§ 3.57 p.m.
§ LORD BEVERIDGE rose to move, to resolve, That in view of the need for maximum output in the present economic situation of the country and the consequent need for making the best use of ability, skill and strength of workers of all kinds, any pension schemes established by employers or their associations should on principle be framed to allow of change of occupation without loss of accrued claim to pension, and that Her Majesty's Government should take all steps in their power, including any necessary changes in taxation, to secure that all such pension schemes accord with this principle. The noble Lord said: My Lords, I shall use very few words on the first part of this Motion. In the present economic situation of Britain there is no need to argue at length that maximum individual and collective output of all workers is indispensable to Britain. The days of easy prosperity for us as industrial leaders in the world have gone, and the going of easy prosperity coincides with insistent demands for more and more prosperity. It is not going to be at all easy to meet those demands. What we want cannot be obtained by having more money or by redistributing money; it can be obtained only by the maximum output of all workers. There are many obstacles to maximum output, far more serious than that which I have chosen for this Motion to-day.
§ I have made that choice for two reasons: first, the rapid growth since the end of World War II of occupational pension schemes; and, second (I am putting a Motion for the Government to consider here), that these schemes can be influenced by the Government by their approval of such schemes and by their taxation policy. There have been two—not one—great changes in the provisions for old age since World War II ended: there is compulsory social insurance, brought into effect in 1948, providing subsistence pensions for all, or practically all; and there are the occupational pension schemes organised by employers or their associations for their employees. When the war ended there were 3 million or so people in such schemes and there are now more than 8 million out of a total working 30 population of working age of, say, 22 million. But the proportion is really much more than 8 or 9 to 22, because the 22 million includes some 7 million women, whose provision for old age in many cases, if not in most, will be made not by themselves but through their husbands' insurance. In mentioning these two changes one ought not to forget the older, and at one time much more important, provision for old age than either of these—that is, through friendly societies, private insurance, private savings and the like. These should not be forgotten in anything we do about old age.
§ My theme is the second of these changes—the occupational pension schemes. They have been the subject of varied legislation in successive Finance Acts from 1918 to 1956. They have been the subject of two extremely valuable Reports, both made in 1954—the Report of the committee under the chairmanship of Mr. Tucker. K.C., on Taxation Treatment of Provisions for Retirement, and the Report on Economic and Financial Problems of Provision for Old Age, published in December, 1954, by a Committee under the chairmanship of Sir Thomas Phillips. May I say a personal word of welcome to the Report of that Committee and to its Chairman, who was one of the three brilliant young men of the Civil Service whom I selected nearly fifty years ago from the best younger brains in the Board of Trade (I was allowed to do so) to assist me in starting labour exchanges and unemployment insurance. He succeeded so well that in World War II, when he had risen to the top of the administrative tree, I had the delight of working under him as under-secretary in the Ministry of Labour, until I was lured, or sent, away to write the thing called the Beveridge Report.
§ I am not going to discuss taxation provisions or occupational pension schemes in general, or go into details of the different schemes. I will sum up the broad results in one paragraph. Most of the existing occupational pension schemes involve a loss or diminution of pension rights through past service if an employee changes his occupation or, it may be, if he changes his employer. It is now permissible for an employer's pension scheme to allow pension rights unaffected by change of 31 employment. But that is permissible and not compulsory, and it is not usual in practice. Moreover, when such pension rights are given on change of employment, the procedure is often complicated. To sum it up: most existing occupational pension schemes, in so far as they affect the labour market at all, discourage the free movement of labour, and to that extent they tell against the maximum output, which is indispensable to this country to-day.
§ What is the remedy for that unsatisfactory position? Is the remedy to be found in the scheme of national superannuation that has been put forward by the Labour Party recently? That scheme is designed to secure for every worker in old age, not equal subsistence, but half his wages, raised by compulsory contributions from employers and employees and an Exchequer grant, and it is to be dynamic in the sense of being guaranteed against inflation. That means that what a man is to get in old age is to be greater than it would otherwise have been if inflation is continued and prices have gone up.
§ There is one good thing about this national superannuation. Being national in itself, it would give the employee who changes his job a right to carry his accrued rights with him. More than that, the scheme proposes that employers' pension schemes, as a condition of approval, should give transferability and maintenance of pension rights, for which I am pleading in this Motion. I will say nothing about guaranteeing the pensions against the rise of prices, other than that it would make "complete hay" of the finance of national superannuation, and if it were applied to employers' occupational schemes it would be utterly inconsistent with the demand that the occupational pension schemes of private employers should be supported by actuarial reports. Just think of making an actuarial report under those conditions!
§ I am afraid that transferability is the only good thing that I can find in national superannuation. The more I look at it, the less I like it. To me it seems clear that it would encourage inflation. It says to the worker, "If you want a really good pension, be sure you get really good wages while you are working." It encourages him to ask for more and more wages. This plan of covering people by 32 putting up the pension if prices have gone up between the time when they worked and the time when they retired will protect them so far as the State is doing things for them, but it does not give any help in the case of private insurance or anything they do for themselves. National superannuation would encourage people to ask for more and more wages when they are young, because the more they get when they are young, the more they will get in their old age, without lifting a finger to improve their conditions or having to think about themselves.
§ I am still enamoured of the Beveridge principle of treating all the citizens of this country alike and not making an aristocracy of richer workers who will get bigger pensions because they have been richer workers and without lifting a finger to get them. This is a subject which cannot be discussed to-day. I only mention my doubts about this scheme to lead up to a suggestion I want to make to my friends on my left. We cannot discuss it to-day, but I beg them to put down the subject of national superannuation, if and so long as they believe in it, for full discussion in your Lordships' House. Let them make their case and answer or convert their critics. Let them convert me. I personally am always open to persuasion by good argument, as I was in 1941 and 1942 when writing the Beveridge Report.
§ Provision for old age is not a Party issue, any more than National Insurance was a Party issue fifteen years ago, and it ought never to be treated as such. Is there any Assembly in the whole world to compare with this House for excellence in debating human problems on their merits, without Party ties? Frankly, I do not think there is. I should like to see this great problem, on which the Labour Party are quite rightly putting forward their views, discussed in this House. I, for my part, should be only too happy to be converted; but I should be still more happy if we could convert them. Let us have that discussion.
§ Meanwhile, to me it is clear that the remedy for the unfortunate position of employers' occupational pension schemes is to clear them of their one defect by accepting my Motion, in principle, and by putting it into practice in practical ways. Here I come back to the Report of the Phillips Committee. I would beg 33 every Member of this House who feels any concern about the provision for old age and retirement and about what should be done in regard to occupational pension schemes to read Section (v) of that Report on occupational pension schemes. I will mention only a few outstanding points. First, the Committee favour occupational schemes as a means of saving against future burdens that will arise for growing numbers of old people. Already they show that something like £300 million out of our £1,500 million of annual savings are made through such schemes. Secondly, they point out that the tax concession on such schemes involves a loss to the Exchequer of some £100 million a year; and that means that somebody else has to pay more taxation because of these schemes. Therefore, say the Phillips Committee, the provision of these schemes must be serving a real social object and should not conflict with any national aims.
