Clause 265 - Other definitions

Finance Bill – in a Public Bill Committee at 4:00 pm on 17th June 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of George Osborne George Osborne Conservative, Tatton

I could not let the clause go unremarked because it is difficult to imagine a more seemingly innocuous clause in any legislation having a more profound effect. On the bottom of page 214, in line 43, it states that

'' 'normal minimum pension age' means—

(a) before 6 April 2010, 50, and

(b) on and after that date, 55''.

That is extraordinary. The clause is headed ''Other definitions'', and most of the definitions are of fairly straightforward terms, such as the Board of Inland Revenue, the tax year and the retail prices index. It is the sort of thing you find in Finance Bills, as you will know from your experience, Mr. McWilliam, where mop-up clauses are included at this point in the proceedings. However, the Government are changing the minimum pension age from 50 to 55 in the clause by simply changing a definition. That is a profound change that will affect millions of people every year. I

point it out because it would be extraordinary if the Committee had not at least paused to consider such a big change in working practice.

Of course, the Government consulted on the matter as part of what they rather euphemistically called ''flexible retirement''. Their idea of flexible retirement is to increase the minimum pension age. The Financial Secretary talked earlier about giving people the opportunity of working longer by increasing the age at which they could retire. I do not disagree with the decision, but I shall ask her to comment on a couple of issues.

First, why have the Government decided not to use the tax rules to phase in the new minimum retirement age? Of course, it is up to schemes how they do that, which is made quite clear in the consultation. However, the December 2002 consultation paper asked for further consultation on using the tax rules to achieve that as well as how schemes might go about it. It is perfectly possible that that might be included in the Bill so that, for example, the minimum retirement age would be 50 in 2010, 51 in 2011, 52 in 2012 and so on. That would avoid the cliff edge whereby a person born on 6 April 1960 could not take a pension at the age of 50 but would have to wait five years longer to retire than someone born the day before.

Photo of George Osborne George Osborne Conservative, Tatton

My poor friend—the hon. Gentleman has felt like a friend during the last two weeks—says that he was born on 8 April 1960.

Photo of George Osborne George Osborne Conservative, Tatton

The hon. Gentleman was merely telling us his birthday, in which case it is a less interesting point.

A person born on 6 April 1960 will not be allowed to retire at 50, unlike a person born the day before. That has created quite a cliff edge. As I said, there are other ways of making the change; for instance, the Government could have phased it in over a period of years. I will be interested to hear an explanation from the Financial Secretary since the change will affect many people, and they will feel that they have been unfairly treated.

The Government have also said that people can keep a contractual right to retire at 50 in an occupational scheme. However, that will not apply to people with personal pensions. Some people will have paid higher contributions in order to retire at 50, but will not be able to do so, even though they have paid for the privilege, because it is not a contractual right. Is that another example of one rule for defined benefit schemes and a less generous rule for defined contribution schemes? Does the Financial Secretary have any idea how many people who have defined contribution schemes were planning to retire at 50 and have paid higher contributions to be allowed to do so?

The Bill contains a provision that allows people from certain professions, such as footballers, to retire early. Perhaps the entire England football team will have to retire in a couple of hours if they do not perform. [Hon. Members: ''Oh!''] I am sure that they

will perform—I say that not least because half of them are my constituents. I wish them well. It is sensible to allow people in certain professions—I think the Government have cited ballet dancers as an example—to retire early.

However, what provision is there for the public sector? There are certain jobs in the public sector in which it is pretty normal for people to retire before the age of 55. I think that the average retirement age in the police is below 55. Do the Government envisage that that will continue even after the increase? Does the retirement age apply to everyone, including workers in the public sector? If so, what impact will that have on the Exchequer and on public pay and recruitment policies over the next few years? What impact will it have on the police and the Army? This is a major change. I am not against it, but it is important that the Government set out their position.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 4:15 pm, 17th June 2004

Perhaps surprisingly, I want to echo some of the comments made by the hon. Gentleman. I have had letters from constituents, particularly teachers, who are very concerned about the change, and I suspect that other hon. Members have, too. I would be interested to hear the Financial Secretary's explanation not for the change per se, but for having a cliff edge, as the hon. Gentleman described it, rather than the kind of phasing that we have moved towards for other retirement ages. It seems difficult that someone born a couple of days apart from someone else would face a five-year cliff edge—that is the way I read the clause.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I must admit that I was not expecting a debate about the normal pension age under this clause, which deals with other definitions. We will have a full debate next week about the transitional arrangements that will apply to members of different pension schemes. That will include the opportunity to debate the footballers' pension scheme and the transitional arrangements that will apply to the police, the armed forces and the fire service. However, I am happy to touch on some of those points now.

As the hon. Member for Tatton knows, the increase in the normal pension age from 50 to 55 is an integral part of our simplification reform. It is part of the policy agenda put forward and advocated by the Department for Work and Pensions to encourage active ageing—rather than ageing actively—and to push up the distribution of ages at which people retire, so that on average people can stay in the work force longer. As he knows, and as I am sure my hon. Friends know, we have a real problem in this country with people being forced out of the labour market when they are over the age of 50—and in some cases even earlier—or finding it difficult to stay on after that age. That is why we have introduced the new deal for older people. This tax reform fits in neatly with our overall agenda of encouraging people to stay longer in the work force.

The reform is part of a package that facilitates flexible retirement for the first time. If people want to stay in the work force beyond the age of 55, they can now do so on a part-time basis, while drawing down a pension to supplement their income. The Treasury has been considering that idea for many years, but it has

not proved possible to come up with a scheme to accommodate it. We have now been able to produce a package that does that, obviously taking the overall cost to the Exchequer into account. The increase in the minimum normal pension age is essential to allow us to bring in flexible retirement. I hope the hon. Gentleman would agree that that is a useful and essential reform.

