§ 10.34 a.m.
§ Mr. Daniel Awdry (Chippenham)
I beg to move,That an humble Address be presented to Her Majesty, praying that the London Transport (Alteration of Wages Grades Pension Schemes) Order 1966 (S.I., 1966, No. 1556), dated 7th December 1966, a copy of which was laid before this House on 19th December, be annulled.I say at the outset that we on this side of the House realise that it is the intention of the London Transport Board to provide a better pension scheme for its employees. We entirely welcome that. It is not our purpose to frustrate or delay the new scheme in any way—quite the reverse. We wish it well.
Nevertheless, this Order gives rise to concern. The Select Committee on Statutory Instruments has already shown its concern and has made a report upon it. I understand the history of the matter to be that before 1954 there was no general occupational pension scheme for wage grades in the British Transport Commission but that, in that year, a scheme was set up which was an unfunded scheme—in other words, no funds were set aside for it.
In 1962, the responsibility was transferred to the Railways Board following the Transport Act, 1962. In 1966, a new scheme was set up which was still an unfunded scheme and that scheme was administered under the responsibility of the London Transport Board. At the same time, it was decided to introduce a completely new scheme on a funded basis and this, of course, involves the appointment of trustees and the transferring of the funds into the names of those trustees.
Now we come to the legal difficulties which we feel arise under the Order. Both the Minister of Transport and the Board itself have power to establish pension schemes. The Minister's power in this respect is granted by Section 74(1) of the 1962 Act, which reads:The Minister may make orders—(a) with respect to the provision of pensions by the Boards and the Holding Company and by the subsidiaries of the Boards and of the Holding Company for or in respect of—(i) their employees, or persons who have been in their employment …1063 Thus Section 74 gives power to the Minister to establish a pension scheme; Section 73 gives power to the Boards in the following terms:Subject to the next following section, each of the Boards and the Holding Company shall have power to pay pensions and enter into obligations under pension schemes.In this Order a decision has been taken to allow the Board to set up a new scheme by its powers under Section 73 of the Act. The Order deals with the interim period between cessation of the old scheme and the coming into force of the new scheme and provides for the termination by employees of membership of the old scheme. The new scheme has to have the consent of the Minister, who must be satisfied that no employees are prejudiced by the new arrangements. The authority for that is in Section 74(2):Without prejudice to the powers conferred by the foregoing subsection, the Minister may make orders—(a) for enabling … all or any of the participants in a pension scheme to become instead participants in another pension scheme.Presumably it is this provision that is being used in the Order. Section 74(6) says:Orders under this section shall be so framed as to secure that no person other than the boards, the Holding Company and any subsidiary of any Board, or of the Holding Company, is placed in any worse position by reason of the order.The House must be satisfied, therefore, that no employee could possibly be prejudiced by the new arrangements. It is here that the real difficulty arises.
In this Order, we are given no details of the new scheme. In Article 1(2) we read… 'the New Fund' means the London Transport Pension Fund which is to be introduced on 1st January 1967 by the Board with the consent of the Minister of Transport;That is all we are told in the Order. This matter has been gone into very fully by the Select Committee on Statutory Instruments, which met on 16th February. The facts are that the Order was made on 7th December last and two days later, on 9th December, a "skeleton" deed or, in other words, an interim deed, was executed. I have with me a copy of that deed. This is the interim trust deed which was executed two days after the Order was made.
1064 The first recital to that deed is as follows:The Board are desirous of establishing a Pension Scheme to be effective on and from the first day of January, 1967 … for the purpose of paying pensions to wages staff and certain other staff of the Board and to that end have determined to establish under irrevocable trusts as on and from the said date a Pension Scheme to be known as the London Transport Pension Fund … for providing retirement pensions and other benefits for such of the said staff as are or shall hereafter become eligible to participate therein … in accordance with the regulations governing the Fund to be set out in a Definitive Trust Deed … and in Rules … made under the provisions of the Definitive Deed.As I understand it, the definitive trust deed has still not been executed. The Parliamentary Secretary appears to agree that this is so. I understand that it may be many months before a definitive trust deed is ready and is executed.
We thus have the curious position that the definition in the Order of the new fund refers indirectly to an instrument, the interim deed, which was not in existence when the Order was made on 7th December. This seems to us to be a very unusual procedure and we should like to hear how the Parliamentary Secretary can explain it.
We must make quite certain that no employees are in a worse position as a result of the new scheme. We are apprehensive that some employees may be in a worse position. We are informed that the age of entry under the new scheme is to be higher than the age of entry under the existing scheme. Under the new scheme, an employee cannot join until he is 25 years of age. Under the existing scheme, he can join at the age of 21. We are also informed that to earn benefits under either scheme, 10 years' service is essential. One can, therefore, visualise cases in which the dependants of a man who dies between the ages of 31 and 35 might be in a worse position as a result of the proposed changes. We should therefore like to have the Parliamentary Secretary's assurance on this point also.
