House of Commons Hansard Debates for 28 Mar 1990

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Dilatory Motions

3. No dilatory Motion with respect to, or in the course of, proceedings on the Bill shall be made on an allotted day except by a member of the Government, and the Question on any such Motion shall be put forthwith.

Extra time on allotted day

4.--(1) On the first allotted day paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the proceedings on the Bill for three hours after Ten o'clock.

(2) Any period during which proceedings on the Bill may be proceeded with after Ten o'clock under paragraph (7) of Standing Order No. 20 (Adjournment on specific and important matter that should have urgent consideration) shall be in addition to the said period of three hours.

(3) If an allotted day is one to which a Motion for the adjournment of the House under Standing Order No. 20 stands over from an earlier day, paragraph (1) of Standing Order No. 14 shall apply to the proceedings on the Bill for a period of time equal to the duration of the proceedings on that Motion ; and on the first allotted day that period shall be added to the said period of three hours.

Private business

5. Any private business which has been set down for consideration at Seven o'clock on an allotted day shall, instead of being considered as provided by Standing Orders, be considered at the conclusion of the proceedings on the Bill on that day, and paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the private business for a period of three hours from the conclusion of the proceedings on the Bill or, if those proceedings are concluded before Ten o'clock, for a period equal to the time elapsing between Seven o'clock and the conclusion of those proceedings.

Conclusion of proceedings 6.--(1) For the purpose of bringing to a conclusion any proceedings which are to be brought to a conclusion at a time appointed by this Order and which have not previously been brought to a conclusion, other than the proceedings specified in sub-paragraph (2) below, Mr. Speaker shall forthwith put the following Questions (but no others)--

(a) any Question already proposed from the Chair ;

(b) any Question necessary to bring to a decision a Question so proposed (including, in the case of a new Clause or new Schedule which has been read a second time, the Question that the Clause or Schedule be added to the Bill) ;

(c) the Question on any amendment or Motion standing on the Order Paper in the name of any Member, if that amendment is moved or Motion is made by a member of the Government ;

(d) any other Question necessary for the disposal of the business to be concluded ;

and on a Motion so made for a new Clause or a new Schedule, Mr. Speaker shall put only the Question that the Clause or Schedule be added to the Bill.

(2) For the purpose of bringing to a conclusion any proceedings which the Table in paragraph 1 above specifies are to be brought to a conclusion at Nine o'clock on the second allotted day and which have not previously been brought to a conclusion, Mr. Speaker shall forthwith put (so far as they are applicable and notwithstanding any Order of the House relating to the order in which the Bill is to be considered) the following Questions (but no others)--

(a) any Question already proposed from the Chair ;

(b) any Question necessary to bring to a decision a Question so proposed (including, in the case of a new Schedule which has been read a second time, the Question that the Schedule be added to the Bill) ;

(d) the Question that all remaining amendments standing in the name of a member of the Government be made to the Bill ;

(e) any other Question necessary for the disposal of the business to be concluded ;

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and on a Motion so made for a new Schedule, Mr. Speaker shall put only the Question that the Schedule be added to the Bill.

(3) Proceedings under sub-paragraph (1) or (2) above shall not be interrupted under any Standing Order relating to the sittings of the House.

(4) If an allotted day is one on which a Motion for the adjournment of the House under Standing Order No. 20 (Adjournment on specific and important matter that should have urgent consideration) would, apart from this Order, stand over to Seven o'clock--

(a) that Motion shall stand over until the conclusion of any proceedings on the Bill which, under this Order, are to be brought to a conclusion at or before that time ;

(b) the bringing to a conclusion of any proceedings on the Bill which, under this order, are to be brought to a conclusion after that time shall be postponed for a period equal to the duration of the proceedings on that Motion.

(5) If an allotted day is one to which a Motion for the adjournment of the House under Standing Order No. 20 stands over from an earlier day, the bringing to a conclusion of any proceedings on the Bill which under this Order are to be brought to a conclusion on that day shall be postponed for a period equal to the duration of the proceedings on that Motion.