From there comes the argument that preservation of pension rights on a change of employment, including employment between the public services and private employment, is in the general national interest. It would, in particular, among other things, assist the employment in useful work of older people which the present terms of these schemes often discourage. At the end, the Committee
come with some reluctance to the conclusion that the climate of opinion is not ripe for applying compulsion by changing conditions of State approval and tax remission for such schemes.
I am here to ask your Lordships one question arising out of that important finding of the Phillips Committee. After expressing their reluctance to apply compulsion, they record their approval of the importance of getting the change made somehow or other. Has not the climate of opinion on this matter been changed, since the Phillips Report of 1954, by the floating of Labour's national superannuation scheme last October? Instead of getting the State to do everything for everybody according to the decisions of civil servants and Ministers, I ask all, whether employers or not, who feel that old age should be covered by equal subsistence for all citizens, guaranteed by all, by the State, and who wish to Preserve variety and individual responsibility in planning for age—I hope the Government feel like that—such
as come through employers' schemes, through the individual thinking for himself, through private insurance, through friendly societies, to support and accept the principle of my Motion.
§ In the Motion I have twice used the word "principle" and I have stressed that in my speech. I believe the principle of my Motion is unquestionable; but, as a practicable man, I am bound, before concluding (and I am nearing the finish), to call attention to two practical problems that have to be solved in applying this principle. The first problem is that of the treatment of existing occupational pension schemes already in force organised by employers other than the State. Most of these schemes do not, in practice, give transferability. They have been approved without it. It is clearly not worth while to apply the new principle of no loss of pension rights on change of employment only to new schemes and leave the whole 5 million or more in existing occupational schemes outside public services untouched.
§ On the other hand, having given approval on one basis, on such an issue, affecting action taken by so many employers and associations and affecting millions of people, the State should not make changes of policy without trying to get consent to, or understanding of, what they are doing. I hope, in fact, that the climate of opinion, particularly among employers who manage these schemes, will have been changed considerably by Labour's project of national superannuation. I hope that the more they study those words of the Phillips Report, having established schemes on one basis they will gladly and willingly change them to the new basis which is necessary for maximum output and mobility of the labour in this country.
§ May I come to my second point, how one should deal with the State's own scheme of Civil Service pensions. I know personally the difference between a pension scheme with a tie to one employer and a pension scheme which has no such tie. In my long life I have been both a pensionable civil servant and a pensionable administrator in a university. For the years in which I worked desperately hard in the Civil Service as a pensionable official I have not one penny for my retirement 35 in old age. I have not one penny because, as the Treasury letter explaining this to me said most kindly, I had not, in leaving the Civil Service for university, produced any evidence of mental or bodily incapacity. I did, despite that letter, go on to a university and become pensionable under what is known as the Federated Superannuation Scheme for Universities. In so far as I am able to pay my bills at all, although rather precariously, I am able to do so because, in spite of many changes of employment in the universities and from the universities, I still have something left from the Federated Superannuation Scheme for Universities.
§ But this story of my personal experience does not end there. I have given in a published work (I shall be glad to give a reference to any noble Lord who wishes to know it) a perfectly simple example of how the Civil Service pension scheme, at a critical period when World War H was threatening, prevented the Minister concerned with preparing for war from getting the person he thought best to help him for a particular field. That happened to be myself. He could not get me because of the Civil Service rules about pensions and the Treasury attitude on them. I give that as one example, but there are many more.
§ Of course, those single illustrations are not the gist of the argument. The gist of the argument is that if the Government accept the principle of this Motion for employers other than themselves, they must, somehow or other, accept it for themselves. They must begin to look at home. I do not say that there might not be a few highly secret and special tasks in the Civil Service which one might be compelled to take, if at all, as a life vocation with provision for old age dependent on staying in the Service; but those exceptions cannot be treated as applying to the great and growing mass of the civil servants in ordinary work—clerical, administrative, industrial and the like. Exceptions do not make good rules. My principle, if it has any sense in it at all—and as the Phillips Committee thought it certainly had—applies to the State and to the citizen alike. What is sauce for the private employer goose is sauce for what I hope your Lordships will not mind my calling the Government gander. I beg to move.36
§ Moved, to resolve, That in view of the need for maximum output in the present economic situation of the country and the consequent need for making the best use of ability, skill and strength of workers of all kinds, any pension schemes established by employers or their associations should in principle be framed to allow of change of occupation without loss of accrued claim to pension, and that Her Majesty's Government should take all steps in their power, including any necessary changes in taxation, to secure that all such pension schemes accord with this principle.—(Lord Beveridge.)
§ 4.25 p.m.
§ VISCOUNT HALL
My Lords, in the unavoidable and regrettable absence of my noble friend Lord Macdonald of Gwaenysgor I have been asked to say a few words on behalf of my colleagues on this side of the House—though I am afraid that I am a very inadequate substitute for my noble friend. We are grateful to the noble Lord, Lord Beveridge, for introducing this Motion. There is no greater authority on this subject than the noble Lord, and no one makes a more interesting speech upon it than he does. We will not trouble him much to-day in connection with what he has said, because I can tell him at once that the principle of his Motion will be sympathetically considered and possibly agreed to. I have been in touch with the Trades Union Congress, who say that they have no objection, and that they will consider the matter and give a considered reply upon it before very long.
With regard to the other matters, particularly the question of the Labour Party's proposed pension scheme, the noble Lord is quite right and just in saying that it is not an opportune time to discuss that matter fully on this Motion. But we can assure him that we hope in the course of a short time to put a Motion down on the Order Paper, so that we may have a full debate upon this matter. I trust that at that time we shall be able to convince him that it is the right kind of scheme to follow his scheme, and that he will be as strong an advocate for its application as he was for his own scheme, which has been so successful from the time it was introduced.
One point which the noble Lord raised in connection with that scheme was 37 the question of pensions running after wages. He was afraid that, if pensions were based upon wages, there would always be an excuse for an increase in wages, mainly for the purpose of having an increased pension. But what are all the superannuation schemes in the country based upon at the present time? What is the Civil Service scheme based upon? Upon the salaries of the persons who receive the superannuation. Indeed, every occupational scheme which is concerned mainly with the company staffs in industry is based upon remuneration. It is impossible to go off at a tangent, as the noble Lord did this afternoon. The noble Lord has already given his view upon the Labour Party scheme, in the speech which he made in November when he was addressing the Corporation of Insurance Agents in London. The noble Lord said of the Labour Party's pension scheme:Although the Labour Party's scheme has been worked out by a lot of serious economists, it is not really a serious contribution to the future.The atmosphere, the surroundings, of that luncheon party must have convinced him that they were the right people to talk to without giving very much thought to the subject, and I trust that we shall be able to convince him that the scheme is not so bad as he thinks.
I have nothing more to say upon this matter, because, as I said, I am here just to give the views of my colleagues on this side of the House. We certainly trust that the Government will consider this Motion, and consider it seriously. As the noble Lord rightly said, one-third of the employable persons in this country are in occupational pension schemes. It is extremely difficult for them, if they transfer from one employer to the other, to carry their pension schemes with them, and there is not always adequate compensation for the contributions which they have paid towards those schemes. It is a question of many men having to remain in a calling or industry in which they are not very happy, and possibly not suitable, simply through fear of lack of security, because there is not this possibility of transferring their pension rights to another employer. I am sure that your Lordships' House—and this is not a political question—will be in great sympathy with that principle. I should say that, whatever faults the 38 Labour Party scheme has, it does include this point of transferability and I should have thought, strong as the noble Lord is for his Motion to-day, that that fact alone would have convinced him that there was some good in the scheme and that it is not all bad. As I said, we are in complete sympathy with his Motion and certainly support it.