My final point relates to Section 92 of the Transport Act, 1962, which is the Definition Section. It defines a pension scheme in these words:'pension scheme' includes any form of arrangement for the payment of pensions, whether subsisting by virtue of Act of Parliament, trust, contract or otherwise".1065 We do not consider that on 7th December, the day when the Order was made, there was a new pension scheme in existence which fulfilled that definition. Certainly, there was no new pension scheme subsisting by virtue of Act of Parliament. There was no new pension scheme subsisting by virtue of a trust, because the interim trust deed was executed two days later. We do not think that there was a new pension scheme existing by virtue of contract either.
This point was dealt with in great detail by the Select Committee on Statutory Instruments, whose Chairman said on 16th February:But the pension fund was established by this Interim Trust Deed, so that the fund was there on 9th December, and I find it a little strange that the Order could not have waited two days, when it would have been nice and tidy and there would have been a document which clearly established the fund, which in the Order itself is not much more than an expression of intention. I find it difficult to accept the suggestion that, without the Trust Deed, there was a legal obligation, or that the employees had legal rights.If we are right in this, if there was no subsisting new pension scheme by virtue of Act of Parliament, trust or contract, we should not approve this Order, which provides for termination of membership of the 1954 and 1966 schemes and does not provide for any new scheme in a correct and legal way. Those are our worries and doubts. I hope that the Parliamentary Secretary will do his best to try to allay them.
§ The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Stephen Swingler)
I welcome the opportunity to explain the Order and I welcome the assurance of the hon. Member for Chippenham (Mr. Awdry) that he and his hon. Friends do not in any way wish to challenge the establishment of a new and better pension fund for the employees of London Transport. I understand the apprehensions which have been created about the mode of making the Order rather than the purpose for which it is made. I hope that I shall be able to give a satisfactory explanation of the reasons why these actions were taken.
There is no need for me to go into the historical background, because the hon. Member has given it briefly and accurately, concerning the old British Transport Commission flat-rate scheme. 1066 I therefore come straight away to the Order against which the Prayer is directed.
In 1966, after negotiations between the London Transport Board and the trade unions and other bodies, details were agreed for a new pension deal for the workers of London Transport. This new deal involved the setting up of a funded pension scheme which would provide for employees' pensions on a much more generous scale than those provided in 1954 and carried over in 1966 in the unfunded London Transport (Male Wages Grades) Pension Scheme as it was called. The Board and the negotiating bodies agreed that the new arrangements should become effective from 1st January, 1967.
The establishment of a new pension fund involved many actuarial and other detailed problems. I am advised that it is normal practice in the commercial world for a new fund to be set up on the basis of an interim trust deed to be followed some time after, and sometimes a substantial time after, by a definitive deed. This was the only means by which the new London Transport Pension Fund could possibly be introduced in this short time between the opening of the negotiations in 1966 and the effective date negotiated between the Board and the unions of 1st January, 1967.
The Minister was advised that the new fund could be set up by the London Transport Board in that way under the powers of Section 73 which the hon. Member for Chippenham has quoted, of the Transport Act, 1962. Under that Section, the Board has power to pay pensions and to enter into obligations in pension schemes subject to the provisions of Section 74 of the Act. The latter Section gives the Minister power to make Orders about pensions. Such an Order was made in 1962, the so-called British Transport Reorganisation (Pensions of Employees) (No. 3) Order, 1962, Article 17 of which had the effect that the Board was not to enter into a pension scheme without the Minister's consent. It is under those provisions that the present case has been dealt with. When the provisions of the new proposed fund were sufficiently firm, arising from the negotiations between the Board and the unions, announcements were made to the staff of the London 1067 Transport Board giving sufficient detail to enable employees to decide whether the new scheme was one which they wanted to join.
In addition, employees were provided with forms of application for membership of the new fund and for the surrender of their rights under the existing schemes. All this was put in hand in the autumn of last year, and 30th November, 1966, was the latest date for the exercising of options by the persons concerned. In addition, the London Transport Board prepared an interim trust deed, which is the deed referred to by the hon. Gentleman, and that deed was finally executed with the Minister's consent on 9th December, 1966.
The definitive deed which the interim deed envisages has not yet been finalised and may not be for some time. But, of course, the outline of the scheme of pensions is explained in a booklet issued in the month of July, 1966, which opens with the words:The new Pension Fund to be set up on 1st January, 1967, described in this booklet, will provide retirement pensions for men and women in full-time employment with London Transport in the wages grades. It has been planned jointly by the Board and by the Trade Unions principally concerned. It will be very different from the present arrangements and a big improvement on them. It will be open to men and women.I may say in passing that the fact that, for the first time, this scheme is open to both men and women gives particular pleasure to my right hon. Friend.
