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Mr. Allen McKay : Let me pursue the matter a little further. The compensation that is paid is not compensation for reduced earnings. The special hardship allowance and the reduced earnings allowance deal with that. Compensation is paid for the accident or the contracting of the disease if there has been negligence and according to the extent of disablement or disfigurement. That is an entirely different matter. If compensation were intended to make up for loss of earnings--as the Secretary of State implies--compensation payments would have to be considerably higher.
Mr. Newton : At least part of the hon. Gentleman's remarks may relate to proposals in another part of the Bill, concerning the balance between benefits paid and the amount of compensation awarded by the courts in an action concerning industrial injury that is judged to be the result of negligence by the employer. That separate matter is one on which my right hon. Friend will comment when he concludes the debate.
The last of the four measures relating to long-term sickness and disability benefits concerns the additional pension element paid with the main invalidity benefit. That benefit has three components. They are a basic pension with increases for dependants, the invalidity allowance which I touched on once or twice earlier, in the context of explaining how we extend it to the severe disablement allowance, and an earnings-related additional pension.
The Bill's provisions make a change affecting only the last of those three elements. Additional pension first became payable with invalidity benefit in 1979. The average payment currently is £9, incurring a cost of about £450 million a year. However, that commitment is growing rapidly and we estimate that by 1998, the average payment will be £21 at a cost of about £1.6 billion, which will continue to grow thereafter.
As I pointed out in my statement on 10 January, a continuing commitment on that scale would be likely not only to inhibit the very welcome growth of occupational sick pay schemes--now thought to cover more than half the population--but widen the gap still further between those who are able to work and those who are not. Such a commitment would take more and more social security resources to those who already enjoy good entitlements, do nothing for people never able to work or whose working life is cut short early, and make it increasingly difficult for any responsible Government to find resources to help disabled people with the greatest needs, as I have done--this relates to the remarks of the hon. Member for Birmingham, Ladywood (Ms. Short)--with the measure in clause 2 to pay an age-related addition with severe disablement allowance.
Column 632We want to ensure that we can, both now and in the future, place proper emphasis on the needs of people who most need extra help. Clause 4 provides that no new--and I emphasise again "new"-- entitlement to additional pension with invalidity benefit will arise after the end of the 1990-91 tax year. From April 1991, all entitlement to additional pension will be assessed on earnings between 1978-79 and 1990- 91. All existing rights up to that time will be preserved. Earnings will continue to be revalued, and I assure the House that the clause does not in any way restrict rights already earned or earned up to that time.
Mr. Michael Meacher (Oldham, West) : What is the Government's best estimate of the total cumulative saving from the abolition of the additional pension over future years? Why is it that although a benefit of substantial cost to the state is to be abolished, there is no equivalent reduction in national insurance payments?
Mr. Newton : The answer to the hon. Gentleman's question will become clear when I come to the national insurance fund. I have not sought to disguise any figures, and I shall not do so in respect of the information for which the hon. Gentleman asks.
As with the reduced earnings allowance, the change to additional pension will reduce expenditure--but quite slowly, building up from £5 million in 1992-93 to about £100 million by the middle of the decade and about £350 million by the end of it. It is important for the House to recognise that, despite that reduction, total expenditure on such additional pensions with invalidity benefit will continue to grow rapidly, from £450 million now to more than £1.3 billion by the turn of the century.
Incidentally, because invalidity allowance--the age-related addition to invalidity benefit which remains unchanged--is reduced by any entitlement to additional pension, invalidity allowance will for many people replace to some extent entitlement to additional pension. The complete package of measures, including the two new benefits on which we are working, will give extra help--this picks up the figure mentioned by the hon. Member for Bradford, West (Mr. Madden)--to an estimated 850,000 people. The total net effect by 1993-94, even allowing for the measures I have just commented on to restrain future growth, will be to add some £300 million to the total costs of the benefits we pay to the disabled and their carers. That is over and above the money we will pay on account of inflation or any increased demand.
Because of the relatively slow build-up of the effect of what we propose on additional pensions, the result of the package as a whole is to make expenditure on the long-term sick and disabled higher than it would otherwise have been in every remaining year of this century.