Supplemental orders

7.--(1) The proceedings on any Motion made by a member of the Government for varying or supplementing the provisions of this Order shall, if not previously concluded, be brought to a conclusion one hour after they have been commenced, and paragraph (1) of Standing Order No. 14 (Exempted business) shall apply to the proceedings. (2) If on an allotted day on which any proceedings on the Bill are to be brought to a conclusion at a time appointed by this Order the House is adjourned, or the sitting is suspended, before that time no notice shall be required of a Motion made at the next sitting by a member of the Government for varying or supplementing the provisions of this Order.

Saving 8. Nothing in this Order shall--

(a) prevent any proceedings to which the Order applies from being taken or completed earlier than is required by the Order ; or (

(b) prevent any business (whether on the Bill or not) from being proceeded with on any day after the completion of all such proceedings on the Bill as are to be taken on that day.

Recommittal 9.--(1) References in this Order to proceedings on consideration or proceedings on Third Reading include references to proceedings at those stages respectively, for, on or in consequence of, recommittal.

(2) On an allotted day no debate shall be permitted on any Motion to recommit the Bill (whether as a whole or otherwise), and Mr. Speaker shall put forthwith any Question necessary to dispose of the Motion, including the Question on any amendment moved to the Question.

Interpretation 10. In this Order--

"allotted day" means any day (other than a Friday) on which the Bill is put down as first Government Order of the Day, provided that a Motion for allotting time to the proceedings on the Bill to be taken on that day either has been agreed on a previous day, or is set down for consideration on that day ;

"the Bill" means the Social Security Bill.

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Orders of the Day

Social Security Bill

[1st Allotted Day]

As amended (in the Standing Committee), considered

New clause 19

Annual increase of certain occupational pensions

.--(1) The following section shall be inserted after section 58 of the Pensions Act--

"Annual increase in rate of pension, other than guaranteed minimum pension or money purchase benefit.

58A.--(1) This section applies in relation to any occupational pension scheme--

(a) which is neither a public service pension scheme nor a money purchase scheme ; and

(b) whose rules do not require the annual rate of every pension which commences or has commenced under the scheme to be increased each year by at least an amount equal to the appropriate percentage of that rate.

(2) On and after the appointed day, Schedule 3A to this Act shall have effect for the purpose of providing annual increases in the annual rate of pensions under schemes to which this section applies. (3) In this section--

"annual rate", in relation to a pension, means the annual rate of the pension, as previously increased under the rules of the scheme or under Schedule 3A to this Act ;

"the appointed day" means the day on which this section and Schedule 3A to this Act come into force ;

"the appropriate percentage", in relation to an increase in the annual rate of a pension, means the percentage specified in the last revaluation order made before the increase is to take effect as the revaluation percentage for the last revaluation period of twelve months ;

"money purchase scheme" means a pension scheme under which all the benefits that may be provided are money purchase benefits ; "pension" does not include--

(a) a guaranteed minimum pension or any increase in such a pension under section 37A above ; or

(b) any money purchase benefit ;

"revaluation order", "revaluation percentage" and "revaluation period" shall be construed in accordance with section 52A above." (2) After Schedule 3 to the Pensions Act there shall be inserted the Schedule set out in Schedule [Insertion of Schedule 3A to the Pensions Act] to this Act.'.-- [Mr. Newton.]

Brought up, and read the First time .

7.10 pm

The Secretary of State for Social Security (Mr. Tony Newton) : I beg to move, That the clause be read a Second time.

Mr. Speaker : With this, it will be convenient to discuss Government amendments Nos. 22 and 23.

Mr. Newton : I hasten to assure the House that I shall not read the contents of the new clause, still less the two amendments linked with it. I shall seek to keep my speech brief, in line with anxieties expressed by the Opposition about whether they will have sufficient time to develop their arguments on these undoubtedly important issues.

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The House will recall the wide welcome that was given to an important part of our aim in the Bill--to give members of occupational pension schemes greater protection in various ways. Most of the proposals flowed from an important and valuable report by the Occupational Pensions Board and I wish to renew my thanks to the board for that. There were proposals to reduce the scale of self-investment in pension schemes to try to reduce the risk that members of schemes might otherwise face--a double risk to their jobs and to their pensions ; and proposals for improved protection when a pension scheme was wound up, particularly to reduce the scope for such schemes being exploited by those who might be described as asset strippers. There was a range of measures designed to improve the advice, information and help available to members of occupational pension schemes with the creation of a pensions ombudsman, the strengthening of some of the aspects of the work of the occupational pensions advisory service and the creation of a tracing service to help people who might have pension rights in a wide variety of schemes to establish precisely where and what they are.

