I beg to move amendment No. 101, in
schedule 12, page 232, line 29, leave out '1' and insert '2'.
The hon. Member for Eastbourne said that earlier in his career he took a comma all the way to the House of Lords. The purpose of the amendment is to leave out a '1' and insert a '2'.
Amendment agreed to.
This is a great moment. New clause 26 removes the requirement on schemes to provide facilities for members to pay voluntary contributions. Amendment Nos. 543, 544 and 545 are consequential technical amendments to the list of repeals in schedule 12.
Until April 2001, tax rules meant that an individual could not generally be a member of an occupational pension scheme and have a personal pension at the same time. Against that background, the Government introduced a rule in 1986 that occupational pension schemes must have a facility for members to make additional voluntary contributions to their occupational scheme. In 2001, individuals could contribute to an occupational pension scheme and a personal pension at the same time if their earnings were below £30,000. The forthcoming tax changes in the Finance Bill will remove that restriction.
In the light of that change, it is no longer necessary to require occupational pension schemes to offer AVC facilities to members. Anyone wanting to make additional pension savings will be able to do so in a personal or stakeholder pension of their choice. I am
sure that many occupational schemes will choose to continue their existing AVC arrangements as a matter of good practice, but with other options readily available it is no longer necessary to place a statutory requirement on every scheme to offer AVC facilities.
So, the fact that the existing AVC arrangements were facilitated by the employer was, in a sense, neither here nor there. They had nothing to do with the occupational pension scheme and were just the employer helping the worker to do a bit more saving. Therefore, getting rid of the requirement to allow additional voluntary saving does not deprive the worker of a right. I want to be clear that the AVC does not give them any rights in the occupational pension scheme that we are now denying them by removing the obligation on employers to offer that facility. Is that correct?
In a regime in which someone could not have both a works pension and a personal pension, the Government thought it right to enable employees to increase their pension contribution through an AVC, separate from the main works pension, as it were. Now, slowly but surely, and very fundamentally in the Finance Bill, we are saying that people can have both. We do not think that we need to require the employer to offer that facility because other arrangements can be made, such as a stakeholder pension. We are removing a requirement of burden that is no longer necessary, given the current circumstance.
That is a helpful reply. Why were people prohibited from having a separate pension on top of their occupational pension while it was perfectly acceptable for them to have an AVC that had nothing to do with the works pension and just happened to be administered by the employer? As I do not understand that, I cannot understand why we can get rid of the requirement. Does the Minister understand what I am trying to convey?
I understand the question clearly. My difficulty is that I do not understand the answer very clearly. On the one hand, the Treasury and the Inland Revenue make available generous provisions to encourage people to take out pensions, but on the other, they have always had concerns, and there have always been restrictions. The Finance Bill tries to adopt a more—pardon the expression—liberal approach to the issue, with the lifelong earnings limit and so on. There have always been those concerns.
I imagine that the original restraints—they were not set up on my watch, if I may say so; the hon. Member for Eastbourne may want to explain the reasoning behind them—probably had something to do with those tax concerns. That may have been thought easier to police or monitor—I do not know. I am not lost in the sands of time; my guess is that it was something to do with the fiscal arrangements.
The new clause is a straightforward consequence of the Finance Bill and the culmination of a series of deregulatory steps to make pension provision progressively more flexible.
Getting rid of section 111 of the 1993 Act is a necessary and sensible provision. We welcome it; it enables us to tick off yet another provision that people were surprised not to see in the Bill originally. Here it is, just in the nick of time.
I am also grateful for the Minister's confirmation that it will still be possible for AVCs to continue on a purely voluntary basis, as before, if that is what people want. I have no tribal recollection of why the arrangements were made in the first place. I presume that it was something to do with tax, and that is why the Finance Bill is leading on the issue, and we have to follow it up in this Bill. That is eminently sensible, and it is one example in this Bill—it is difficult to think of any other—of making life easier, less complicated, more flexible and less bureaucratic. It may be a straw in the wind, but I do not think so; almost everything else that we are doing seems to have the opposite effect.
However, let me not be churlish; I welcome the new clause. I could tell from the way in which he was speaking that the Minister, by his standards anyway, was getting quite frisky at the prospect of the end of the Committee stage, and I do not want to ruin that mood.
I hope that nobody will accuse me of being frisky at this juncture, but at the risk of depressing the Minister, I want to gnaw away a little further, because I am not yet sure that I understand—[Interruption.]—the groans from the Whips notwithstanding.