Mr. Meacher : I have listened extremely carefully, but the Secretary of State has not answered my question. Will he now tell us what the total cumulative saving to the Government is, over future years, for the abolition of the additional pension?
Mr. Newton : The hon. Member, quite reasonably, asked a long series of parliamentary questions immediately after my statement about disability benefits. I have the answers here. The hon. Gentleman also has the answers. My right hon. Friend the Minister of State went to some trouble to ensure that the hon. Gentleman had the answers before this debate.
Column 633I have stated the effects on expected expenditure on additional pension between now and the end of the century. The hon. Gentleman knows from answers that he has been given--it was implied in my earlier remarks--that those effects continue into the next century. The reduction of expenditure on additional pension with invalidity benefit by 2015--some far distant time by which many things will have changed--compared with what would otherwise have taken place if the current commitments for the future had remained unchanged, will be in excess of £1 billion.
I shall give the hon. Gentleman the credit of suggesting that he has not sufficiently considered what I said about the consequences of continuing to make commitments--we had some of the same argument on what I shall call main SERPS--about what a generation of taxpayers and contributors will be prepared to do in 2015. Their form may or may not be honoured. At that time, demographic trends may be at their worst.
It is not certain that a future generation will be able to honour such commitments. As long as they remain unchanged and we continue to make long- term promises about what future generations of taxpayers and contributors will be asked to do, it is increasingly difficult to add additional commitments to current expenditure--as I have tried to do to help disabled people today--because those commitments would be piled on top of long-term commitments.
It would be difficult--I would say impossible--for any responsible Government to make the short and medium-term improvements I am making if we had not taken action to restrain the scale of the uncertain promises that are being made for the future. I make no apologies to the House for that. It is the responsible position for a Government to adopt when considering these matters.
Mr. Meacher : The practicality of SERPS is at the heart of the debate. It is, for the Opposition, a point of principle that SERPS offered far and away the best pension provision for this country--provision that the present Government have destructively undermined.
How does the Secretary of State justify his argument that SERPS was not a practical scheme, given that this country spends about 7.5 per cent. of its national income on state pensions, while in the free-market United States the figure is 8 per cent. and in Germany and France it is as high as 14 per cent? How can the right hon. Gentleman possibly say that SERPS was wildly extravagant or that it was not viable, which it clearly was?
Mr. Newton : The hon. Gentleman is trying to rerun some rather old arguments dating back to social security measures of 1985 and 1986. I accept that looking ahead 40 or 50 years involves a huge range of uncertainties, not least economic uncertainties ; those measures, however, set out clearly the reasons--including demographic trends--for doubting whether it was sensible to continue to make commitments affecting future taxpayers and contributors on the scale represented by SERPS.
I do not think that the hon. Gentleman's comparisons with the position in other European countries take us very far. At present, those countries do not match our structure of support for retired people, which has for a long time included substantial provision for occupational pensions.
Column 634We need to think in terms of total provision for those in retirement, and in that context the hon. Gentleman's comparisons are misleading.
Sir Peter Hordern (Horsham) : The comparisons offered by the hon. Member for Oldham, West (Mr. Meacher) are not valid, because provision for occupational pensions is just as extensive in those countries as it is-- increasingly--here. What does my right hon. Friend think of the proposal that the retirement pension--for which the Government are responsible-- should be increased in line with either prices or earnings, whichever is the greater? What would have been the cost of implementing that policy over the past 10 years?
Mr. Newton : The cost would have been substantial. The last Labour Government, who implemented such a policy, proved incapable of sustaining it. In the middle of their time in office, they had to fiddle about with the uprating mechanism, which saved some £1 billion at current prices- -at pensioners' expense--because they found that they could not live with the consequences of the formula that they had promoted so strongly.
What is more, there is no doubt that an attempt to pursue such a policy would have serious inflationary consequences, thus damaging one of the key factors in the improvement of recent years in pensioners' living standards- -the increase in the real return on their savings. As I have told the House numerous times, the available information suggests that--almost unbelievably--pensioners' income from savings actually fell under the last Labour Government. Under the present Government that income has risen sharply, and has contributed significantly to the improvement in their living standards.
