Pensions Bill

moved Amendment No. 47: 47: After Clause 14, insert the following new Clause— ““Review and alteration of reduced rates of contribution (1) Section 42 of the Pension Schemes Act 1993 (c. 48) is amended as follows. (2) In subsection (1)— (a) in paragraph (a), at end of sub-paragraph (ii) insert ““together with his recommendation as to whether there should be an alteration in either or both of those percentages and if so what alteration is required””, (b) omit paragraph (b). (3) For subsection (3) substitute— ““(3) If the Secretary of State lays a report undersubsection (1) in which the Government Actuary or the Deputy Government Actuary recommends that there should be an alteration in either or both of the percentages mentioned in section 41(1A) and (1B), the Secretary of State shall prepare and lay before each House of Parliament with the report the draft of an order making that alteration; and if the draft is approved by resolution of each House, the Secretary of State shall make the order in the form of the draft.”” The noble Baroness said: The amendment would add a new clause after Clause 14. The new clause would amend Section 42 of the Pensions SchemesAct 1993, as subsequently amended. Section 42 deals with the review and alteration of contracted out rebates for salary-related occupational pension schemes. Under Section 42(1)(a), at intervals of not more than five years, the Government Actuary has to report on any changes since his last report in the cost of providing actuarially equivalent benefits where schemes are contracted out of the GMP. That report has to be laid before Parliament. Under Section 42(1)(b), the Secretary of State lays another report, this time giving his view, in the light of the Government Actuary's report, as to whether the contracted out rebate percentages should be altered. When a private-sector occupational scheme is contracted out, the Government transfer some of their long-term benefits risk. The Government pay for this through the contracted-out rebate. It is clear that the risk and the rebate are intended to be actuarially equivalent, because that is what the Government Actuary is required to report on. There would be no problem if the Government accepted the Government Actuary's report or even increased the rebate following representation made by pension providers, but that is not what the Government did last year when the previous contracted-out rebate order was laid. Before the previous order, national insurance contributions were reduced by 5.1 per cent of earnings between the thresholds. The Government Actuary recommended 5.8 per cent. Others represented that the figure should be even higher than that; for example, the National Federation of Pension Funds recommended 8 per cent. What did the Government do? They increased the rebate only very slightly to5.3 per cent. They did not do this on the basis of any actuarial principle, but used what the Minister’s predecessor called a ““cost-neutral approach””. There was no cost neutrality in it at all; it was a blatant move by the Treasury to hang on to as much national insurance contribution income as possible regardless of the fact that the private sector schemes would face yet a further hit. The fig leaf was the fact that the Government were considering the proposals in the report of the Pensions Commission, but they never satisfactorily explained why that meant that they should short-change pension schemes, and therefore employers, yet again. It was clear from that episode that the Government could not be trusted to make a rational and principled decision on contracted-out rebates. They ignored the Government Actuary then and would doubtless do so again whenever the Treasury’s coffers were under pressure. Accordingly, my amendment would remove the Government’s discretion and require the Government to lay an order implementing the Government Actuary’s recommendation. If the Government had principled views, they would be able to make them known to the Government Actuary during consultation. Clearly, it would still be open to Parliament to refuse to approve such an order, but I do not think that the Government would seek that outcome. Since the Government have chosen to continue with contracting out for defined benefit schemes, it would not be sensible to continue expose those schemes to decisions on the rebate being taken on non-actuarial grounds. I beg to move.