the employers' interests because they get their bread and butter from the employers' side. Eventually, they find good reasons why claims made on behalf of employees should be set aside. They argue themselves into a firm belief that what the employer does is invariably right and what trade unions or individual employees argue on behalf of the wage or salary earner is in some way ignorant, excessive or biased, or at any rate not worthy of serious consideration.

For that reason, if one talks to the experts about the problems of occupational pension schemes, one tends to hear the employers' view. No one speaks confidently on behalf of the employees. The fact that no one from the Labour Benches has attempted to come to the support of my new clause once again emphasises my point. People who think it is their responsibility to speak for the employees fear to tread through these technicalities because it is a difficult subject. In my view, the consultations which have taken place have resulted in a raw deal for the beneficiaries. Therefore, I question their real worth. I believe that my right hon. Friend needs to widen his circle of advisers to take in people who will speak for the beneficiaries too.

My right hon. Friend said that it would be wrong to impose new requirements on schemes yet a while because of all the upheavals that have recently taken place. In Committee I drew attention to the fact that we are putting almost impossible administrative burdens on occupational pension schemes. That arises from the fact that we have dual control. The Inland Revenue is issuing extremely complex instructions relating to the Revenue's perspective of the way such schemes should be controlled—namely, in regard to the eventual benefits. In the last week or two, the Department of Health and Social Security also issued no fewer than 20 statutory instruments with meticulous instructions as to how those schemes were to be run. I am sorry to say that some of those statutory instruments are quite controversial and do not emanate from the discussions that we had in Committee. However, they are quite enough to burden these schemes with an enormous amount of administrative expense and problematical decisions.

I quite agree that the providers of occupational pension funds are probably sick to death of being told what to do, but that does not mean to say that we should allow them to continue to do what is wrong. We should simplify the regulations to the absolute bare minimum, so that everybody can understand the rights and wrongs and know what is expected of them. That is perfectly possible if we clarify our own ideas first as to what the pension schemes are all about. If we knew what the philosophy was, we would have no trouble with the details.

I cannot accept that this is simply a matter for the DHSS and that the Inland Revenue can wash its hands of the matter. The Inland Revenue must look after the taxpayers' funds. In occupational pension schemes, there is not only money put into trust by the employer or by the employee, but also a gradual roll-up of an enormous element that constitutes money belonging to the taxpayer. The taxpayer has a huge stake in these enormous funds. The taxpayer will recover that money when the pension comes to be paid because tax is payable on the pension. I do not accept that this is simply a DHSS matter and not a matter for the Finance Bill. If the public are expected to extend tax concessions to the schemes, the public are entitled to expect the schemes to be run in a proper manner. At the moment, that is not happening.

My right hon. Friend spoke of the considerable extra burden on industry. If I am right in saying that the beneficiaries are losing anything like £1,000 million a year and that that ought to be rectified, that £1,000 million must come from somewhere because it is going to go to the beneficiaries. That might be said to place an enormous burden on industry, which industry cannot bear. At this time, the papers are full of the Government's problems — wages are rising faster than productivity. We are all delighted to read that profits in industry are rising rapidly at this time. I am sure that that is a welcome sign. That means that the average employer is in a position to put more money out for the remuneration of employed workers, salary and wage-earning employees. Why not put that money into the pension scheme, that is, into the capital account, instead of putting it into the wage packet, which constitutes the current account? We all know that there is a risk of incipient inflation taking off again because, to quote the well-known phrase, "There's too much money chasing too few goods." Why not encourage employers to put more money into the capital account? The money would only be recycled by the occupational pension fund trustees, on the basis of the advice they receive, back into industry in the form of investment. Industry would not lose the money; it might even be argued that it would gain it in the form that is most required.

If pensions were better, wage increases might be smaller just now, but there would be less immediate inflationary pressure and there would be more money flowing into investment on capital account. Surely that must be good. and if anything it would tend towards lower interest rates and a better, more efficient capital market.

I do not wish to ask the House to go further with my new clause. I am grateful to right hon. and hon. Members for listening to my arguments. I will reluctantly ask leave of the House to withdraw my new clause; but I hope that the arguments that I have put forward will not be wasted and that some of the things that have been said against my new clause—I believe those arguments were inadequate to beat it down—will be reconsidered in the not too distant future.

I beg to ask leave to withdraw the motion.