Mr. Frank Field (Birkenhead) : Will the Secretary of State confirm that under the last Labour Government the real value of the old-age pension rose by 20 per cent., while under the present Government it has risen by less than 3 per cent? The poorest pensioners had a much better deal under Labour.
Mr. Newton : All right, on average. We are now rerunning exchanges that have taken place on numerous occasions in recent weeks. It can be said, as a broad generalisation--although, as I have always accepted, it is not true of every individual case--that pensioners have done significantly better as a result of various features of what has happened under the present Government, including the improvement in savings income, the greater value of occupational pensions which has resulted from reduced inflation and our measures to price-protect faithfully the basic retirement pension. I have acknowledged clearly on many occasions--indeed, it is reflected in Government policy--that not all pensioners have benefited to the same extent and, in particular, that older pensioners who tend to have less savings because they retired at a time when there was less prosperity or because they have less entitlement to occupation pensions, have not benefited from those general trends as others have done. But, as the hon. Member for Birkenhead (Mr. Field) argued last week in a newspaper article, by which I was quite struck, the logic of
Column 635that is not that we should go down the path of the wholesale, massive increases that the hon. Member for Oldham, West is advocating, with their inflationary consequences, but that we should focus help on the less-well-off pensioners, as the present Government have been seeking to do.
Mr. Frank Field : Perhaps I will be able later to develop the ideas that I expressed in that newspaper article-- [Interruption.] No I am not making a speech : I am making an intervention, and if hon. Members behind the Minister keep interrupting, it will take longer. The Secretary of State's point is that, under this Government's price protection, the real value of the old-age pension has risen by 3 per cent., whereas in a much shorter period, under a Labour Government, it rose by 20 per cent. When the Minister talks about pensioners without savings or occupational pensions perhaps he should remind the House that those people represent about 45 per cent. of all pensioners.
Mr. Newton : The essential point, on which I hope that there will be some community of view between the hon. Gentleman, who takes a close interest in these matters, and myself, is that the average total net income of pensioners rose by 3 per cent. under the last Government, whereas it has risen by 23 per cent. under the present Government. Part of the reason for that is that the approach that the Labour Government adopted to public expenditure as a whole, including social security expenditure, generated rates of inflation that decimated large parts of the income of pensioners as a whole.
Mr. Jeremy Corbyn (Islington, North) : Does not the right hon. Gentleman recognise that nearly three quarters of single women pensioners do not have access to occupational pension schemes and that often they do not have access to savings? Does he not agree that over the past 10 years, under this Government, the breaking of the link between the state old-age pension and average earnings has made those people £13.10 a week worse off than they would have been had the link been maintained in 1980? Of course it was callously broken by the Government of which the Minister is a member.
Mr. Newton : No, I do not accept that. Those people, too, would have suffered, perhaps even more harshly, from maintenance of the sort of inflation-- [Interruption.] The hon. Member for Ladywood ought to remember that even the present rate of inflation, which the Government have indicated clearly is higher than they would wish, is barely more than half the average rate of inflation that we experienced in the latter part of the 1970s.
Mr. Newton : My normal instinct is to give way, and I will think about giving way to the hon. Lady after I have had an opportunity to complete my reply to the hon. Member for Islington, North (Mr. Corbyn). I think that that would be better than allowing intervention to pile upon intervention.
I have already made tbe first main point that I wanted to make to the hon. Gentleman. The other point, of course--and here I am not endorsing his figure of three quarters, or whatever it was--is that many single women pensioners, especially those who might be described as always having been single, rather than widows who may be entitled to an
Column 636occupational pension arising from their husband's entitlement, may well be less likely to have the sort of extra provision from which so many pensioners have benefited. Consequently, of course, there will be a disproportionate number of such people among those helped by the measures that we have taken, most recently last October, to steer additional support to the over-75s and the more disabled pensioners by way of increases in income support and consequential increases in housing benefit.
Ms. Short : I am grateful to the Secretary of State for giving way. I should like to put two points to him. The first, which he has completely ignored, is that if we sustain our rate of economic growth at just over 2.5 per cent., our national income will double every 20 years. Therefore, when the Secretary of State says that we cannot afford in the future better pensions or better payments to people with disabilities, he is saying that, relatively, those people will get worse and worse off while our income doubles every 20 years. That first point is extremely important, because it wipes away many of the points that the Secretary of State made earlier about what we can afford for pensioners and for people with disabilities.