We are clearly getting rid of a worker's right to make additional voluntary contributions through the employer. The Minister's argument is that they do not need that right anymore, because the tax rules have changed. However, there must have been some reason why the powers that be decided that although one could not have a company pension and a personal pension, one could have basically the same thing—a company pension and AVCs, which were entirely separate from the work pension—and that that was somehow okay.
Clearly, tax was the underlying reason; we do not want people getting vast amounts of tax relief. I suspect that the reason might have been administrative; if everything is all under one employer's roof, one can spot what people are up to, but if a person runs off and buys a personal pension somewhere else, one cannot be sure that they are not getting pots and pots of tax relief. However, I am still not clear that there was no advantage at all—an advantage that we may now be losing—from doing things through the employer.
I have to smile, because I want to record my appreciation of the Department and its officials, who prepared admirable briefing notes for us on almost all these new clauses. A little bird tells me that we had no briefing note on this one because it was self-explanatory. There may be places in which it is self explanatory, but not in my back yard, as it were.
I feel uncomfortable about nodding the provisions through; I still do not really feel that I understand them. The Minister has been honest enough to suggest
that although he understands 99 per cent. of them, there is just that little niche that he does not. I feel a little uneasy nodding through a new Act of Parliament when no one in the Room—with perhaps one exception—understands all of it. That worries me a bit.
I do not want to have a debate about the difference between fiscal and frisky; that would be dangerous, at my advanced age.
I must say to the hon. Gentleman—I think honesty is always a good tactic to use against him—that I do not fully understand the fiscal history, stretching back a few decades, on this point; the provisions almost certainly have to do with tax arrangements. He may have put his finger on it when he said that, although we are talking about AVCs, if everything is under one employer's roof, it is probably administratively easier to monitor and police. That might be the situation.
I am more concerned to explain the future: I am very clear about that. As we had removed the restriction and enabled people to have both a personal pension scheme and an occupational pension scheme, it no longer seemed sensible to impose the obligation—some might call it a burden—on all employers.
In future there will be a regime—encouraged, of course, by the tax changes with the lifetime limit of £1.5 million—whereby those fortunate enough to be members of occupational pension schemes may be offered AVCs by their employers. I imagine that many employers who currently offer them will continue to do so, but the employee has the right to put money into a personal pension scheme. I am very clear about the future, even if I am not chapter-and-verse, footnote and subsection (1), (2) and (3) clear about the past 20 years.
Yes, I can do that, because a greater range of opportunities will now be open to that worker. The provisions are about recognising the logic of having more choice. We—not only the regulator but the protection fund, in the case of final salary schemes—are imposing new obligations on schemes, but there does not have to be an obligation on employers to remove choice. The new clause is about deregulating, as, in a sense, we bring in new regulatory powers. It is part of that balance. I hope that that reassures the hon. Gentleman.
Amendment agreed to.
I beg to move amendment No. 569, in
schedule 12, page 233, line 18, at end insert—
'In section 131(b), the words ''payable at any earlier time or''.'.
The amendment and the new clause amend certain provisions in sections 71 and 72 of the Pension Schemes Act 1993 in respect of short service benefits. Section 71 of that Act provides that where a member of an occupational pension scheme has become a deferred member, but has at least two years' qualifying service in that scheme, or has transferred rights under a personal pension, his rights must be preserved as short service benefits.
Section 71 of the 1993 Act provided that where a scheme's normal pension age is less than 60, short service benefits more commonly referred to as deferred pension are payable no later than age 60. Section 71 applies to a limited number of schemes in which retirement before the age of 60 is expected because of the nature of the work; schemes for firefighters and police officers are the obvious example.
We made the proposal because when a person leaves such employment before normal pension age—say, if someone was a firefighter or police officer for just a few years early on in their career—we believe that the link with the normal pension age and employment is broken, so there is no reason why that pension should need to be paid early. The purpose of the new clause is to amend section 71(3) of the prior Act to change the latest age from which a deferred pension is payable in schemes with an early normal pension age. The age is increased to 65, which is in line with the general public policy of extending working life and raising the public service pension age in respect of future service. The new clause also adds a new subsection to section 72 to reflect the amendment to section 71(3) in respect of normal pension age. I emphasise the word ''future,'' because we are talking about future rights; the change does not touch past rights. I hope that hon. Members will accept the amendment.
