J
THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC M A J E S T Y S GOVERNMENT
CP(71) 13
COPY NO
P. -Ii
29 January 1971
CABINET
MAIN PROPOSALS FOR CHANGES IN THE NATIONAL
INSURANCE SCHEME AND PRESERVATION OF
OCCUPATIONAL PENSION RIGHTS
M e m o r a n d u m by the S e c r e t a i y of State t o r Social Services T h i s m e m o r a n d u m outlines m y p r o p o s a l s f o r r e c o n s t r u c t i n g the
State b a s i c national i n s u r a n c e s c h e m e s for e s t a b l i s h i n g a new State
r e s e r v e s c h e m e , and for e n s u r i n g the p r e s e r v a t i o n of occupational
pension r i g h t s on change of e m p l o y m e n t ,
A,
The B a s i c Scheme Coverage 1.
E m p l o y e d and s e l f - e m p l o y e d people o v e r s c h o o l - l e a v i n g age
whose e a r n i n g s a r e above a m i n i m u m l e v e l w i l l be c o m p u l s o r i l y i n s u r e d
in a c o m p r e h e n s i v e b a s i c s c h e m e , on which other p r o v i s i o n i s to be built ­
m a i n l y through occupational s c h e m e s ,
E n t i t l e m e n t t o benefit w i l l be
c o n d i t i o n a l on the payment of c o n t r i b u t i o n s , bat contributions for e m p l o y e d
p e r s o n s , and t h e i r e m p l o y e r s , w i l l be put on a fully e a r n i n g s - r e l a t e d
basis.
The benefit s t r u c t u r e w i l l r e m a i n b r o a d l y the s a m e a s at p r e s e n t ,
2.
Working w i v e s and widows who have r i g h t s t o benefit on t h e i r
husband *s contributions w i l l continue t o be a l l o w e d to c h o o s e not t o pay
the m a j o r part of the contributions for b e n e f i t s on their own r e c o r d , but
they w i l l have to pay for i n d u s t r i a l i n j u r i e s c o v e r a s they do n o w , and
they w i i l a l s o pay for the f i r s t t i m e the s a m e 3mall contribution a s e v e r y ­
one e l s e t o w a r d s the c o s t of the National H e a l t h S e r v i c e ,
Non-employed
people w i l l be able to contribute voluntarily ? m a i n l y for r e t i r e m e n t and
widowhood b e n e f i t s ,
C ontr ibutions
3.
The new fully e a r n i n g s - r e l a t e d contributions payable by e m p l o y e d
p e r s o n s and their e m p l o y e r s w i l l be a p e r c e n t a g e of the e a r n i n g s of the
e m p l o y e e up to a c e i l i n g s e t at about lj t i m e s n a t i o n a l a v e r a g e e a r n i n g s
/ " N a t i o n a l a v e r a g e e a r n i n g s " i s u s e d , for c o n v e n i e n c e , t o m e a n the
a v e r a g e e a r n i n g s of adult m a l e m a n u a l w o r k e r s in manufacturing i n d u s t r i e s
and c e r t a i n n o n - m a n u f a c t u r i n g i n d u s t r i e s and s e r v i c e s , a s obtained f r o m
the D e p a r t m e n t of E m p l o y m e n t s h a l f - y e a r l y e n q u i r i e s into e a r n i n g s ^ /
(about £40 a w e e k at 1970 e a r n i n g s l e v e l s )
E m p l o y e e s with v e r y low
e a r n i n g s ( v e r y broadly t h o s e whose e a r n i n g s a r e too l o w to bring t h e m
within the PAYE s y s t e m ) w i l l not be c o m p e l l e d to pay contributions
under the n e w a r r a n g e m e n t s ? nor w i l l t h e i r e m p l o y e r s .