My second point relates to inflation. The Government constantly tell fibs about the old economic statistics. They inherited a rate of inflation of about 8 per cent. at a time when inflation across the countries of the Organisation for Economic Co-operation and Development was massively higher than it is now. The Government then doubled that rate by doubling the rate of VAT. They took inflation up and squeezed the economy, causing enormous suffering. They then took inflation down until, with the silly Lawson boom, inflation is now up again. The Government's record on inflation is not a fine one. We now have a problem with inflation although we have had the benefit of North sea oil. The Government should not boast about that.
Mr. Newton : I shall make only two points in response to the hon. Lady. First, she will have to do a great deal more detailed work before she can show that the previous Government's record on inflation was better than that of the present Government, which is to fly in the face of all reality.
Secondly, if--as I should certainly expect in view of the expected continuation of the present Government in office--we were to maintain our success in generating more rapid economic growth than we have over recent years, that would make a whole lot of things easier. However, what is equally true is that if the dismal record of the last Labour Government had been maintained, it would be extremely difficult to maintain the commitments that we have already made, let alone those that the hon. Member for Oldham, West wishes to pile on top.
Miss Emma Nicholson : Does my right hon. Friend agree that the last few interventions by Opposition Members display the extreme paternalism and old-fashioned attitudes of the Opposition? After all, most women now enter the professions and earn occupational pensions. On top of that, our introduction of portable
Column 637pensions means that pensioners no longer have to be dependent on the state. Do the Opposition welcome these moves or do they want to keep us all as permanent beggars?
Mr. Newton : I am not quite sure whether the Opposition welcome the moves or not--perhaps the hon. Member for Oldham, West will enlighten us on that when he speaks. However, I certainly welcome the trends to which my hon. Friend has referred, but at the same time I recognise the point that the hon. Member for Islington, North made. Quite a lot of women who are already retired--and especially older women--have not had the advantage of those trends and we are rightly seeking to concentrate on them some of the additional help that we can give. In a way, these exchanges lead me naturally into the second main theme of the Bill, which is occupational pensions. We are building on the platform that we have established in recent years with changes that have encouraged people to make proper financial planning for their retirement, and have given them greater choice in deciding what is best for them in their particular circumstances. Individuals have responded--the success of personal pensions is just one indicator of that. In my view at least--I recognise that this is a matter of some controversy to the hon. Member for Oldham, West who will no doubt return to this point when he speaks--a more stable and sustainable pensions structure has been created, in which a larger part of provision over and above the basic state retirement pension will be firmly founded on people's own savings while in work, not on Governments today making commitments that the taxpayers and contributors in 30 or 40 years' time may or may not be able to fulfil.
The Bill covers a number of miscellaneous technical amendments to existing occupational and personal pensions legislation. It also provides for a number of significant measures designed to give greater protection to the members of schemes. I announced last November that we would be taking specific legislative action to respond to the recommendations of the Occupational Pensions Board in its report "Protecting Pensions". This report followed a request to the board from my right hon. Friend the Member for Croydon, Central (Mr. Moore) to look at a number of issues relating to the balance of interests of employers and scheme members, and the involvement of schemes in company mergers and takeovers. I should like to pay tribute to the board for its work. The Government have accepted the vast majority of its recommendations, and our proposals have been widely welcomed. Their general thrust is to improve the benefit security, the information and the help available to scheme members. For some pension scheme members it has come as a painful awakening in recent years that the takeover or merger of their company has resulted in a sharp reduction in the value of the pension they expected to receive. Not only did they enjoy the full value and security of pension rights built up over a number of years ; they also had expectations of discretionary increases on top. Instead they can end up with a pension based on the lower salary that they had when their original scheme was wound up. Only part of that is protected by revaluation each year. That, as I have made clear, is no longer acceptable. We are,
Column 638therefore, proposing that revaluation should be applied to the whole of the preserved pension rights of future early leavers, not just that fraction accumulating after 1985. That will help not only people affected by takeovers and mergers, but those who change jobs. The preserved pensions of all members who become early leavers after the appointed day will be covered. The value of the pension rights above the guaranteed minimum pension level will be revalued until they come into payment in line with price increases, or by 5 per cent. per annum, if that is less.