In general, those aims have been welcomed by hon. Members on both sides of the House, by many people throughout the country and by the industry.

Some reservations have been expressed about some aspects of our proposals on self-investment and we have modified those to meet what we thought were legitimate criticisms. We shall mount a survey of the scale and extent of self-investment before deciding precisely how to use the regulation-making powers in the Bill. That has also been thought to be sensible.

The second main area of our proposals about which reservations were expressed, while the general principle was welcomed, was the proposal to require pension increases according to certain formulations when a scheme winds up. Some people--certainly the official Opposition--have said that I should have gone further and placed a similar requirement for pension increases on schemes that continued as well as those that were wound up. Other people have pointed out the possible consequences for some businesses of the original winding-up provisions in the Bill. They said that in certain cases at least the employer would have faced additional contingent liabilities for which they had had no opportunity to plan, and if they had to meet those requirements the viability of their businesses might be put at risk in certain circumstances.

Having listened carefully to those arguments, having had a number of discussions with representatives of the industry, and having listened carefully to what Opposition Members said in Committee and to suggestions made in those quarters and the industry that there are other ways to achieve the basic objective, we came to the conclusion that we could strike a better balance between the different aims of pension policy.

7.15 pm

The principal element of that conclusion is that it is better to make general requirements about the payment of pension increases after members retire if the requirements that we are now proposing apply to schemes that continue as well as to schemes that wind up.

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The new requirements are set out in new clause 19 and the associated amendments. We will avoid forcing employers to put new money into schemes to fund commitments to past service. That was the issue in our original proposals which caused so much unease. The new clause makes two requirements. First, schemes will have to pay annual increases to members for pension rights which they build up after an appointed day. For those rights derived from future service, members should be guaranteed increases in line with the retail prices index up to a maximum of 5 per cent. a year. There is nothing in that proposal to prevent schemes from continuing to pay more than that or starting to if they wish to do so, and if they feel able to.

That new provision for improving rights for future service is an important step forward which will give members of private sector schemes, in particular, increasing security in the future. It has been widely welcomed in the industry, by the press and in other quarters as a sensible step forward. However, on its own it does not go far enough, because it does nothing for existing pensioners who have rights derived from past service.

The latest statistics from the Government Actuary suggest that about 80 per cent.--four fifths--of members of schemes are getting annual increases, mostly in the 3 to 5 per cent. range. That is obviously welcome, but it follows that some 20 per cent. --one fifth--are getting no increase. Frankly, that is not good enough, especially when the strong investment performance of pension funds in recent years has continued to yield large surpluses which could be used by many schemes to provide some measure of indexation. Therefore, we are proposing a second requirement in the new clause and associated amendments so that from an appointed day schemes will have to use surpluses to pay increases to members for pension rights which they have already built up. That should include pensions that are now in payment. The guaranteed rate of increase that each scheme will have to pay will depend on the surplus in the pension fund, but the target rate of increase for schemes will be the rise in RPI up to 5 per cent. a year, with the rate to be guaranteed by each scheme, depending on the amount of its surplus. In other words, schemes that have surpluses will have to use them to guarantee increases at target level before taking a contribution holiday or a refund. Schemes will be able to continue or to start to do more than the basic requirement if they wish.

I expect that the appointed days in both cases--both in the first requirement and the latter requirement--for the use of surpluses will be no later than the end of December 1991, although the date that could turn out to be convenient and sensible is 1 January 1992. I have asked my officials to begin discussions with the actuarial profession to determine the appropriate methods and assumptions for calculating the size of scheme surpluses and the guaranteed increases that would flow from them.

The proposal offers a sensible balanced and affordable measure of security to existing pensioners. For many in the private sector it will turn existing discretionary increases into rights. That can only be an advance in making such schemes even more attractive to their members.