Contributions
w i l l be c o l l e c t e d through the PAYE m a c h i n e r y and e m p l o y e r s w i l l no
l o n g e r have to s t a m p c a r d s for t h e i r e m p l o y e e s ,
0
4,
A joint contribution of about 12f p e r cent (This i n c l u d e s an
a s s u m e d 1 per cent for the Health S e r v i c e , b u t d o e s not m a k e any
a s s u m p t i o n about the e m p l o y e r s contribution t o the Redundancy Fund
c o l l e c t e d on behalf of the Departme nt of E m p l o y m e n t , ) w i l l be r e q u i r e d
a s s u m i n g T r e a s u r y s u p p l e m e n t in the s a m e proportion a s at p r e s e n t s
it i s p r o p o s e d that the e m p l o y e e should pay 5^ per cent with the balance
payable by the e m p l o y e r .
In addition, for t h o s e not in " r e c o g n i s e d "
o c c u p a t i o n a l s c h e m e s , t h e r e w i l l be a contribution of 4 per cent t o the
State r e s e r v e s c h e m e s this w i l l be c o l l e c t e d a l o n g with the b a s i c s c h e m e
contribution and split a s to i f per cent f r o m the e m p l o y e e and 2f per cent
f r o m the e m p l o y e r ,
J
5.
The s e l f - e m p l o y e d w i l l pay a f l a t - r a t e contribution at a rate to be
determined.
The p o s s i b i l i t y that they m a y be r e q u i r e d to pay s o m e f o r m
of e a r n i n g s - r e l a t e d contribution in addition is under e x a m i n a t i o n .
5,
N o n - e m p l o y e d people w i l l be able t o pay f l a t - r a t e contributions
v o l u n t a r i l y , a t a l e v e l t o be d e t e r m i n e d , m a i n l y for r e t i r e m e n t and
widowhood b e n e f i t s .
7,
A n n e x 1 contains at T a b l e s 1 and 2 e x a m p l e s of the p r e s e n t
c o n t r i b u t i o n s for the v a r i o u s groups on different l e v e l s of e a r n i n g s ,
c o m p a r e d with what the e m p l o y e e w i l l pay on a 5 per c e n t share of the
t o t a l b a s i c s c h e m e contribution of 12f per cent (plus the i f per c e n t for
the r e s e r v e s c h e m e w h e r e a p p r o p r i a t e ) .
T w o upratings of p e n s i o n a r e
due to o c c u r before 1974 and t h e s e w i l l provide opportunities t o load
m e r e of the c o s t on t o the h i g h e r - p a i d , s o a s substantially t o m i t i g a t e the
i n c r e a s e in t h e i r contribution in 1 9 7 4 .
The p r o p o s a l s for the r e c o n s t r u c ­
tion of the national i n s u r a n c e s c h e m e w i l l be published after the f i r s t of
t h e s e i n c r e a s e s has b e e n announced, and t o that e x t e n t the l o n g e r - t e r m
i n c r e a s e for the h i g h e r - p a i d w i l l look l e s s s t e e p .
Benefits
0.
The s c a l e and scope of benefit p r o v i s i o n under the b a s i c s c h e m e
w i l l , with s o m e s e l e c t i v e i m p r o v e m e n t s , be b r o a d l y a s at p r e s e n t , but
n o n e w graduated p e n s i o n w i l l be e a r n e d after the new s c h e m e c o m e s into
operation.
Graduated p e n s i o n e a r n e d up t o A p r i l 1974 (when the n e w
s c h e m e i s planned to s t a r t ) w i l l be paid with the b a s i c p e n s i o n on r e t i r e ­
ment.
The q u e s t i o n whether the p u r c h a s i n g power of graduated p e n s i o n s
i s t o be maintained i s under c o n s i d e r a t i o n .
2 R e t i r e m e n t and w i d o w s ' p e n s i o n s
9.
There w i l l be a b a s i c rate of benefit (£5 a w e e k , in c u r r e n t t e r m s )
with a h i g h e r rate of p e n s i o n - initially perhaps an e x t r a 5 s . a w e e k - for
p e n s i o n e r s over the age of 80,
E n t i t l e m e n t w i l l depend on a s i m p l i f i e d
contribution t e s t b a s e d on the n u m b e r of y e a r s in which the contributor
a c h i e v e s a m i n i m u m l e v e l of reckonable e a r n i n g s .