In addition, we are introducing a further obligation to revalue benefits when a scheme is wound up. Sufficient resources will have to be provided to revalue all present and future pensions in payment in line with price increases up to a maximum of 5 per cent. a year. Any deficiency in the scheme assets necessary to meet those liabilities are to count as a debt on the employer. It has been suggested by some organisations representing employers and pension funds that that could be an undue burden on some employers and schemes. I am, of course, willing on this as on other matters to listen to specific problems that are raised, but I believe that the Government's proposals are a sensible and measured step forward which will greatly improve protection for ordinary scheme members. We are also providing for the appointment of an independent trustee in certain circumstances. That can be only beneficial in ensuring that the interests of both employers and members are taken into account. The Bill also includes measures to restrict self-investment where pension funds own any assets in companies to which they relate. We think that it is important to spread risks and equally important to remember that the prime purpose of those pension schemes is to provide a good retirement income, not to improve the company's financial position. If a pension fund invests in the company to which it relates, failure of the company leads to double jeopardy, both for employees' job prospects and for their pensions at the same time. In general, our antipathy to that being allowed to happen is widely accepted. Concern has been expressed about the position of small self-administered pension schemes. Those are schemes with fewer than 12 members, often directors of a small family concern which, since their institution, have been accustomed to the opportunities, within Inland Revenue rules, for a certain degree of investment in the related company. It was forcefully argued to me that, in those cases where the shareholding directors and trustees make poor investment decisions, the double risk is for their own jobs and pension prospects rather than those of other people, and that different considerations therefore applied. As I made clear to the House in an answer shortly before Christmas, I have accepted the validity of that argument, and we therefore intend that, where small self- administered schemes consist only of controlling directors, they should be excluded from the proposed self-investment restrictions.
Clauses 7 and 8 of the Bill are concerned with providing a better service for the individual members of schemes. I believe that the introduction of a pensions ombudsman is a major step forward. Although assistance is already available from various sources such as the occupational pensions advisory service, there is a clear need for a mechanism to provide a straightforward method of redress for consumers' problems. Individuals will have free access to the ombudsman and schemes will have to abide by the decisions given. A tracing registry should also assist many
Column 639people to track down where past pension rights may be held. On both those issues we are continuing to talk to the pensions industry about how to provide the best possible service to consumers.
Mr. Newton : I am conscious of the fact that I have been speaking for the better part of an hour and that I am in danger of trenching unduly into the time available to other Members. [Interruption.] I give way to my hon. Friend.
"The public expenditure effects of Clauses 7 and 8 are still under consideration."
Will my right hon. Friend explain how the ombudsman and the register will be funded?
Mr. Newton : To a significant extent, apart from details of the arrangements, that issue is under consideration. We hope that the industry will join us in providing this important underpinning for people's confidence in the industry. We are having discussions on that matter.
When I said to my hon. Friend the Member for Beaconsfield (Mr. Smith) that I wanted to make progress, I thought that I heard some mutterings among the Opposition to the effect that they would all have retired by the time I finished my speech. It is right therefore to observe that the principal cause of the length of my speech has been my willingness to give way to Opposition interventions. On the one occasion when I sought to make progress by not giving way, the hon. Member for Ladywood, no less, expressed some concern at the idea that I was not prepared to offer her the same opportunity that I had offered others.
Clauses 11 and 12 concern the administration of the national insurance fund and arrangements for the collection of contributions. As the House will know, the Government Actuary has recently produced his annual report on the state of the fund. It shows that the fund will remain well above his minimum recommended level during the next financial year, but that the balance will fall. That reduction in the fund's surplus is the result of a number of factors, including most notably the major reduction in national insurance contributions worth £3 a week to the great majority of contributors, which took place in October last year at an annual cost of between £2 billion and £3 billion, and the success of our personal pension initiative, since, of course, such pensions attract contracted-out rebates in the same way as occupational pension arrangements generally, under the arrangements introduced by the previous Government.