We had a choice as to how to bring in the reform. We were aware of the human rights implications and how people would adjust. We carefully considered whether to bring it in at a specified date, or whether we should allow schemes to choose when to bring it in to suit their members and indeed to reflect their members' demographic make-up. We put out that precise question for consultation. The consultation document asked for views on whether it should be left to schemes to decide, or whether the Government should prescribe a phased introduction between A day—the date we turn on the pension simplification—and 2010. The document also asked for views on the need for special transitional rules for people who have already built up rights to a pension before the age of 55 in existing schemes. I intend to deal with the relevant clauses when we debate the transitional provisions next week.

The response to the consultation was mixed. Some respondents agreed that schemes ought to be allowed to phase in the changes. Others argued that the Government should prescribe them. On the whole, we thought that there was more force to the argument that the schemes should be allowed to bring in the changes in a way that suited their members best, which is why we decided to introduce the changes as we did. That is an integral part of our reform.

Photo of George Osborne George Osborne Conservative, Tatton

Can the Financial Secretary say what the big public sector schemes are likely to do? Are they likely to phase in the changes, or will there be a single day when suddenly, come 2010, someone born on 5 April 1960 can retire, but someone born on 6 April 1960 will have to wait another 5 years? Many of the defined benefit schemes are in the public sector. Perhaps she could explain what the Government, who are the biggest employer in the country, are going to do.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. There are times when I wish I had been born in 1960, but unfortunately it was a bit before that.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

As the hon. Gentleman knows, my right hon. Friend the Chief Secretary is carrying out negotiations with other Government Departments about reform in respect of the armed forces, the police and the fire service. That has been deliberately left out of the current proposals because there are special factors, including the tradition—and in certain circumstances, the necessity—of some members of those schemes taking early retirement. He will understand that that is the right way to deal with that issue.

Photo of George Osborne George Osborne Conservative, Tatton

The Financial Secretary seems to be suggesting that the public sector will look at the

tradition of policemen retiring early and so on, and take that all into account. What about those in private sector occupations where there is a tradition of retiring early?

Photo of George Osborne George Osborne Conservative, Tatton

Well, there are going to be a lot of Labour MPs retiring in the next few years, and it is going to be of interest to them as well. Is there going to be a special consideration for those in the public sector?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

Yes. I believe the Opposition have been sent the draft regulations on public sector schemes, which suggest that we preserve early retirement ages in certain circumstances, and I suggest that the hon. Gentleman looks at them.

The hon. Gentleman draws attention to the tradition of early retirement ages in the private sector. We will probably re-run this debate on Tuesday, when we come to discuss the transitional provisions. Certain representations have been made to me and to Treasury and Inland Revenue officials that certain professions would have liked to see themselves being carved out and treated differently, for a variety of reasons. We are considering each case on its merits to decide whether there is an objective justification for special treatment.

Photo of George Osborne George Osborne Conservative, Tatton

Will the Financial Secretary at least give me an assurance that, in respect of the normal minimum retirement age, the Government will not treat public sector employees any differently from private sector employees? I think that private sector employees would be outraged if they were forced to work longer, while the privileges of the public sector were protected.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

Given his involvement in all areas of pensions across Government, the hon. Gentleman should know that public sector schemes have begun to move in the direction of age 55. We have been in negotiations with public sector schemes for a number of months, if not years, to arrive at sensible solutions that command the support of both our vital public services and the Government's policy agenda.

It is a different situation for private sector schemes. Certain private sector schemes have a tradition of early retirement. Perhaps it would be better to say that they have a tradition of an early cessation of a particular occupation, before people move into a different occupation.

Footballers fall into that category. I had strong representations on behalf of his members from Gordon Taylor of the Professional Footballers Association. We are considering the points that he made and investigating whether there is a way to accommodate his concerns in the pensions regime. I suspect that that will prove difficult. We are also looking outside the pensions regime to see whether the Professional Footballers Association, for example, might be able to continue its highly redistributive pension scheme without the tax reliefs associated with pensions, which tend to benefit footballers about the age of 35. The same considerations apply to other sporting professionals, members of Equity, ballet

dancers, deep-sea divers and so on, all of whom have early normal pension ages.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

The hon. Lady says that she would like to continue the discussion about transitional arrangements for specific occupations on Tuesday. That is fine, but it may, under your stern chairmanship, Mr. McWilliam, be difficult to carry forward to Tuesday the issue of the cut-off that will take place in the year 2010 and the falling-off-the-cliff effect—the fact that, on one day, people will be allowed to retire at 50 and someone who was born a day later will not be able to retire for another five years.

Will the hon. Lady be able to address that point this afternoon and tell us whether there might be any flexibility in the Government's attitude on that point? I think that a genuine anomaly is being created and that it may not have been created on purpose.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. That was more a point of order. What we are coming on to is specific and I would not rule out this afternoon's debate having any effect on the issue on Tuesday. I am also conscious that we are talking about 2010. It is 2004 and my sums tell me that 2010 is six Finance Bills away.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

Mr. McWilliam, you make an excellent point. There is a considerable time before 2010. We consulted on the best way to bring in the provisions. Those we consulted suggested allowing schemes maximum flexibility. As the hon. Member for Tatton said, there was a mixed response, but there was significant support for the position that we took. It was not the case that more were in favour of the prescribed approach, which was the alternative. I suspect that the debate will continue at length on Tuesday. I commend the clause to the Committee.

Question put and agreed to.

Clause 265 ordered to stand part of the Bill.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon 4:30 pm, 17th June 2004

For the record, I am going to retire at the next election, so that is six Finance Bills that I will not be chairing.Clause 266 Abbreviations and general index