I appreciate, as the Minister pointed out, that the new clause and the amendment are to do with deferred pensions, so we are dealing with a fairly narrow issue. However, it is important to look at that issue in the broader context, particularly the public policy context that the Minister touched on.
We are talking about people in public service jobs, such as firefighters, police and others, who are used to a system where the norm is to retire at 60 or even earlier. The changes will take away something from them that they might otherwise expect to have. The Minister may present the changes as a tidying-up exercise—in the same way as the EU constitution, on a different level, has been presented—but that is clearly not the case if we put the changes in context. The briefing note is very up front and ''in yer face'' about this. It says that there is no reason to provide for a pension before what is the normal pension age for the public services generally. I will not be unique in having received several letters from constituents about the Government's plans for local government pensions, including those for policemen, firefighters and so on.
The proposals from the Deputy Prime Minister are to make the retirement age 65 for all by phasing out the ability to retire at 60 with 25 years service, to increase the earliest age at which benefits may be paid, other than on the grounds of ill health, from 50 to 55,
and to introduce measures to provide for flexible retirement. It has been said—I think this is what the Minister was saying—that whatever changes are made will not affect pension benefits already earned from past service. However, as I understand the new clause, that is precisely what is being done, because people will have to wait longer to take that deferred pension.
One should consider the issue in the context of what the Minister referred to as the policy aim. The briefing note says that rights accrued up to the coming into force of the new clause are payable from an age no later than age 60, but rights accrued from the coming into force of the new clause will be payable from age no later than 65. Therefore, any rights accrued up to the time that the new clause comes into effect will be protected, but from then on things will be different for pensioners who have deferred.
It is important to probe the Government on what their policy really is. They have clearly taken the view across the board that people should be working longer before drawing their pensions. There is a significant feeling, certainly among my constituents, that that is unfair because the goalposts are being moved, and the new clause is just one aspect of moving them. I appreciate that the broad policy issue is for a different Department—the Office of the Deputy Prime Minister, and we would not want to cross such a redoubtable figure—but there is already a lot of aggravation from unions and individuals about changes to local government pension schemes. The new clause is just one aspect of that.
Since the Minister touched on the public policy view that people should work longer and be older before they draw their pensions, it is important that he sets out the thinking behind that. Is it simply a matter of saving money? Is it thought to be good for them? Does it tie in with a possible agenda for raising the retirement age to 70 or even higher? Those are all interesting issues that arise out of the provision, which, I accept, deals with the narrow question of the deferred pensioners.
Again, I am trying to get my head round a new clause—this time it is new clause 33. I think the Minister implied that short service could mean 40 years. It means just short of being a current member of a scheme. In that context, short refers to any accrued pension rights where one has left the scheme before normal pension age. Will the Minister clarify whether we are talking in some cases about someone's practically complete pension rights—provided that they have left the scheme before normal pension age? I am not sure whether piddling is parliamentary language, but the amount of pension would not be negligible. We are not talking about someone's little bit of pension; we could be talking about someone's almost total pension.
The hon. Member for Eastbourne mentioned ill health grounds. Schemes may have different provisions for early retirement because of ill health. How will those interact with new clause 33? If someone has an earlier normal pension age for early
retirement, will they still have to wait until they are 65, for example, before they draw the ill health pension?
I am also slightly hazy—perhaps because it is after lunch—about whether the provision affects accrued rights. The excerpts from the briefing note about existing and future rights that the hon. Member for Eastbourne quoted are in the context of exceptional schemes that have different rules for early leavers and for people who carry on until normal pension age. The note therefore implies that the excerpts he read out would not normally apply.
From the enactment of the legislation, will we end up saying to someone who has left a scheme, ''We have passed the Pensions Act so the money that you have built up and thought you would get at 60, you will actually get at 65''? Or are we saying, ''No, you thought that you would get it at 60, so you can have it at 60, but if you leave any scheme after the coming into force of the Act, then you will have to wait''? Will they receive the amount that had accrued up to the legislation's enactment? If one were to leave the scheme a year later, would one have to wait for the amount accrued up to enactment or just the amount accrued after enactment?
You can see my confusion, Mr. Griffiths. I am not sure which rule applies in which circumstances. If one has to carve up parts of pensions into parts that accrued before and after a date, and one has to draw one part at one age and another at another age, we will end up in the mire of complexity that so many of us wanted to avoid.