§ 4.32 p.m.
§ LORD SINCLAIR OF CLEEVE
My Lords, in rising to address your Lordships' House for the first time I hope that: any shortcomings in the manner or form of my remarks may be viewed with that indulgence which I am comforted to think has become traditional. This Motion raises, I think, a number of important practical issues. When I am asked to approve something in principle my first instinct is to look very carefully at the wording of what it is I am to approve in principle, and secondly to look to see what the major practical implications are. Although I have much sympathy with a great deal of what the noble Lord, Lord Beveridge, said, in the light of the experience I have had—admittedly primarily in relation to what are known as the privately administered contributory funds—there are certain qualifications or criticisms that I feel bound to try to bring to your Lordships' attention. The views I shall express are my personal views; I have not sought to canvass support in industry for any of the constructive suggestions I hope later to make.
But there is one point on which I think I can speak for industry, and indeed for all concerned with the operation of these schemes of various types and that is in regard to what the noble Lord, Lord Beveridge, was good enough to call tax remission, in the sense that it is some remission which is accorded to these schemes, or those responsible for them, and for which the community at large has to pay. With all respect, I suggest that that is not quite a fair view of the position. The logic of it seems to me to be this: the payment of a pension direct is of precisely the same character as the payment of wages or salaries. Both are charges on the undertaking that is making the payment. If the pension is provided by a series of instalments paid into a fund, and the interest on those instalments is not subject to income tax, well, if one believes in actuaries—and I do; in fact I think that, on the whole, they live up to 39 the motto of their Institute, cerium ex incertis—the resulting sum of those instalments plus the interest that has accrued without being subject to tax, is just precisely the sum, neither more nor less, which is required to pay the ultimate pension, which is taxable in the hands of the recipient in precisely the same way as a pension paid direct or a wage or salary would have been. There is, here, I suggest, no remission which involves a subsequent burden on the rest of the community.
I should like to make one brief remark on the statistical picture in regard to this matter, in reply to what the noble Viscount, Lord Hall, said. It is true that approximately one-third are in occupational schemes, but the most important fact I think—because one must look primarily at the position of men in considering this subject—is that, of the total men employed, nearly half are in occupational schemes. In manufacturing industry, so far as I have been able to ascertain, the proportion of men is not quite so high, rather nearer 40 per cent. than 50 per cent. There is another aspect of the statistical side which is worth considering in this connection, and that is the rate of turnover of labour. It is remarkably high and it has been remarkably consistent for the last ten years.
Taking the average of the last three years for which figures are available as a standard, 1954 to 1956, your Lordships will find that the average turnover for men over the whole field of employment was 28 per cent., and for women 44 per cent. Those figures include retirements and deaths, but even when allowance is made for those, the figures are certainly over 20 per cent. for men and 30 per cent. for women. Those figures are undoubtedly swollen by movements after very short service, changes of occupation by people who like change for the sake of change—and there are some who are constitutionally incapable of sticking at one job for any time. But when every conceivable allowance has been made, the turnover is still surprisingly high. I think the noble Lord, Lord Beveridge, in referring to that aspect, did say that, in so far as these occupational schemes do affect that situation, he thought there was a good case for the Motion he was 40 submitting. But the fact is that they affect the situation very little, and we have to keep that in mind.
I suggest, my Lords, that there may be other reasons for considering something on the lines of what the noble Lord, Lord Beveridge, has suggested. My two main points of criticism on his proposal, either in principle or in detail, are these. To attempt to enforce on existing schemes a standard which could, and in most cases I am sure would, materially alter the financial basis on which they were originally approved and established seems to me very difficult to justify. To attempt to enforce any condition on such funds while there are many firms who have no scheme at all would seem to be unjust. To attempt, at this stage, to compel every firm to have a scheme measuring up to some particular standard is, frankly, I think, impracticable. The essence of the problem seems to me to lie very much this way. A man has a perfect right to offer his services where he chooses, subject to due notice to his employer; but equally, on the other hand, a firm has a perfect right to fix its conditions of service, including its provisions for superannuation in such a way as seems to it best calculated to enable it to have the service—management, staff, and workpeople—that it needs.
My Lords, I feel that this phrase which appears in the Motion "accrued claim to pension" should be studied as to its implication. I can see no other meaning than what is otherwise known as full transfer value, or in fact the calculated value of the member's interest in the fund at the time of withdrawal. In this country we have many different types of scheme; but, of course, we have many different types of industry and different types of firms within those industries. So it is not surprising that there is this variety of type of scheme. I do not think that it is necessarily a bad thing; it means simply that these different types of scheme are the schemes which have been thought to be best suited to the needs of the people who have them. After all, I do not think that industry works best in a strait-jacket. I do not think this is a case in which a completely uniform standard is required.
Moreover, speaking particularly of the privately administered contributory fund, 41 I believe it is true to say that in the great majority of cases appreciably the larger share of the fund consists of sums that the firm has put in—larger in relation to the employees' contributions. That is simply, or mainly, because of the necessity to provide for a back service liability at the time of the inception of the fund, to pay increasing sums in respect of that same back service liability as the general level of salaries and wages rises and therefore the ultimate level of pension rises, and also to provide a back service liability for further benefits that may be, and very often are, introduced in the course of the existence of the scheme.
But these payments are by no means uniform; there is certainly a difference or variety in the different funds, even within this group of the privately administered contributory funds. Therefore I think this uniform standard of accrued claim, in the sense of the members' interest in this fund at the time of withdrawal, could operate very unfairly as between one firm and another. Secondly, I think it is important that there should be given to the Committee of Management a discretion to distinguish between different causes of withdrawal. To my mind, the man who is discharged on the ground of redundancy has a distinctly greater claim than the man who withdraws from a fund in order to better himself. Therefore there must be some flexibility. Lastly, I think there should be some qualifying period of pensionable service. Those are some of the practical questions that arise on a strict reading of the Motion. But, having said all that, I personally believe that if a fund can be so constituted that some retirement benefit reflecting or related to more than temporary or incidental service is credited to a man who leaves on withdrawal before pensionable age, it is a good thing.
That brings me to my third and last part—the practical approach. If enforcement by Statute on existing funds is impracticable or unjust, can we find a reasonable standard to apply as a condition for approval of new funds—a standard that would not be a deterrent to the continued increase in the establishment of these new funds? That seems to me to be one of the most important features of this matter. I think the extension should be encouraged and not stunted. If that can be done, would it 42 be a good thing? Out of it could there evolve, as I believe there could, a code of good practice applicable over the whole field? I think it is, possible, though not easy, to do that.