Personal pensions have proved very popular. We introduced them at a time when the number of people in occupational schemes had remained virtually static for about 20 years. Many people who wanted to make additional provision for their retirement had no ready means of doing so. Now over 3.5 million have opted for the personal schemes. We welcome that unreservedly. The change has enhanced the choice available to individuals in a way they have manifestly welcomed and helped significantly towards the wider objective of getting people to think further ahead about provision for retirement than has traditionally been the case.
Column 640Although this means more income forgone by the national insurance fund in the short term, it reduces the burden on the state earnings-related pension scheme in the longer term. As I have said, despite the reduction in contributions, which was generally welcomed, and the very encouraging response to personal pensions, there is no immediate problem. In the present year, the expected balance in the fund, at 34 per cent., is over twice the actuary's recommended minimum. Next year, at 25 per cent., it will still be far in excess of the minimum.
We need, however, to ensure that the balance stays healthy in the years further ahead, and clause 11 does so in a way which could well be argued to be sensible in any event, by simply removing from the fund three benefits that are not related to national insurance contributions and are, therefore, more properly paid out of general taxation.
The benefits in question are industrial injuries benefits, statutory sick pay and statutory maternity pay. As the House is well aware, entitlement to national insurance benefits depends on an individual's contribution record, but that is not the case with these benefits. To receive industrial injuries benefit, the only requirement is that the claimant has been in employment. Statutory sick pay and statutory maternity pay depend on an earnings test and not on the need to satisfy particular contribution conditions ; thus, for instance, married women and widows who have actually opted not to pay contributions in full are nevertheless entitled to receive SSP or SMP. It is, therefore, more appropriate for these benefits and their administrative costs to be met from general taxation rather than from the contributions of those paying for the national insurance system. The national insurance fund, in our view, should concentrate on the proper contributory benefits, and clause 11 provides for that to be done.
I should make it quite clear to the House that this change does not in any way alter the present or future benefit entitlement of any individual. It will not affect the way these benefits are administered by the Department. It will not affect the current arrangements whereby employers recoup the cost of statutory sick pay and statutory maternity pay from their national insurance contribution payments. We will simply ensure that the national insurance fund will be reimbursed from general taxation.
Mr. John Battle (Leeds, West) : How much will the right hon. Gentleman's Department lose in income as a result of the 2 per cent. bribe for people to move out of the SERPS into private pension schemes?
Mr. Newton : The amount paid out in the current year for commitments in the previous year is £500 million. It is a small part of the total change that is occurring in the balace of the national insurance fund. With respect to personal pensions, the overwhelming bulk is not the incentive to which the hon. Gentleman referred but contracted-out rebates, which have been part and parcel of the system since they were introduced by the Labour Government in the late 1970s. Because of the growth of personal and occupational provision, contracted-out rebates are a longer-term addition to the income forgone by the fund, rather than the incentive to which the hon. Gentleman referred, which, in any case, is due to come to an end.
Column 641I am not trying to dismiss the point made by the hon. Member for Leeds, West (Mr. Battle), but it should be understood that the incentive is a relatively small part of the change. This should be put in the context of a fund that has an income and outflow of roughly £30 billion a year.
The one significant effect of the clause will be on the finances of the national insurance fund. In the first full year, the fund will gain overall by about £1.9 billion--although, of course, the overall financing of benefits will be unaffected. We see this as a straightforward and sensible rationalisation. It also represents prudent housekeeping for the fund.
Clause 12 concerns the arrangements for national insurance contributions. It introduces provisions which mirror the Inland Revenue legislation contained in the last two Finance Acts to streamline tax collection by encouraging prompt payment. It provides for a system of penalties for late national insurance contribution returns and for interest charges on late paid contributions. I hasten to assure the House that the arrangement is even handed : the Bill also provides that the Secretary of State should pay interest to employers who are owed refunds on their contributions.