The other substantive issue is the Government's understandable drive to encourage everyone to work longer. The new clause would make it more difficult for people to draw pensions in their late 50s and early 60s. The Secretary of State borrowed what I always consider to be my phrase—perhaps I got it from someone else—about the cliff edge of retirement. If we are to regard retirement as a process rather than an event, does that process have to begin at 65?
If we want people to phase themselves out of the labour market much more slowly and less dramatically, why not think of a decade of retirement that might start at 60 and end at 70, for example, in which people could draw pensions that, if taken at 61, by definition would be more modest? They could combine it with part-time work throughout their 60s. Would that not be in keeping with the spirit of the Government's proposals? They would not suddenly stop working at 65. The new clause stops them from doing that, however. It says, ''You must work full-pelt until 65 because you cannot have your pension, then at 65 you get your hefty pension because you have had to wait, at which point you do not have to work at all.'' That does not seem to go with the grain of the Government's rhetoric about phased and staged retirement, and process not event.
One can understand that the Government want everyone to take their pensions later, but how consistent is that with the wider goal of this policy? This new clause has also been introduced very late in
the day, and it might have some quite serious practical implications. Does the Minister know how many people it will affect? If it involves policemen and firefighters, that would represent a lot of people, although I am confused about whether it covers ex-policemen who have not yet reached pension age.
Are we, to borrow the phrase used by the hon. Member for Eastbourne, in footballers and ballet dancers territory? Almost by definition, footballers will leave the employment of their sponsoring employer before normal pension age. Should not people who have a burst when they can do their job and then a long period when they cannot, be able to smooth their incomes much more, rather than having a huge amount of money at one period in their life, followed by a barren period, and then having—under the new clause—to wait even longer before they can get the deferred pay that is their pension?
The new clause raises many issues. It is disturbing that it has come as late in the proceedings as it has. We need much more discussion than we have had so far. I hope—I think that this is important—that the Minister will take us through the issue of accrued rights to the date that the Act comes into force and of people who leave schemes subsequent to that date. Will their whole pension be denied them until they are 65 or only the bit that has accrued? On all of those things, we need to have a much clearer account.
We have had a useful debate. In a way, there are two kinds of issues. The one that I will address second is the relevant one. The other is the broader context of working life and sensible pension age policy. I must not get too far into that wider debate, because there have been and will be other occasions for it. The Government's general position is that we need to create a society and an economy where people have opportunities to work longer than some are at present able to do. There is a range of issues about how we achieve that that are not relevant to the Bill.
We think that the idea that many civil servants and public servants should get their occupational pension at the age of 60 is outmoded. One should look at the history books to see when it might have come in, but it was in a much earlier era when life expectancy was different from what it is in the 21st century. We think it reasonable to say that, in the future, the notion that one should work up to the age of 65 in the public services should not be regarded as extraordinary in a society where people would, at that stage, have a life expectancy of about 20 years. That will increase as the century progresses. That will have to be done on a phased basis, because it is a matter for discussion with different public services and it will be phased in with regard to different cohorts.
I hope that hon. Members will not think that that is an extraordinary notion. Indeed, given that many in the private sector are not able to draw their occupational pension until 65, there is an issue about public versus private if we are to maintain public confidence in our public services.
Although the hon. Member for Eastbourne says that we expect people to work longer, I do not think
that we are in a society and an economy where people will be working for more years than their parents or grandparents did. For perfectly good reasons, such as school-leaving age, further education and higher education, their entry into the labour market is altogether different from that experienced by their grandparents. Many people will not properly enter the labour market with their first major job until they are 20 years or a quarter of a century into their life. One has to be careful before jumping to the conclusion that people will be working longer. That is a subject for another debate, but it has been raised by the hon. Members for Eastbourne and for Northavon and I thought that I should address it briefly.
On the specifics of the amendments, we are talking about a much narrower, albeit important, subject. We are talking about when someone works in the public services—we have referred to firefighting and crime fighting—but leaves before the usual retirement age, presumably to pursue another career. If people are sick, different issues are involved, but if they leave to get another job, does it make sense for us to say of future rights that will be accrued—not past rights—''No, you should receive your pension at 55'' or at whatever age applies to the scheme? It is much more sensible to say, ''No, you will get that part of your pension when you are 65.''