The new requirement will cover benefits paid to widows, widowers and dependants. It will apply to all retirement benefits paid by occupatonal pension schemes

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with two exceptions. The first is guaranteed minimum pensions and any increase in these pensions under section 37A of the Pensions Act. Those benefits are already protected through the contracting-out arrangements of the state earnings-related pension scheme. The second exception is money-purchased benefits, including personal pensions schemes to which I believe rather different considerations apply. Their members aready have an opportunity to use the proceeds of their investments to choose a pension that increases after retirement--or not, as the case may be. No doubt one could argue about whether that choice ought to be restricted, but, in my view, this is not the time to attempt to make any decision on that. The question of pension increases in those schemes would be best resolved as part of the review of the terms for contracting out of SERPS that is due to start next year.

Under the new proposals, the position when a scheme winds up will match the general requirements for pension increases. In the event of a scheme winding up it will be a liability on the employer to provide increases at the prices up to 5 per cent. rate in respect of pensions accruing after the appointed day. For pension rights based on service before then, increases will depend on the extent of increases already guaranteed as a result of the new requirements and any additional surplus emerging when the scheme winds up.

The new provisions will give members of occupational pension schemes growing certainty about the rate of pension increases that they will receive after retirement. Increases will be guaranteed for future service in line with prices up to 5 per cent. a year. For benefits already accrued- -including pensions in payment--guaranteed increases will become the first call on scheme surpluses. It is well understood that the Government have placed considerable weight on people's own occupational and personal pension provision--building over and above the basic state retirement pension--as a central element in placing retirement provision on a secure foundation for the future. The gathering success of that policy is clear. As the House knows, by 1987, the average value of occupational pensions received by people over pension age had increased by 77 per cent. in real terms since 1979 when we took office. That means that for many pensioners their occupational pension is now their most important source of income. For pensioners receiving an occupational pension the average amount received in 1987 was £44.80, and that was nearly three years ago.

The increasing importance of occupational pensions underlines the need to ensure that we have the right framework for the schemes. We have introduced a long series of measures to achieve just that. In 1985, we introduced the protection for early leavers so that pensions could no longer be frozen. We introduced the right to a transfer value when leaving the scheme and we passed legislation to enable scheme members to be provided with information about their scheme as of right. In 1986, we brought to an end compulsory membership of occupational schemes and extended the choice available to individuals planning for their retirement to include personal pensions, which have been an outstanding success.

The Bill provides increased protection for scheme members. In future, early leavers will have all their preserved benefits revalued by prices up to 5 per cent. a year--and not just those rights built up since 1985. For members needing help and advice we are ensuring that the

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occupational pensions advisory service is put on a firm financial basis. We shall also put in place the pension ombudsman to give members a quicker, more effective means of seeking redress of grievances and we shall expand the range of tracing services that we already provide to cover occupational pension schemes. We are limiting the scope for self-investment. The requirement in the new clause for schemes to provide pension increases is a further major step forward and may prove in time to be among the most important that we have taken.

I commend the new clause to the House.

Mr. Michael Meacher (Oldham, West) : I welcome the fact that the Government have accepted our argument that a pensions scheme that does not guarantee reasonable increases in pensions is a bad scheme. But it is quite clear that the proposal to limit increases to only 5 per cent. a year still gives inadequate protection against inflation.

Mr. Tim Smith (Beaconsfield) indicated dissent.

Mr. Meacher : I cannot understand how the hon. Gentleman can shake his head, given that inflation is now rising towards 9 per cent., but I do not wish to provoke him.

We believe that it is both practical and desirable to give a higher level of protection--a point which I emphasised strongly on Second Reading. Frankly, the 5 per cent. limit is not high enough. The average employee can now expect to live 20 or more years into retirement and we need a measure that provides adequate protection over that sort of lifespan. It is a relevant consideration for the House that if someone who retired 20 years ago had had only increases on the basis that the Government now propose, his benefit would be worth only about 40 per cent. of its initial value. With inflation rapidly rising towards double figures, a measure that purports to protect the real value of members' benefits but allows them to fall to less than half their initial value is--not to put too fine a point on it--a fraud.