The last main point on which I need to touch is clause 10, which gives powers to my right hon. Friend the Secretary of State for Energy to introduce a new scheme of grants towards the cost of insulation measures in low-income households. The new scheme of grants will build on the success of the community insulation projects and the current home insulation scheme. It will, however, go beyond what they have achieved. As the House will be aware, the community insulation projects began in 1982 as part of the community programme. Over 700,000 low-income households have benefited from that scheme. However, with so many fewer unemployed people--which hon. Members on both sides of the House will welcome--we can no longer rely on a training programme for the unemployed to deliver this valuable national service. The projects need now to be developed into fully fledged local business.
The clause does no more than give an enabling power to my right hon. Friend to make regulations governing the new scheme. These regulations will set the detailed framework for the new arrangements.
Mr. Newton : If the hon. Lady is muttering, "No money." I draw her attention to the financial part of the explanatory and financial memorandum which shows that the expenditure is expected to be about £12 million in 1990-91.
I know that my right hon. Friend wishes to consult widely before those regulations are laid and will be issuing a consultative document on the scheme very shortly. He hopes to do that--I am sure that hon. Members agree that that is proper--before the clause is discussed in Committee, in order to assist the discussion which will, no doubt, take place there and which, from the sound of it, the hon. Member for Ladywood will seek to illuminate.
I shall not seek to take the time of the House by going at length into the more minor and technical provisions of the Bill, although, of course, my right hon. Friend the Minister of State will seek to respond to any points that are
Column 642raised when he speaks at the end of the debate. However, I shall draw attention to one provision, tucked away in paragraph 16 of schedule 5, which, although modest, will, I believe, be warmly welcomed. This provision will extend statutory maternity pay to service women on the same basis as for other women.
The Bill is designed mainly to carry forward the process that we have embarked on to give a better balance to the system of disability benefits. It also makes important and valuable changes to the operation of occupational pension schemes and makes a sensible rationalisation in the scope of the national insurance fund. It will further improve both our social security system and the strength of wider provision for retirement, and I commend it to the House. 4.50 pm
"The Bill makes a range of amendments to the law relating to social security".
After such a marathon speech, one might have expected that either the Bill or the Secretary of State would have dealt with some of the key outstanding priorities in social security. I submit to the House that in at least four areas urgent action is needed now. On all of them there is a deafening silence in the Bill and they were scarcely mentioned by the Secretary of State. Nothing has been said about the almost 2 million pensioners living on or below the poverty line who have increasingly fallen further behind during the past 11 years. Nothing has been said about the social fund fiasco, the young homeless scandal or the child benefit freeze. Therefore, my first point is simply that the Bill signally fails to tackle the major issues that urgently need attention.
What does the Bill deal with? In his usual amicable way, the Secretary of State made a modest presentation of his proposals. He has a lot to be modest about. As he said at some length towards the end of his speech, the main purpose of the Bill is to give more security to members of occupational pension schemes. The other side of the coin, about which he ostentatiously said nothing, is that Government policy takes away security from members of SERPS, which, I submit, is a much better scheme. Even in respect of occupational schemes, the proposals will do little or nothing to stop employees being cheated of their pension rights.
Let us take as an example the proposal on early leavers, which is central to the Bill. At present only pension rights built up after 1985 are revalued in line with prices, up to a limit of 5 per cent. The Government now propose that all preserved pension rights will be uprated by the same formula--only up to 5 per cent. That is an improvement as far as it goes, but it does not go very far. The average rate of inflation over the recent historic period has been, not 5 per cent., but 10.2 per cent. It is currently 7.7 per cent. In other words, the Government have offered to uprate the pension rights of occupational scheme members at a mere half of the historic rate of inflation. As pensions are nothing more than deferred pay--at least that is the Opposition's view--that is like saying to one's employees, "I am going to give you a pay increase this year of 3.8 per cent.--half the current rate of inflation." That would not
Column 643go down well with the ambulance men, with the Ford workers or with Lord King who gave himself a pay rise last year of 11.6 per cent.