I am going to venture to take the hurdle of outlining the kind of conditions that I think might be considered. With your Lordships' permission I should like to read four clauses, so that I may have on the record precisely what it is that I mean. May I say that these conditions relate, of course, to the privately administered contributory fund. First, if an employee who has been a member of the fund for a minimum qualifying period leaves his employment (otherwise than on dismissal for misconduct) before becoming entitled to an immediate annuity and does not exercise his right to take out his own contributions plus interest, such member shall be credited with a sum not less than that defined hereunder, provided always that it does not exceed full transfer value as calculated at that date. Secondly, that the sum should be set aside in the fund at the time of the employee's withdrawal and should continue to accumulate at the rate of interest applicable to the fund until his retirement from work, his attaining of pensionable age as defined in that fund, or his death, whichever of these should first occur.
Thirdly, on retirement from active work, if he is then retiring from employment in a firm which has an approved fund or scheme, the credit from the first fund should be transferred to the ultimate one and its value added to the pension he draws from the ultimate fund, so that on his retirement he may have one pension from one source; or if he is then retiring from employment in a firm which has no approved fund or scheme, then the credit in the first fund should be converted into an annuity and be paid to him by that fund for the rest of his life. Fourth and last, if he dies before retirement from active work, or before reaching pensionable age in the first fund, then his widow or personal representatives would receive from the first fund such a sum as would have been paid by that fund had he died at the time he withdrew from the fund.
My Lords, at first sight that might seem complicated. I am quite sure that 43 it is not unworkable in privately administered contributory funds. I believe that it would raise no great tax complications. A great many contingencies have to be covered as indeed these particular clauses that I have read suggest. It cannot be done very simply, and it may be that modifications would have to be applied for the adoption of any such principle in regard to insurance schemes. But I think that the insurance companies would have no difficulty in making adjustments to conform, as and when conformity was required.
I could perhaps give an example of the kind of thing I had in mind—I am not suggesting this necessarily as the only or even the best standard, but it is a possible standard, I think; that is, that the qualifying period of service should be 10 years, that each year after 10 and up to 15 the employee would be credited in the fund with 20 per cent. of the value of his accumulated contributions, plus interest, so that after 15 years' service, and from then onwards, on withdrawal his credit would amount to twice his own contributions, plus interest. That is a suggestion which could be applicable to men. No doubt some adjustment would have to be made for women, because so much smaller a proportion of women serve through to pensionable age. Obviously, also, the suggestion does not apply to noncontributory funds.
My Lords, I do not presume to have found the complete answer to this problem. I believe that in the past discussion has sometimes foundered on the rock of there being nothing between, on the one hand, no commitment or condition, and, on the other, full transfer value or accrued claim to pension. I hope that what I have said may be some small contribution to the finding of a practical solution, and therefore may be regarded as constructive.
§ 4.51 p.m.
§ LORD BRAND
My Lords, I am sure all your Lordships will agree with me that we have had a most interesting, remarkable and constructive speech from my noble friend, Lord Sinclair of Cleeve. I had for some years the privilege of working very closely with him in Washington, and I can assure your Lordships (if that is necessary) that you will always get valuable and constructive speeches from him. He has had a remarkable career in 44 many spheres and has held highly responsible positions in private business and in government; and nobody is better informed on all aspects of industry.
In this discussion I find myself in something of a quandary. It was, and is, my intention to say something about the Labour Party's superannuation plan. My noble friend Lord Beveridge, and the noble Viscount, Lord Hall, both stated that this was not the time or the place to discuss that scheme, but they then proceeded, to some extent, to discuss it, and I am therefore going to allow myself some slight latitude in discussing that scheme, unless your Lordships object. In logic and in principle, what the noble Lord, Lord Beveridge, has said is quite right. In the sense of providing mobility of labour, it would be valuable if men and women had the opportunity to change from one occupation to another—though from figures given by the noble Lord, Lord Sinclair of Cleeve, it is evident that there is at present a great deal of mobility. As far as I could follow the legal clauses read out by the noble Lord, it seemed to me that his proposals would be satisfactory in many cases; but there are, of course, different kinds of cases. I know of one or two where the man or woman contributes nothing at all, the company contributing the whole. The object of the company in doing so is to bind their good employees to themselves so far as they can, in order that employees should not leave at a moment, which may be awkward for the company. Such schemes would have to be considered separately.
The noble Viscount, Lord Hall, thought that there was no difference in principle between the Labour Party superannuation plan and private occupational schemes, but there is, of course, a deep difference. The basis of practically all occupational schemes is what is called the "funded" system, whereby if at any moment the fund should cease to exist all existing liabilities could be fully met and everything due to people serving in the company could be fully provided for up to that moment. The Labour Party scheme is something totally different. Its authors say that it would be impossible to make it a funded scheme, and therefore it is based on what is known as the "assessment" principle. That principle is to maintain current equilibrium between income and outgoings yearly, any necessary adjustments to contributions and benefits 45 being made annually or at longer intervals. There is no certainty that if such a scheme were to be wound up it could meet its obligations at any particular moment.
The Labour Party scheme envisages the need for a reserve fund, and its authors go so far as to estimate that their reserve fund should start with about £800 million, supposing the scheme to begin in 1960; that in ten years it will have grown to £4,550 million, and in another ten years to £7,800 million. Their object is that this reserve should be able to protect the fund from the effects of inflation. In fact, they promise that inflation will in no way affect members of the fund. So far as I can see, they base their belief on the intention to invest this reserve of £8,000 million, not perhaps in British Government securities but mainly in equities—which they have hitherto despised as the kind of investments from which nobody should be allowed to make large profits. Whether or not they could buy all equities in the market for £8,000 million, I do not know. They base their faith in them on the fact that in the last twenty years equities have had marvellous rises. I suppose they assume that they will continue having a marvellous rise, and that that will enable them to assure the members of their scheme that, whatever inflation comes, they will not suffer. But that is, I think, all moonshine. In my life I have seen very great inflations in other countries, and at a certain period nothing expressed in monetary terms is worth anything. So to speak, you have to begin again at the bottom.
My objection to the scheme, really, is that it is in almost every respect inflationary. About £1,000 million a year of contributions has to be provided, and that is obtained by claiming 10 per cent. of the total earnings of the community. The employee pays 3 per cent., which would amount to £244 million, according to the present estimate; the employer pays, although not quite double that, yet a good deal more, amounting to £407 million—that is 5 per cent.—and the taxpayer pays 2 per cent., amounting to £278 million. As the noble Lord, Lord Beveridge, said, these contributions are supposed to provide all wage earners and salaried people with half the income that they are earning when they retire. An employed man, therefore, not only pays 3 per cent. of his earnings, but certainly will have to 46 pay higher prices for his commodities, because the employers must recoup themselves for their payment of £400 million. He will be taxed to the extent of 2 per cent., being a taxpayer, for the £278 million of taxes will come mainly from the great mass of people because, with progressive taxation, that is the only source from which the money can come. He therefore pays considerably more than 3 per cent. towards the 10 per cent, of total earnings which the fund must have.
The Life Associations of England and Scotland, in a pamphlet that I should advise all your Lordships to read, calculate that to obtain the results of the Labour superannuation scheme what will be wanted is not 10 per cent. of total earnings of the community but about 14½ per cent., so that the total payments will have to be greater. But the employee does not get, as he would under a private scheme, the exact result of what he has put into the fund, because the richer employees, those with higher wages or higher salaries, are to contribute a good deal towards the pensions of the people with lower salaries. There is, in fact, a considerable redistribution of wealth under this scheme. What I should call a surtax is imposed upon the people who have higher wages and salaries in favour of those receiving lower wages. That may be a step towards equality, which I understand the Opposition so much desire; but my own belief is that if a man not only has to pay his contributions but has to pay for the scheme through taxation, and has to see prices rising because of it, and if, in addition, he has to forgo part of what he has contributed for the benefit of others, it is almost certain that he will demand more wages: therefore the scheme will produce an inflationary effect. That would be a disaster to this country in our present situation, when our first objective, the first objective of all Parties, must be to bring inflation to an end.