The l e v e l w i l l be the
m i n i m u m l e v e l of e a r n i n g s a t which contributions would n o r m a l l y be
payable in that y e a r for national i n s u r a n c 3 p u r p o s e s .
(Annex 1, table 4 ,
c o m p a r e s the position of a m a n on national a v e r a g e e a r n i n g s under the
p r e s e n t b a s i c and graduated s c h e m e s with the p r o p o s e d n e w a r r a n g e m e n t s . )
10.
M i n i m u m pensionable age w i l l r e m a i n at 65 for m e n and 60 for
w o m e n s u b j e c t , a s n o w , t o a r e t i r e m e n t condition.
I n c r e m e n t s w i l l be
provided f o r d e f e r r e d r e t i r e m e n t and their rate w i l l be i m p r o v e d .
Those
who r e t i r e and qualify for p e n s i o n w i l l have to have their pension adjusted
in r e s p e c t of s u b s e q u e n t e a r n i n g s until age 70 (men) and 65 ( w o m e n ) , but
the operation of this e a r n i n g s rule w i l l be e a s e d f r o m t i m e t o t i m e by
p r e s e r v i n g its r e l a t i v i t y t o national a v e r a g e e a r n i n g s .
11.
W i d o w s ' p e n s i o n s w i l l be payable under the s a m e conditions a s to
widowhood a s at p r e s e n t , including the n e w (reduced) p e n s i o n s for w o m e n
widowed b e t w e e n the a g e s of 40 and 5 0 which a r e due to s t a r t in A p r i l 1 9 7 1 .
A n e a r n i n g s - r e l a t e d widow s a l l o w a n c e w i l l be payable for the f i r s t s i x
months of widowhood.
!
12.
U n e m p l o y m e n t and s i c k n e s s benefit at p r e s e n t c o n s i s t of a b a s i c
f l a t - r a t e benefit plus an e a r n i n g s - r e l a t e d s u p p l e m e n t for the f i r s t s i x
months.
This s t r u c t u r e w i l l n e e d to be r e v i e w e d in the light of the
change to fully e a r n i n g s - r e l a t e d c o n t r i b u t i o n s .
The staffing and other
i m p l i c a t i o n s of this a r e under d i s c u s s i o n with the D e p a r t m e n t of
E m p l o y m e n t and w i l l be the subject of s e p a r a t e p r o p o s a l s .
13.
F o r the p u r p o s e s of future e n t i t l e m e n t t o f l a t - r a t e b e n e f i t s
e a r n i n g s a t the m i n i m u m qualifying l e v e l w i l l be c r e d i t e d during w e e k s
of u n e m p l o y m e n t or i n c a p a c i t y for work,
Invalidity p e n s i o n for the c h r o n i c s i c k
14.
F o r people w h o have b e e n s i c k for 28 w e e k s , including t h o s e
a l r e a d y s i c k when the change i s i n t r o d u c e d , s i c k n e s s benefit w i l l b e
r e p l a c e d by a l o n g - t e r m b e n e f i t , t o be c a l l e d invalidity pension.
The
b a s i c benefit w i l l be the s a m e a s the standard rate of r e t i r e m e n t p e n s i o n ,
with an addition graded a c c o r d i n g t o the age a t which the b e n e f i c i a r y f e l l
s i c k , the m a x i m u m addition t o b e g i n with b e i n g £ 1 a w e e k for t h o s e w h o
f e l l s i c k under age 35.
It i s a l s o p r o p o s e d to r a i s e the i n c r e a s e s paid
in r e s p e c t of the c h i l d r e n of invalidity p e n s i o n e r s to the l e v e l of the
s u b s t a n t i a l l y h i g h e r i n c r e a s e s paid for the c h i l d r e n of widow b e n e f i c i a r i e s ,
3
15,
The condition governing the p a y m e n t of a dependency i n c r e a s e for
the wife of a n invalidity p e n s i o n e r w i l l be m a d e e a s i e r than the s i c k n e s s
benefit condition.