Mr. Meacher : I am coming to us. That would not go down well with hon. Members, including Tory Members who cheered the Secretary of State's announcement as if it was a bonanza for the pensioned classes. They would not accept it for a moment, not even for one year, let alone for the 20, 30 or 40 years proposed in the Bill. My point is not simply a debating point but an important issue of principle. Why should employees, who are compelled by law to contribute from their gross incomes to pension schemes, be forced meekly to watch that part of their earned income whittled away by increases at only half the rate of inflation? Employees would never put up with that formula in respect of their current pay. It is a form of legal expropriation--I choose those words advisedly--to allow employer controlled pension schemes to extract earned income from employees and then reduce its real value.
Mr. Tim Smith : Does the hon. Gentleman appreciate that private sector occupational pension schemes are voluntary and that when the Occupational Pensions Board examined the issue in 1981 it said that there should be some ceiling, because otherwise the commitment is open-ended? His proposal is wholly retrospective and could go back many years in the case of a long-serving employee. The hon. Gentleman proposes a huge new cost for employees in the future. They are the people who will have to pay.
Mr. Meacher : Indeed, I appreciate that. However, employees deserve their pension rights. It is a disgrace that pension schemes with funds that currently total over £50 billion are indulging in contribution holidays rather than meeting their prior obligation to their employees.
There is a serious political point here. We are constantly told about the benefits to Sid from privatisation. In pensions, the disbenefits from privatisation are absolutely enormous. SERPS and most public sector occupational schemes, including the scheme for Members of Parliament, offer full inflation-proofing of pensions. The hon. Gentleman and every hon. Member in the Chamber should bear in mind that they will have the advantage of full inflation-proofing. Virtually no private sector scheme provides that. That is not a minor matter. Cumulatively over the years it has a huge impact, not only on the value of the pension achieved on retirement, but on the remainder of the person's life, which might last another 20 years or more. It can be argued that the income losses from most private occupational schemes--let alone from personal private pensions, which I shall come to later--far outweigh any income gains that individuals may have received from all other forms of privatisation put together.
Mr. James Cran (Beverley) : The hon. Gentleman is entitled to make the point that index-linking in occupational schemes is not as high as he would like. Will he also make it clear that the contributory pension scheme for hon. Members has a contribution rate of 9 per cent., whereas the average rate for occupational schemes is of the order of 5 per cent.? He is saying to the work force that if it wants index-linking it will have to pay for it and pay for it severely. The hon. Gentleman has not made that clear.
Mr. Meacher : The hon. Gentleman's figure is not right. Contributions are on average somewhat over 5 per cent. and I shall give some examples later. Certainly, index-linking would not require significant increases in contribution rates when there are huge and growing fund surpluses. The hon. Gentleman must face that. The trustees of pension schemes do not have a divine or unmitigated right to that money. It is owed to the employees who contributed to it in the first place.
The Secretary of State says that the Bill provides more protection to occupational scheme members, but it is rather like a car insurance policy that excludes crashes. According to the consulting actuaries, R. Watson and Sons, if his formula had been in operation over the past 20 years a pensioner retiring in 1989 who left the scheme 20 years ago would have found the real value of his pension rights reduced by more than 60 per cent. That is a telling figure. That is the acid test. It reveals the pathetic inadequacy of the so-called protection in the Bill for what it is.
I want to be open about this and tell the Secretary of State that the Labour party will not accept the formula. When we come to power we shall ensure a proper level of protection for early leavers. That means that we shall require pension rights to be uprated each year by the full rate of inflation. That is not an unreasonable requirement for schemes when surpluses currently top £50 billion--that figure is not even the most recent and the sum may well be significantly more--and when many companies have recently declared extended contribution holidays for themselves. To require anything less is to cheat employees of a significant part of their entitlement to their deferred pay.
There is another major weakness in this part of the Bill. It does nothing to ensure that occupational pensions maintain their value in payment after retirement. It is a scandal that some, not many, private sector schemes make no increase in pension after retirement.
The same actuaries have shown that some people who retired in 1969 would have found the real value of their pension reduced in those circumstances to a mere 15 per cent. of its original value. The Bill will do nothing to stop what is little more than legalised robbery. Even where private schemes guarantee increases, and most do, it is normally at the low level of about 3 per cent. That is only one third of the average rate of inflation for the recent historic period. That is completely unacceptable. In our view, pensioners should have the first call on the surplus of a scheme until the real value of their pensions has been restored fully. Then it should be maintained annually.