If anything, pensioners' needs increase as they get older and the Government's proposal is a recipe for continued poverty for the very old. We are therefore opposed to the 5 per cent. limit. We consider that schemes should be required to increase pensions fully in line with the retail prices index.

The argument that has always been advanced against such a measure is that it is too costly. It has been suggested that it would be too expensive to legislate for larger increases and that to do so would frighten employers away from providing pension schemes. We reject that argument, and I want to say why. Employers provide pension schemes because it is in their interests to do so. They need to attract and retain staff. They also need their staff to retire as they get older. It is therefore in their interests to provide attractive schemes with a competitive level of benefit.

The big increases in the current cost of providing a pension scheme arise when a scheme that makes no provision--the Secretary of State said that about one fifth of schemes made no provision--

Mr. Newton : I would not want to mislead the hon. Gentleman. My statistics related to the members of the scheme. Rather more than one fifth of schemes would be involved, I think, because, on the whole, the large schemes have been making the increases.

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Mr. Meacher : The right hon. Gentleman simply strengthens my point. The big increases in the current costs of providing a pension scheme arise when a scheme that makes no provision for increases is improved to provide RPI increases limited to 5 per cent. It has been estimated that that could increase the cost of a scheme by up to one half. But most schemes do not start from that position ; we all agree about that. Most employees belong to schemes that already guarantee or make provision for increases at or near the Government's proposals--3 to 5 per cent. is probably the norm. The relevant point is that the move from limited increases to full RPI increases without a limit is much less significant than the move from no increases at all. That is because in most cases the assumptions made by the actuaries that determine the contributions to be paid are in practice similar whether or not there is a limit. The key factor is the difference between the assumptions made about future investment returns and assumptions about future pension increases.

I am the first to recognise that these are complex matters, but I am told that, although there are probably as many different sets of assumptions as there are actuaries, broadly speaking, the difference will be similar for schemes that guarantee increases, whether or not there is a 5 per cent. limit. Opposition Members therefore consider it reasonable to require schemes to provide full inflation-proofing for future benefits, for the reasons that I have given. In practice, many schemes, particularly the larger schemes, are already providing increases in line with what we propose. We are the first to recognise that. The current cost for those schemes will be even smaller ; they may even be nil.

As to past service benefits accrued before the appointed day, they should also be increased in line with the RPI, as far as surpluses permit. For as long as a scheme has a surplus, there is no reason why it should provide for employer refunds or contribution holidays before it is used to protect the real value of members' benefits. The money was paid into the scheme to provide pensions as part of the employee's contract of employment, so why should any of that money benefit the employer before being used to increase pensions in line with the RPI? I hope that that argument will commend itself for general support.

7.30 pm

The cost of our proposals should not prove to be a deterrent against good pension provision. Over the past five years, the pension schemes to which most people belong already adopt the practice that we propose. Watson's index of pension increases--Watson is a firm of actuarial consultants which I gather is quite famous--shows that, allowing for a lag in implementation, average pension increases have more or less kept in line with the RPI. Clearly there is no practical objection to making that practice a legal requirement of all schemes.

The only opposition is likely to come from a minority of employers who want to take money away from their pensioners and use it for their own purposes. We reject entirely the suggestion that surpluses are in any sense the employer's money. Each year, the employer paid in an amount that was considered to be right at the time, and therefore it is a perversion of the language to refer to any surplus as overpaid employer contributions.

This matter is not of a highly party political nature, so it should not be considered in a partisan way. I hope that the Government will see the sense in our argument. I agree

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entirely with the Secretary of State's concluding comment concerning the importance of these matters. They are far more significant than many of the issues that cause so much commotion in the House.

Mr. Tim Smith : If a surplus is not an employer's overpaid contribution, what is a deficit? Who would the hon. Gentleman expect to make up any deficit?

Mr. Meacher : Deficits do not exist except in a minority of cases. I cannot off the top of my head say what proportion of all schemes are in deficit. At present, total surpluses are estimated as being in excess of £50 billion, so it is difficult to believe that any schemes are in deficit. If there are, they must have evaded the requirement that pensions legislation of successive Governments placed on schemes to ensure an adequacy of contributions to meet the retirement pensions that they must honour.