I should like indeed to ask this question: if all pensioners are to be protected against inflation, why should not owners of Government bonds be protected, or the trustee banking funds we have been talking about, or indeed anybody in the community? I remember a friend of mine who is an economist, Mr. Peter Wiles, and who was a member of my College of All Souls, at one time asking, 47 in his youthful enthusiasm—he is a very good economist—"Why should not we all make ourselves comfortable during inflation? Why should not everybody have his income put up as the value of money goes down? Why should the pensioner or the bondholder, or any of us who has to suffer, not make himself comfortable?" That policy would mean that inflation must inevitably increase faster and faster and end up in a riot, as it did in Germany. Whatever efforts are made to protect the pensioner from inflation under this Government scheme will mean that the burden will fall more on the other sections of the community.
I believe myself that the Labour scheme is much too grandiose and that it might produce, because it is so huge, very serious results if times became bad. I do not believe in going to the taxpayer to make him pay for pensions for others, except, as was said by the noble Lord, Lord Beveridge, for the basic subsistence pension, to which we all agree and which now, undoubtedly, is too low. Beyond that, I believe that we should follow the road of extending private occupational schemes, where the employer subscribes and where the employee subscribes but where the taxpayer is not asked to contribute. By that means we shall benefit the country much more than by any grandiose scheme. This grandiose scheme will certainly affect personal savings, and it will certainly do tremendous damage to the schemes in which 8 million people are already deeply interested.
I hope that perhaps the few words I have said will give your Lordships some incentive to read the full document that the Labour Party have produced on this scheme, because a lot of thought has been given to it by them. At the same time, I suggest that you should read the statements made by the greatest experts on the subject in the country who are the actuaries of all the life associations in England and Scotland, as to the demerits of the scheme.
§ 5.10 p.m.
§ LORD MCCORQUODALE OF NEWTON
My Lords, I think that the House must welcome and applaud the initiative of the noble Lord, Lord Beveridge, in bringing this matter of transferability of pension rights in private pension schemes before your Lordships this afternoon, and, if I may humbly say 48 so, for doing it in his usual charming and pellucid style. It is now over three years, I think, since the Committee presided over by Sir Thomas Phillips reported, and this is the first time that these matters have been debated in Parliament. I feel also that this debate has been noteworthy beyond many others for the extremely weighty and interesting speech of the noble Lord, Lord Sinclair of Cleeve, who has an unrivalled knowledge on these matters. I hope that the success of his speech will encourage him to address us often in future.
I certainly cannot agree in total with the terms of the noble Lord's Motion which, as he himself has admitted, are against the conclusions, although conclusions reluctantly come to, of the Phillips Committee, and which in my opinion would do great damage to a cause which I believe we all have at heart—that is, the further extension of these schemes so that more and more wage earners and salary earners can be covered.
§ LORD BEVERIDGE
My Lords, the noble Lord has said that what I said was contrary to the conclusions of the Phillips Committee. The Phillips Committee said in 1954 that the time had not yet come. This in 1958. Does not time sometimes make a difference?
§ LORD MCCORQUODALE OF NEWTON
But I do not believe that the climate has changed to a great extent up to the present time. I would emphasise what I have said, that I believe that this Motion, if carried, would do great harm to the cause of extending these pension schemes in industry. I do not think we can expect employers to provide large sums for pension schemes if transferability becomes compulsory. There is one point that I should like to take up with my noble friend Lord Sinclair of Cleeve. In the important remarks he made on transferability, I think that he was directing his attention to contributory schemes. I would remind your Lordships that there are a great number of non-contributory schemes covering wage earners, schemes where the employers provide the whole contribution.
I think that we must differentiate between the different sorts of pension and the different sorts of people covered. We cannot legislate for them all in one sweep. There are civil servants, to 49 whom the noble Lord, Lord Beveridge, referred—and our hearts bled for him in the sad tale he had to tell about his own experiences. The position of the Civil Service is interesting, and I should like to draw your Lordships' attention to it for one moment. Transfer without loss of pension rights is possible between different types of public employment. A public servant who resigns his position before the age of fifty to take up an appointment outside loses everything, not only the State's contribution but all his accrued pension rights. The granting of the right to pension to those over fifty who leave was a provision intended to facilitate not the mobility of civil servants but their retirement after the war, especially of those who perhaps had found the war years too long and were not fully efficient. It is significant that the Report of the Royal Commission on the Civil Service did not recommend any extension of mobility.
In regard to senior salaried staff, an employer who wishes to get hold of a particular senior man will surely be able to make some suitable arrangement with him about superannuation. I think that schemes apply in this connection at present, and I do not think that we need to waste too much time over them. I think that the pension schemes which have been introduced to cover the humbler salaried staff are almost all contributory, and that payments, usually with interest on the contributions of the contributor, are always his to take out. I think that it the great number of these schemes the trustees of pension funds are enabled, on grounds of hardship, to transfer employers' contributions to the men as well. It has been calculated, as my noble friend Lord Sinclair of Cleeve mentioned, that if both employers' and employees' contributions were made transferable in such cases it would mean a reduction of nearly 10 per cent. in the final pensions of those who stay in the scheme, and that would have to be made up somehow. Seeing that these schemes belong to all the members in them. I wonder whether all the members would be prepared to sacrifice 10 per cent. of their final income to enable a few of their number to clear out earlier and go to employment elsewhere. This is a point that would have to be considered by them.
I come to that section of the community to which I should like to refer more pre 50 cisely: that of what I may term the manual workers. We all wish to see schemes covering them extended. It seems to me that the crux of the Motion turns on the phrase about the mobility of labour. The noble Lord, Lord Beveridge, has based a great deal of his claim on the necessity for the mobility of labour. To my knowledge, the assertion that existing pension arrangements seriously hamper the desirable mobility of labour has never been substantiated by the facts. So far as I can make out—and I have tried to explore this matter—the phrase first appeared in the Report of the Watkinson Committee, upon the somewhat rash assertions, if I may say so, of some officials of the Ministry of Labour. I have never been able to find that any adequate factual evidence to substantiate this statement was ever given at that time. A most interesting and valuable discussion on the whole question of the transferability of pension rights, or as they prefer to call it, the preservation of present pension rights, has been taking place among the actuaries, and I should like to lend high praise to the discussion at their meeting in Edinburgh in March last year, which appeared in the Transactions of the Faculty of Actuaries. I was interested to note that Mr. Brown stated that housing difficulties and high taxes might well be far more potent factors leading to immobility of labour than possible loss of pension rights.