The establishment of the new fund in this way left the problem of avoiding an overlapping of the new fund with the existing schemes, and, as the existing schemes were provided by Statutory Instruments, they could be amended only in the same way. In order to effect the necessary amendments to the 1954 and 1966 schemes so as to avoid overlapping, it was necessary to make the Instrument which is now under discussion. I must emphasise that all this Order does is to make certain modifications to the existing schemes so as to avoid overlapping. The Order does not itself set up the new fund.
The Order was made on 7th December. As the hon. Gentleman correctly said, at that time the interim trust deed had not been executed and, therefore, it was 1068 necessary in the Order to define the "new fund" in the manner adopted in Article 1(2) of the Order; that is to say,… the London Transport Pensions Fund which is to be introduced on the 1st January, 1967, by the Board with the consent of the Minister of Transport.Had the interim trust deed been executed by 7th December, it would have been possible in the Order to define the new fund by reference to the deed. But, in any case the deed was only an interim deed which did not more than formalise an existing commitment between the Board and its employees. As it was essential not to delay the making of the Order, the form of words used in the Order had to be adopted.
In that connection, let me reply directly to the criticism made by the hon. Gentleman. The point here was that of Parliamentary time and the necessity of making the Order before the Christmas Recess and in advance of 1st January, 1967, which was the effective date negotiated between the Board and the unions. As a result, the Statutory Instrument was made slightly in advance of the making of the interim trust deed. However, my right hon. Friend was aware at that time not only of the details of the fund given in the announcement made by the London Transport Board but of the fact that the interim trust deed was about to be made.
§ Mr. Swingler
Had it been possible to make the Order slightly after instead of slightly before, that might have been found to be more satisfactory. It will be appreciated that, as a result of the negotiations and the agreement between the Board and the unions, the scheme had to become operative from 1st January, 1967. My right hon. Friend was anxious to take no chances about the making of the necessary Statutory Instrument in advance of Parliament's Christmas Recess. Therefore, it was lodged two days in advance of the interim trust deed being executed. It is true that the interim trust deed was executed only two days after the Order was made, but the timing of its execution was unavoidably in doubt in the 1069 period immediately prior to the making of the Order.
Now let me turn to the question whether the requirements of Section 74(6) of the Transport Act, 1962, have been met. As the hon. Gentleman says, that requires that an Order must be framed so as to secure that no person is placed in any worse position by reason of the Order. I want to emphasise that the provisions of the new fund were agreed between the London Transport Board and the unions in the months of 1966. A good indication of the superiority of the new scheme over the old is given by the fact that 68 per cent. of eligible employees have opted to join the new fund on the basis of the details set out in the booklet published in July, 1966.
However, I must draw attention to the fact that Section 74(6) of the Act provides that an Order shall not be invalid by reason that it does not avoid placing all persons in any worse position. It goes on to provide that, if the Minister is satisfied that any Order has failed to secure that result, the Minister shall as soon as may be make the necessary amending Order. There are also provisions for any dispute about the effect of an Order to be referred to a referee. Any case which it was appropriate to deal with under those provisions would be dealt with accordingly.
The hon. Gentleman mentioned the discussion which took place before the Select Committee about the age limits for eligibility in the new scheme. I grant straight away that there is hypothetically a possibility that a very small percentage might be worsened as compared with the old scheme. For actuarial reasons, the rights under the new scheme are dated from the age of 25 so as to give the 40-year period of working life from 25 to 65. On the flat-rate basis of the old scheme, the rights arose after 10 years of membership from the age of 21. Thus there arises the theoretical possibility that, among those who had the right to come under the old scheme between the ages of 31 and 35, there are some who could have been disadvantaged. We regard that as an almost negligible possibility, but, as I have said, naturally my right hon. Friend will take that into account on the basis, of course, that those who are joining the employment of London Transport after 1st July, 1966, 1070 no longer have the option to be under the old scheme; as part of their terms of employment, they must accept the terms and conditions of the new scheme which gives such greatly improved benefits to them.
We have been discussing a matter which is somewhat complex, because of the actuarial provisions, and which it is difficult to reduce to simple terms. I hope that I have managed to satisfy the hon. Gentleman and the House that the Board has gone to great lengths to produce a timely and fully satisfactory arrangement which will be of substantial and improved benefit to its employees, and that, before consenting to the arrangements, my right hon. Friend was wholly satisfied that they were entirely appropriate.
Any pension scheme, which must attempt to meet the varied circumstances of a large body of employees, is bound to affect individuals according to their circumstances. It is for that sort of reason that Section 74(6) of the 1962 Act provides the ultimate safeguard of determination of any dispute about the effects of an Order.
In these circumstances, I hope that the House will agree that the position of all individuals is fully safeguarded under the Order.
§ Question put and negatived.