Deficits are not the real problem. The important questions are who owns the surplus, how should it be used, and who has first rights to it. Our view is that unquestionably the first rights to any surplus are with employees now in retirement. I repeat that as long as a surplus exists, we do not believe it right that there should be employer refunds or contribution holidays.

The basis of the Bill is that members are entitled to adequate protection against inflation, and that that priority should have first call on any surplus. There is no dispute between us on that, so I hope that I carry Conservative Members with me in arguing that it makes no sense to impose a 5 per cent. limit while allowing employers to benefit from any surplus.

The Secretary of State's announcement is something of an about-face, but I do not want to embarrass him--and I am glad to see him turning in our direction. Nevertheless, a large number of practical points remain to be clarified before a final judgment can be made. We are keen that new schemes should be obliged to pay increases along with the existing obligation to revalue deferred benefits, and there is a responsibility on the Government to ensure that schemes are adequately funded for that purpose. If employers are to commit themselves to paying benefits that meet legislative standards, members are entitled to more reassurance that adequate financial provision is being made.

At present, pension scheme members can look only to the disclosure requirements, which entitle them to some important but essentially limited information about benefit provisions. That approach does not provide scheme members with the kind of yardstick by which they can readily judge whether a scheme has enough money to meet its liabilities and whether contributions are sufficiently high. The Secretary of State should take power to lay down standards on funding rates that schemes must meet. That has not been done up to now. Such a provision takes on particular significance as this country enters a recession and the risk of deficits mentioned by the hon. Member for Beaconsfield (Mr. Smith) arises.

The Secretary of State will have powers to lay down the basis on which any surplus is calculated. That raises two questions. The first is whether there will be a surplus, and hence whether increases must be paid on past benefits. The second is whether there is sufficient surplus to entitle the employer to take a contribution holiday. In either case, it would be wrong if employers were able to manipulate the

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requirements of the legislation simply by making a choice between extreme financial assumptions or unreasonable valuation methods. We do not believe that it would be reasonable to leave that decision simply to actuarial judgment--just as actuaries are not left to their own devices in undertaking statutory valuations in life assurance companies. We envisage a period of consultation on the rules to be laid down. Ultimately, the Government will have a duty to ensure that the system that they propose cannot be used against the interests of scheme members.

We welcome what we view as a Government U-turn as a consequence of the pressure that we put on them on Second Reading and in Committee. However, we remain critical of the Government's half-measures, which still fall far short of what is properly required. We shall continue to press our case until our proposals are fully implemented.

Mr. Timothy Wood (Stevenage) : I welcome the new clause and the amendments. Before going further, I must declare that I am a parliamentary adviser to BZW Investment Management, though it has not pursued the Bill with me. However, there are within my constituency a number of firms engaged in the provision of pension funds, some of which have contacted me about the Bill.

It is important that a fair balance is struck between the possible liabilities placed on the employer and the benefits to be enjoyed by the employee or retired employee. The new clauses and amendments are an important step in the right direction. I agree with both my right hon. Friend the Secretary of State and the hon. Member for Oldham, West (Mr. Meacher) that, when there is a significant increase in inflation, the first call on any pension fund surplus should be to the benefit of employees or retired former employees.

However, one must also be wary of discouraging employers from providing pension funds by presenting a vision of future liabilities. It is all very well for the hon. Member for Oldham, West to say that pension funds are currently in surplus, but I recall a period eight or 10 years ago when that was far from true. At that time, unfortunately, companies were not making satisfactory profits and producing for the pension funds that had invested in them sufficient income to provide adequate pensions, which caused serious problems to develop.

One cannot assume that the current success in terms of profitable companies generating the necessary funds for pensions will continue, especially if there is a change of Government. That is one of the difficulties that actuaries face--they cannot predict with absolute accuracy who will be in power in the next 20, 30 or 40 years. We should like it to be the present Government, which would give actuaries more confidence in the future.

I welcome the new clause and the protection that has been provided to ensure that surpluses are used to benefit the pensioner who has first call on the pension fund. It also recognises that placing excessive contingent liabilities on employers could cause some employers to decide not to provide pension funds on behalf of their employees. That would be totally unfortunate, so I welcome the steps that have been taken today.

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