But I would go further and challenge altogether this contention that high mobility of labour is in the national interest or is a good thing in itself for anybody concerned. Of course, there are cases where the expansion of new industries or the contraction of old crafts make some considerable transfers of labour necessary, but for every one person to whom all these apply there must be tens, or even hundreds, where the national interest and the man's own interest is that he should stay with the firm he knows, doing the job he knows, where he is efficient. On grounds of efficiency and economy alone, that must be in the national interest. For the turnover of labour, as the noble Lord, Lord Sinclair of Cleeve, has said, is far too high in this country and certainly does not need to be encouraged further, as would be implied from the Motion of the noble Lord, Lord Beveridge.
51 Here I would challenge one sentence of the Phillips Report. In paragraph 247 they state thatmobility of labour is obviously desirable if the economy is to remain flexible.I cannot see where they get the word "obviously" from. I should have thought it was obvious from the figures that have been laid before us that the mobility of labour is far too high, and not too low. The latest figures that I have been able to collect correspond closely to those which the noble Lord, Lord Sinclair of Cleeve, has given, and they come from an inquiry instituted by the British Institute of Management. They reported a year ago on the labour turnover in manufacturing industry on a sample number of firms. They reported that the labour turnover of men, women and young people, was no less than 41 per cent. in those firms, which, translated into averages, means that the whole of the people in the outfit changed over to a new firm every two and a half years. Surely that must be too high.
Then they estimated, further, what was the annual actual direct cost of this labour turnover, in advertising for new people, interviewing new people and the hundred and one things that happen when a transfer of labour takes place, and they put it at something of the order of £230 million. A great deal of that is sheer wasted money. The cost of replacing an employee they found to be from £5 to no less than £400 in the case of a skilled man. They took half of the firm's investigated, which was the worst half from the turnover point of view, and they found that the cost of labour turnover alone added no less than 10s. a week to the wage cost of every employee in those firms. Yet it would appear that the noble Lord, Lord Beveridge, calls for more and more of this mobility of labour and this wasteful expenditure. I hope that I have said enough to explode the myth that there is too little mobility of labour to-day, and to show that the reverse is the case.
I would wholeheartedly agree with what the noble Lord, Lord Sinclair of Cleeve, paid on the subject of taxation; and if anybody wishes to look it up, Mr. Bacon, a celebrated actuary, certainly not of my Party, confirmed in his remarks at Edinburgh what Lord Sinclair of Cleeve has said. It is quite illusory to 52 suggest that the State by income tax relief is subsidising these schemes in any way. Then there seems to be some misapprehension with regard to describing pensions as deferred pay. In the case of manual workers, I do not think this can be regarded as tenable, for these workers will be receiving the trade union rate whether they are in a pension fund or not; and, therefore, pension contributions cannot be regarded as pay.
It seems to me that the best case that can be made out for transferability, in some way or other, of the whole of the contributions lies on the ground of individual hardship in special cases. I should like to see—and here I speak personally—the trustees of any and every scheme, whether contributory or not, given power to allow complete transferability in special cases of hardship. I think we must remember that these pension funds arose out of a desire by employers to encourage and reward long and loyal service, and that in the past they were normally paid out of current earnings. It was largely because of some distressing cases in the thirties, when some firms went bankrupt and there was no money left to pay even the accrued pensions, that everybody recognised that it would be much better if proper actuarial schemes were produced so as to safeguard the contributions made on behalf of the men up until then. But there is, as we know, at the British Employers' Federation a strong feeling that the firm's contribution—and, as I have said, in many cases the firm is the only contributor—should not compulsorily be made to pass with the man who leaves, and especially when he leaves, as is usually the case, to go to a rival firm, for that would merely mean subsidising one's own rival. If, as the noble Lord, Lord Beveridge, proposes, this became compulsory, I can imagine no action which would stop more quickly the present spread and development of these pensions funds, which is going on satisfactorily at the present time.
I trust, therefore, that after this discussion—and I think it is most valuable that we should have had this discussion—the noble Lord will not press his Motion and so frighten off any prospective people who are contemplating fresh schemes. As I have said, I should like to see trustees given discretionary power to allow transferability on hardship grounds. Let us encourage, so far as we can, the growth 53 (at present it is a favourable growth) of private pension schemes of all sorts; let us encourage the trustees to have discretionary powers in hardship cases, wherever it is desirable; and let us go into the points and suggestions made by the noble Lord, Lord Sinclair of Cleeve, as I am sure they are valuable. But let us also encourage the employee to stay at his job, in the knowledge that, if he does, at the end of the day there will be a satisfactory addition from the firm which he has served so well to his State pension.
§ 5.28 p.m.
§ LORD SALTER
My Lords, we have had a comparatively short debate on this subject to-day, but, I think, an exceptionally interesting and valuable one. I should like, in particular, to refer to two speeches: that of the mover of the Motion" the noble Lord, Lord Beveridge, and that of the noble Lord, Lord Sinclair of Cleeve. Lord Beveridge, of course, is the doyen of those who have studied problems of social welfare, and he speaks on any subject within that sphere with a record of authority and experience that is not only not equalled but not approached, I think, by any living man. We are indebted to him for bringing this subject before us, and I think he may have at least this satisfaction from the debate: that practically everyone who has spoken has agreed with him that something must be done to modify, in some cases at least, those provisions of existing occupational pension schemes which prevent transfer or impose undue personal hardship in the case of a particular transfer.
It was interesting to me to note from the speech of the noble Lord, Lord Sinclair of Cleeve—and he, of course. speaks with great authority, in view of his responsibility for the current management of an important occupational pension scheme—that in the case of a change of job he is in favour of transferring not only the value of an employee's contribution, but also, on a discretionary basis, what represents the employer's contribution up to something approaching, or even in some cases, I understand, reaching full, transfer value. Having heard both the noble Lord, Lord Beveridge, the noble Lord, Lord Sinclair of Cleeve, and other speakers to-day, I offer the reflections that occurred to me as the debate proceeded upon the arguments put before us, as I had come with no preconsidered either theme or scheme.
54 The first impression made on my mind was that the extent to which desirable mobility is now impeded by the present occupational schemes as approved has been somewhat exaggerated in the speech of the noble Lord, Lord Beveridge, and also, perhaps, in the Phillips Report. In the second place, I should draw the conclusion that it would be impossible, certainly unwise, to try to make compulsory anything like a full transfer value on change of jobs by a man who was a beneficiary of an occupational pensions scheme. For a number of reasons, to one of which I will refer in a moment, I think it is of the utmost importance that occupational pensions schemes should not only be maintained, but extended, and if you were to remove altogether that important motive in the minds of employers which undoubtedly has accounted to a large extent for existing occupational schemes—namely, the desire to retain the services of the men to whom they apply—I fear you might impose a fatal barrier to the preservation and, still more, to the extension of such schemes.
Why do I say that I think it is greatly desirable that we should not incur that danger to occupational schemes? Though I do not propose to discuss, as the noble Lord, Lord Brand, did, the actual Labour Party proposal, I think it is important that we should discuss the question before us with a clear picture in our minds of the background of national State pensions for old age, for which occupational pensions are in some measure a substitute. We have just had a dramatic illustration of the extreme difficulty that is presented, even with the present cost of the social services, to the essential tasks of countering inflation and of maintaining both the purchasing power and the exchange value of the pound. But what is really alarming is this. Without any new legislation at all, and as an automatic development under existing legislation, the burden falling upon the Budget will increase immensely in future. If my figures are not quite correct they will be corrected by the Minister who will follow me. Is it not the case that within a period of about twenty years there will be an increase in deficit on the Insurance Fund from something over £100 million to nearly £500 million?