At p r e s e n t a d e p e n d e n c y i n c r e a s e i s not payable if
the wife s e a r n i n g s e x c e e d the amount of the benefit ( c u r r e n t l y
£ 3 , 2s. a week),
Under the new a r r a n g e m e n t s the l e v e l of e a r n i n g s w i l l
be r a i s e d t o that which a p p l i e s under the r e t i r e m e n t p e n s i o n s e a r n i n g s
rule ( c u r r e n t l y £ 7 . 1 0 s , a week) and e a r n i n g s above that l e v e l w i l l a c t to
r e d u c e the b e n e f i t , not t o e x t i n g u i s h it i m m e d i a t e l y a s now.
This s a m e
r e l a x a t i o n w i l l apply to the dependent wivv.s of r e t i r e m e n t p e n s i o n e r s .
l
Attendance a l l o w a n c e for the d i s a b l e d
16.
An attendance a l l o w a n c e for the v e r y s e v e r e l y d i s a b l e d , already­
e n a c t e d , w i l l be introduced In 1 9 7 1 ,
It w i l l b e paid f r o m the
C o n s o l i d a t e d Fund.
E x t e n s i o n of the s c o p e of this a l l o w a n c e t o a wider
range of l e s s s e v e r e l y d i s a b l e d w i l l be c o n s i d e r e d in the light of
e x p e r i e n c e of the i n i t i a l s t a g e of o p e r a t i o n ,
P r o p o s a l s w i l l be brought
f o r w a r d in due c o u r s e and it i s hoped t o be able to s t a r t this extended
s c h e m e in late 1973,
R e v i e w of benefit l e v e l s
1?,
A l l the m a i n flat^rate b e n e f i t s w i l l be r e v i e w e d e v e r y two y e a r s
and i n c r e a s e d by a t l e a s t the amount n e c e s s a r y to m a i n t a i n their
purchasing power.
Finance
10, .
The c o s t of the n e w b a s i c s c h e m e i s unlikely t o differ m u c h f r o m
that of the p r e s e n t s c h e m e if it continued but t h e r e w i l l be s o m e saving in
due c o u r s e b e c a u s e r i g h t s t o graduated p e n s i o n s w i l l n o l o n g e r build up.
The n e w s e l e c t i v e i m p r o v e m e n t s can b e financed within the a g r e e d
p r o v i s i o n for g e n e r a l u p r a t i n g s .
The c o s t of the p r e s e n t s c h e m e would
i t s e l f g r o w , e v e n in t e r m s of p r e s e n t benefit and e a r n i n g s l e v e l s , by about
10 per cent (or £ 3 0 0 m i l l i o n a y e a r ) in the n e x t thirty y e a r s m a i n l y
b e c a u s e of d e m o g r a p h i c c h a n g e s ,
19.
The s c h e m e w i l l continue t o be financed on a * p a y - a s - y o u - g o '
basis.
If the T r e a s u r y s u p p l e m e n t c o n t i n u e s at its p r e s e n t proportional
l e v e l of about 18 per c e n t of contribution i n c o m e , we s h a l l n e e d to f i x the
c o m b i n e d contribution at about IZj per cent when we announce the s c h e m e .
We s h a l l n e e d t o look at the p r e c i s e f i g u r e a g a i n n e a r e r the t i m e t o take
a c c o u n t of the e f f e c t of the uprating due in N o v e m b e r and the f o r e c a s t we
f e e l able t o m a k e , for u s e in the G o v e r n m e n t A c t u a r y s published r e p o r t ,
of the m o v e m e n t of e a r n i n g s b e t w e e n the Spring and the t i m e of the uprating.
In the l o n g e r t e r m , after 1 9 8 0 , t h e r e i s a p r o s p e c t of r e d u c t i o n s of the
contribution e v e n if b e n e f i t s r i s e in line with e a r n i n g s ,
r
4 B.
The R e s e r v e S c h e m e
20.