The hon. Member for Northavon has properly raised the issue again with me. The rights of members are fully protected under current legislation. The amendment would not alter the level of protection in respect of raising the public service pension age; it will be in respect of future service only. The rights of a person who was a firefighter or a police officer earlier in his career will be protected. Obviously, we must be careful about making changes and thinking through the implications. The debate has been useful, but the provision is not that revolutionary and, in terms of future rights, it is a matter of common sense about how we have regard to our emerging demography in the 21st century and how we adjust public service pension rights to that new demography.
I am not sure what I was doing that was slowing down the Minister. I want to know about the transition. The new clauses applies straight away to future service. Let me get my head around the matter: I could be aged 55, and anticipate working for a further five years and drawing a pension at 60. The coming into force of the Bill means that I cannot draw the pension in respect of those final five years at 60, but only at the age of 65. How does a person divide the service accrued to date, with the service accrued in those final five years in a final salary scheme, when those final five years are the time in which his salary could increase quite a lot and affect the service that he has earned in his entire life? In one sense, that is a technical question, but we all know that those last few years of service could add a heck of a lot to a person's pension rights. Under the Bill, a person could find, with very little notice, that he could not draw a big slug of his pension rights for a further five years. It is all very well saying that the matter relates to future service, but a fairly short-term future service might
have a big impact on a person's pension. Are we giving people fair warning of such matters?
I understand the question, but as the matter has excited more interest on a Thursday afternoon than I had anticipated, it would be helpful if I write to the hon. Gentleman and other hon. Members about the provision and explain where we are generally going in terms of public service pension ages. I shall try to address the specifics of how it would affect individuals in different circumstances. The hon. Gentleman asked a perfectly proper question and that is how I wish to deal with it.
I simply wish to advise you, Mr. Griffiths, that I want us to have a Division on the matter. I am not being churlish because I look forward to the Minister's explanation. However, until we receive it we are being asked to accept something about which the Committee has not received a full or adequate explanation. Such a provision could have a big impact on hundreds of thousands of constituents. We cannot nod it through in the expectation that a letter will satisfy us.
Question put, That the amendment be made:—
The Committee divided: Ayes 11, Noes 2.
Question accordingly agreed to.
Amendments made: No. 544, in
schedule 12, page 233, line 18, in column 2 at end insert—
'In section 132, the words from ''or the voluntary'' to third ''requirements''.'.
In section 181(1), the definition of ''voluntary contributions requirements''.
No. 546, in
schedule 12, page 233, line 18, in column 2 at end insert—
'Section 148(5)(ba) and (bb).
Section 149(1), (1A) and (1B).
In section 149(3)—
(a) paragraph (ba), and
(b) paragraph (d) and the word ''and'' immediately preceding it.
In section 151(1), paragraph (c) and the word ''and'' immediately preceding it.
In section 151(3)—
(a) paragraphs (ba) and (bb), and
(b) in paragraph (c) the words ''any of paragraphs (a) to (bb).'.
No. 545, in
schedule 12, page 233, line 21, in column 2 at end insert—
'In Schedule 9, paragraphs 5 and 7(2).'.
No. 102, in
schedule 12, page 233, leave out lines 23 and 24.
No. 576, in
schedule 12, page 233, line 33, in column 2 at end insert—
'In section 22(1)(b), the word ''or'' at the end of sub-paragraph (i).
In section 25(2), the words from ''but'' to the end.
Sections 26A to 26C.'.
No. 570, in
schedule 12, page 233, line 43, in column 2 at end insert—
No. 103, in
schedule 12, page 233, line 53, column 2, at end insert—
'In section 71A(4), paragraphs (f) and (g).'
No. 577, in
schedule 12, page 234, line 16, in column 2 at end insert—
I beg to move amendment No. 403, in
schedule 12, page 234, line 27, after '21(3)''' insert 'and ''78, 79, 80(4)'''.
This is a minor, technical amendment that relates to the dissolution of the Pensions Compensation Board.
Amendment agreed to.
Amendments made: No. 578, in
schedule 12, page 234, line 47, in column 2 at end insert—
'Section 47(1), (2) and (4).'.
No. 547, in
schedule 12, page 234, line 47, in column 2 at end insert—
No. 548, in
schedule 12, page 234, line 53, at end insert—
'The repeals in sections 148, 149 and 151 of the Pension Schemes Act 1993 (c.48) relate to those provisions as amended by section 54 of the of the Child Support, Pensions and Social Security Act 2000 (c.19) to the extent that those amendments have been brought into force for the purpose of making regulations and rules.'.—[Malcolm Wicks.]
Schedule 12, as amended, agreed to.