55 With that in mind, and having regard to all the burdens on the Budget of the social welfare system, it seems to me that it is scarcely possible to contemplate an increase, other than the automatic increase that follows under existing legislation, in the burden falling on the State Budget, except upon one or two conditions, and I would be inclined to say on the satisfaction of both conditions: namely, first that there should be economy within the Acts which now constitute our social welfare system, and secondly, that there should be a great increase in the total national production and total national income. In the absence of either of these it seems to me we are facing a bleak future indeed.
To some extent, as I say, the case for extending a national old age pension system will be increased if the occupational pension schemes do not extend or should even diminish, or if they should prove in their character a hopeless barrier to desirable mobility. We are faced with the possibility, in these circumstances, that there will be a kind of competition between the two great rival Parties as to the additional benefits to be provided by a new old age pension scheme. That seems to me, in the context which I have ventured to try to describe to your Lordships, a terrifying prospect.
I wonder whether, even at this moment, it is impracticable, whether it is too late, to make a great attempt to de-politicise this problem of old age pensions. Of course, legislation would be required to reform occupational pensions schemes, and some consideration will in any case be needed as to what should be the new conditions of approval. I wonder whether that could be either combined with or followed by a wider authoritative inquiry by people with the requisite technical qualifications—which should include financial qualifications—and so far as possible conducted by people who are not closely or prominently associated with the political struggle, to look at the whole of this problem of the weight, present and prospective, on the Budget of this country, of superannuation schemes. I do not know whether that is possible or not, but if in its absence we are going to have—especially with a not-distant prospect of an electoral contest—a competition between rival Parties as to what 56 may be thought to be most attractive to the electors at the next Election, then against the background, which I have tried to picture, and in the context I have tried to suggest, it seems to me that our future is bleak indeed.
§ 5.40 p.m.
§ THE MINISTER OF STATE, SCOTTISH OFFICE (LORD STRATHCLYDE)
My Lords, on behalf of Her Majesty's Government I should like to thank the noble Lord, Lord Beveridge, for having raised this subject in your Lordships' House, and for putting his case so persuasively and with such charm. It is a subject on which I am sure your Lordships will have observed there appears to be plenty of room for considerable differences of opinion. It is also a technical subject of some complexity, bound up as it is with the scheme of National Insurance, and there is no one more able to expound it to us than the noble Lord, who has studied this whole field so intensively and over such a long period of years. One aspect of the noble Lord's original study of social insurance was the devising of a scheme which would safeguard our people against want in old age and in times of unemployment, and a considerable measure of that has been achieved. The noble Lord's thoughts are now turning to schemes which he feels will further benefit the nation. I am sure that we are all most grateful to him.
During the course of the debate we have had the pleasure of listening to a notable and informative maiden speech from the noble Lord, Lord Sinclair of Cleeve, and I should like to join with other noble Lords in congratulating him on the able and lucid manner in which he placed his views before us. Coming from one who has spent by far the greater part of his life in industry, and whose reputation as a model employer stands high, your Lordships will perhaps be inclined to feel, with me, that what he has said calls not only for attention but for serious study. I am sure that all of us hope that he may find frequent opportunities to take part in our debates. The noble Lord, Lord Salter, asked me a specific question, or rather he asked me to confirm figures which he gave to your Lordships. As a matter of fact, I have to tell the noble Lord that the National Insurance Fund is not in deficit at present, but a deficit is expected in the year 1958–59; that, it is estimated, will amount 57 to about £14 million. In twenty-five years' time the deficit will rise to over £400 million.
There can surely be little doubt that pension schemes established by employers, which at present cover, as the noble Lord, Lord Sinclair of Cleeve, told us, about one-third of the working population, confer very considerable benefits on those whom they embrace, and accordingly it would be desirable that the area which they cover should be extended. If that is so, they should be encouraged, or, to put it at its lowest, we should take very considerable care not to take any action which might be an obstacle to their extension. That. I think, was a point on which both the noble Lord, Lord Sinclair of Cleeve, and the noble Lord, Lord McCorquodale of Newton, were in agreement. It seems to me that the Motion envisages the use of coercion, and it may appear to some to imply that, as a last resort, compulsion might be used. If that is so, we must surely consider what effect that might have on the introduction of new schemes to cover a wider field than at present. It may well be that we have to balance the benefits which would accrue from the wider application of such schemes against the possible increase in production that might result from employees being free to take their pension rights with them when they move from one firm or from one occupation to another.
As a result of the advances that have been made in science it is natural to assume that same industries will wither, some will decay, while others may prosper increasingly, and also that new industries will appear. In these circumstances it would be advantageous, both to the nation and to the individual, that transfer from a contracting industry to a growing one should be made as easy as possible and that there should be no deterrent to making the change. If the man carried his pension rights with him one possible deterrent would be removed. But undoubtedly cases would arise when, on a mere whim, an employee might decide to move from one firm to another, both firms being in the same industry. In any such cases I would suggest that it is at least doubtful whether any advantage accrues to the nation, though, of course, the individual may benefit. It is arguable whether such movements would or would not result in 58 increased production and whether or not they should be encouraged by Government policy.
There are those, like the noble Lord, Lord McCorquodale of Newton, who would hold that such changes might tend rather to reduce than to increase production; that men who are used to working together as a team are more efficient if they continue together and that the withdrawal of even one member may, though perhaps only temporarily, upset the rhythm and retard production. I think that this fact must have been in the minds of those who have introduced these pension schemes. Surely, as the noble Lord, Lord Sinclair of Cleeve, implied, their object must be to induce employees to stay with the firm, and not to leave it. Of course the schemes are introduced for the benefit of both the employee and the employer, and it may well be arguable whether, if a hole were knocked in them, benefit would accrue to either the employer or the nation.
Here I would remind your Lordships, as you have already been reminded by two noble Lords who have spoken, that many of the existing schemes are noncontributory, and any scheme for promoting the transfer of pension rights would have to take that fact into account. Should it be considered that, on balance, advantage would accrue to the nation by arranging that accrued rights to pensions should go with the employee on change of firm or occupation, then, of course, consideration must be given to the best means of effecting this. The universal application of such a right might, I suggest to your Lordships, be effected by persuasion, as has been suggested, or it might be imposed by altering the law relating to taxation or by imposing a duty on employers to alter existing schemes and to prohibit schemes which do not provide for the transfer of pension rights on change of job. The noble Lord, Lord Beveridge, suggests that the second of these possibilities is the most promising; that is, the use of the taxation system to penalise schemes which do not provide for the transfer of pension rights. Before I discuss that, however, I should like to say a word or two about the present taxation system.
At present, if a pension scheme is approved by the Board of Inland Revenue the employee's contribution is given a measure of tax relief. In the 59 case of approved funds the investment income also is relieved of tax. The treatment of the employer's contribution is not affected by Inland Revenue approval, since his contribution is normally allowed as an expense for tax purposes in computing his profits. There is nothing in the law or in the practice relating to the approval of pension schemes which prevents an employer from giving his employee the accrued pension rights when he leaves to take up another job. The employee may in all cases be given a "cold storage" pension; that is, the right to receive pension appropriate to the number of years' service with the firm when he reaches retiring age. He may also be given transfer rights, so long as that does not result in the use of money for the payment of a lump sum, instead of for its original purpose, the payment of a pension.