The r e s e r v e s c h e m e w i l l be an age**related m o n e y p u r c h a s e
s c h e m e w h i c h , i r r e s p e c t i v e of the c o n t r i b u t o r s age and e a r n i n g s l e v e l ,
w i l l give h i m value for m o n e y and no m o r e ,
The s c h e m e w i l l be fully
funded and wholly f r e e of E x c h e q u e r support.
The a i m w i l l be t o provide
b e n e f i t s on a profit sharing b a s i s such that (though p r i c e d y n a m i s m w i l l
not be f o r m a l l y guaranteed) a r e a s o n a b l e e x p e c t a t i o n can be held out that
t h e i r value w i l l be maintained by r e g u l a r "bonuses",
21.
The s c h e m e w i l l be run by an independent B o a r d of M a n a g e m e n t ,
though g o v e r n m e n t a l m a c h i n e r y v/ill be used (and paid f o r ) , for e x a m p l e ,
t o c o l l e c t and r e c o r d the c o n t r i b u t i o n s .
The B o a r d w i l l include m e m b e r s
s e l e c t e d for their financial e x p e r t i s e and people of standing n o m i n a t e d ,
for e x a m p l e , by the Confederation of B r i t i s h Industry and the T r a d e s
Union C o n g r e s s .
Power of appointment w i l l be v e s t e d in the S e c r e t a r y
of State.
The Board w i l l l o o k t o the G o v e r n m e n t A c t u a r y f o r a c t u a r i a l
advice.
Scope
22,
Contributions w i l l be pitched at 4 per c e n t of PAYE e a r n i n g s up
t o the s a m e l e v e l a s the b a s i c s c h e m e , s h a r e d a s t o i f per cent f o r the
e m p l o y e e and 2j per cent for the e m p l o y e r ,
(Table IB of A n n e x 1 s h o w s
the c o m b i n e d b a s i c and r e s e r v e s c h e m e c o n t r i b u t i o n s . ) M e m b e r s h i p
w i l l be c o m p u l s o r y for e m p l o y e e s b e t w e e n age 21 and 65 (60 for w o m e n )
who a r e not m e m b e r s of an o c c u p a t i o n a l s c h e m e " r e c o g n i s e d " a s adequate
for e x e m p t i o n p u r p o s e s ( s e e p a r a g r a p h s 3
b e l o w ) i t h e r e w i l l be no
contribution option for m a r r i e d women., who w i l l be brought in on the
s a m e b a s i s a s other e m p l o y e e s .
Contributions w i l l be c o l l e c t e d through
the PAYE s y s t e m along with the b a s i c contributions and paid over to the
M a n a g e m e n t B o a r d for i n v e s t m e n t .
Funding^
23.
The r e s e r v e s c h e m e fund or funds w i l l be s e p a r a t e and s e l f ­
c o n t a i n e d , with n o underwriting by the State and with f r e e d o m of i n v e s t ­
m e n t extending t o e q u i t i e s and p r o p e r t y .
The m a n a g e r s w i l l have a
statutory duty t o m a x i m i s e y i e l d s for the benefit of c o n t r i b u t o r s .
There
w i l l be s a f e g u a r d s to provide i n s u l t a t i o n a g a i n s t g o v e r n m e n t i n t e r f e r e n c e
and to r e m o v e any r i s k of "rigging the m a r k e t " .
T h e r e w i l l be a l i m i t on
the proportion of equity in any c o m p a n y that can be held.
Size
24.
E s t i m a t e s of the s c a l e of the s c h e m e can only be s p e c u l a t i v e .
But
it i s r e a s o n a b l e t o a s s u m e that m e m b e r s h i p at any one t i m e m i g h t be of the
o r d e r of 7 m i l l i o n , with perhaps 13 m i l l i o n in r e c o g n i s e d o c c u p a t i o n a l
schemes.