Now may I turn to the suggestion that the tax system should be used to promote or enforce transferable pension schemes? Admittedly, if employers were to be compelled to provide for the preservation of pension rights it would be possible to use the tax machinery to do this. Both Lord Beveridge and Lord Sinclair of Cleeve have made this suggestion, though the methods they propose are not the same. The tax sanctions could take the form of the withholding of Inland Revenue approval of a pensions scheme, or the disallowance of the employer's contribution to such a scheme in calculating his tax. That is to say, one or both of these sanctions could be imposed on pension schemes which did not provide for the preservation of the employee's pension rights.
The purpose of the system of Inland Revenue approval of pension schemes, however, is to safeguard the Revenue by ensuring that the pension scheme is a bona fide scheme which does not divert an undue proportion of an employee's reward for his services from wages or salary, which would be taxable, to pension, which would be taxable later on but possibly at a lower rate, or to a lump sum, which would not be taxable at all. It would be quite a different matter if we decided to use this system of approval as a means of enforcing conditions which are of no fiscal consequence but are desirable purely on grounds of social policy.
60 My Lords, the first of the suggested sanctions, the withdrawal of Inland Revenue approval—which I understand to be the proposal of the noble Lord, Lord Sinclair of Cleeve—would have the effect of penalising the employee rather than the employer, because, as I said a few moments ago, the main effect of Inland Revenue approval is to allow tax relief for the employee's contribution. The employer's contribution is in any case allowable as a trading expense in computing profits.
If I correctly understood the noble Lord, Lord Beveridge, he appears to favour both the possible tax sanctions, the withdrawal of Inland Revenue approval and the disallowance of the employer's contribution. The latter proposal means that expenditure by a trader, which by all the accepted taxation rules is a legitimate deduction from profits, should no longer be allowed as a trading expense if it fails to satisfy certain tests prescribed on grounds of social policy. That would be a novel departure and would clearly require very careful consideration.
I have already said that one result of the enforcement of transferable pension rights might be to discourage occupational pension schemes. If tax relief were refused on the employer's contribution we should certainly have to face the risk that employers might abandon the funding of pension schemes and merely pay pensions at their own discretion as and when their employees retired. If, as suggested by the noble Lord, Lord Sinclair of Cleeve, compulsion were restricted to new funds, compulsory preservation of pension rights would have a limited impact on the problem, since over one-third of the working population, covered by existing schemes, would be unaffected. Even if steps were taken to extend compulsion to existing schemes, the effect would still be limited if non-contributory schemes were exempted, as a very high proportion of existing schemes are provided wholly at the cost of the employer. Moreover, as I indicated, there are acute problems involved in extending the compulsory preservation of pension rights to noncontributory schemes.
My Lords, if I may now try to sum up the position as I see it, the question of preservation of pension rights is of importance not only because of the importance for the national economy of mobility 61 of labour but also because it affects men's and women's happiness and security in their old age. It is primarily a matter for employers and employees; and there is nothing in the existing taxation rules which prevents pension rights from being retained when an employee changes his job. The Government as an employer have gone a long way in allowing the preservation of such rights in the wide field of the public services, though they have not up to now gone as far as the noble Lord would like.
But although it is possible to argue that this question can be considered as a self-contained issue, preservation of pension rights in occupational pensions is closely bound up with the broader question of the future pattern of provision for old age in this country. The rôle of the State in regard to the provision for old age raises important and difficult issues. As was indicated in the gracious Speech on November 5, the Government are giving very close attention to these wider problems, and it is not possible to pronounce on the one limited aspect raised in the Motion which we are discussing to-day in isolation. Final decisions must await the formulation of policy on the major issue of the future provision to be made for old age, but I can assure your Lordships (this was a matter to which the noble Viscount, Lord Hall, referred) that the Government will take into account everything that has been said in the debate to-day, a debate which has been of the greatest service in revealing the main issues and the different points of view. In those circumstances, and in view of the assurance which I have given, I would express the hope that the noble Lord may see his way to withdraw his Motion.
§ 5.57 p.m.
§ LORD BEVERIDGE
My Lords, there are enough things to say to occupy me until I miss my next train. I do not propose to do so, but may I be allowed to say just three things before withdrawing my Motion? First, may I join all other noble Lords who have congratulated the noble Lord, Lord Sinclair of Cleeve, on his maiden speech. I want to say that because it was a maiden speech I did not interrupt him, as I shall next time, on one point on which I was not clear as to his meaning—the admirable scheme in four clauses 62 for practically getting some kind of pension rights handed over when a man left. Did the noble Lord mean that to apply only to new schemes, and not to old schemes as well? I do not know whether he wants to answer me now; he can write to me.
§ LORD SINCLAIR OF CLEEVE
My Lords, that was the suggestion: that it was to apply to new schemes, as a condition of approval of new funds. That is what I am suggesting at this moment.
§ LORD BEVERIDGE
I regret that to me that makes that admirably practical suggestion of little importance. It sets up a vested interest in the existing schemes, which are entitled to tie the men to the employer.
§ LORD SINCLAIR OF CLEEVE
I was making a suggestion that it be applied as a condition for approval of new funds. There would be no objection to existing funds applying those same conditions.
§ LORD BEVERIDGE
No, but the existing funds are approved. At any rate, that is the answer. To come to the other matter, I would ask whether the purpose of the employers in starting these occupational schemes is to make more honourable provision for old age, or to limit human freedom in the choice of occupation. That is the fundamental question. I believe that they wish to provide decently for old age and that this lack of transferability has come in very largely by the way. I am very happy that employers should encourage people to stay with them all their lives; but there is all the difference between encouraging and compelling by saying, "If you go, then you lose everything that we have set by for your old age." I believe that employers are proud of their schemes and would not want to see them swamped by a national scheme of superannuation, which otherwise, I believe, they would be; and that if employers are approached seriously by Her Majesty's Government they would be converted.
My third and last point is that I believe every single word in the Phillips Report is against non-transferability. It emphasises in many more ways than I could possibly give—and I could give your Lordships three or four wonderful instances—how the existing tax provisions 63 and the existing form of employers' schemes interfere with human freedom and diminish the possibility that men will go to the best possible occupation for them. Obviously the Phillips Report disliked the tie exceedingly. They thought only that the climate of opinion (which means the climate of employers' opinion) had not yet moved sufficiently. I beg noble Lords on the other side of the House, including Her Majesty's Government, to try to persuade people that the purpose of these schemes is not to limit human freedom but to make retirement honourable and decent. Let Her Majesty's Government get the Chancellor of the Exchequer to point out that the employers' contribution—and if it is a wholly noncontributory scheme that still applies—counts as working expenses, which reduces taxation. Are those working expenses and that reduction being allowed to the employer for a social or an anti-social purpose? I urge that the tie is an antisocial purpose. With words of entreaty that Her Majesty's Government will go very much more thoroughly into this question than it has been possible for them to go to-day, I beg leave to withdraw my Motion and I apologise for my second speech.
§ Motion, by leave, withdrawn.