The i m m e d i a t e annual y i e l d of contributions m i g h t be of the
o r d e r of £ 2 0 0 m i l l i o n .
(This m a y be c o m p a r e d with an annual i n c o m e of
the P r u d e n t i a l approaching £ 3 0 0 m i l l i o n , of which about £ 1 0 0 m i l l i o n i s
a v a i l a b l e for i n v e s t m e n t . ) E v e n if the r e s e r v e s c h e m e m e m b e r s h i p
r e m a i n e d at the s a m e l e v e l ^ and it should d i m i n i s h - the fund m i g h t build
up by the end of the century t o s o m e t h i n g of the o r d e r of £ 5 , 0 0 0 m i l l i o n
with benefit expenditure then running at s o m e t h i n g of the o r d e r of
£ 7 5 m i l l i o n a y e a r , in t e r m s of p r e s e n t e a r n i n g s l e v e l s .
(By c o m p a r i s o n
the funds of o c c u p a t i o n a l s c h e m e s m a y on the s a m e b a s i s have by then
built up t o b e t w e e n £ 1 5 , 0C0 and £ 2 0 , 000 m i l l i o n . )
Benefits
25,
The r e t u r n on a g i v e n amount of contributions w i l l v a r y a c c o r d i n g
to the age when the c o n t r i b u t i o n s a r e paid? the y o u n g e r the contributor
the g r e a t e r is the a m o u n t of p e n s i o n s e c u r e d for a g i v e n contribution.
There w i l l be no kind of a c c e l e r a t e d m a t u r i t y ,
A b e n e f i t s c a l e w i l l be
laid down showing for e a c h age and s e x the amount of g u a r a n t e e d p e n s i o n
s e c u r e d on an a c t u a r i a l b a s i s f o r e a c h unit of contribution.
25,
A s s u m p t i o n s a s t o r a t e s of i n t e r e s t , m o r t a l i t y e t c . in working out
the s c a l e of benefit w i l l be c o n s e r v a t i v e o n e s , s o that the i n v e s t m e n t of
contributions can be e x p e c t e d t o produce the s u r p l u s n e e d e d to provide
" b o n u s e s " both b e f o r e and after a w a r d at a l e v e l at which they m i g h t
r e a s o n a b l y be e x p e c t e d t o be sufficient to m a i n t a i n the p u r c h a s i n g power
of the p e n s i o n ,
2?,
W i d o w s ' b e n e f i t s w i l l be paid amounting t o half the rate of p e r s o n a l
p e n s i o n payable to the late b u s b a n d , or if the husband d i e s b e l o w p e n s i o n
a g s t o half the rate of p e n s i o n w h i c h would have b e e n payable t o h i m at
age 65 if he had not contributed f u r t h e r .
28.
A s under the b a s i c s c h e m e , p e n s i o n s w i l l be payable f r o m age 65
(60 for w o m e n ) but without a r e t i r e m e n t condition.
All pension rights will
be fully p r e s e r v e d , with no r e f u n d s .
Very small pensions m a y , however,
be c o m m u t e d ,
29,
Table 2 in A n n e x 1 s h o w s for different a g e s of e n t r y the r a t e s of
benefit w h i c h m i g h t be payable in p r a c t i c e t o m e n , w o m e n and w i d o w s
w h o s e husbands die after r e t i r e m e n t .
E x e m p t i o n f r o m the r e s e r v e s c h e m e
30, .
Occupational s c h e m e s of a m i n i m u m s t a n d a r d , w h i c h w i l l be f i x e d
at a s o m e w h a t higher l e v e l than that of the r e s e r v e s c h e m e , w i l l be
a c c o r d e d a " r e c o g n i s e d " s t a t u s by v i r t u e of which m e m b e r s of t h e s e
s c h e m e s and their e m p l o y e r s w i l l be e x e m p t f r o m contributing t o the
reserve scheme,
31*
E m p l o y e r s who w i s h t o obtain a c e r t i f i c a t e of e x e m p t i o n in r e s p e c t
of t h e i r occupational s c h e m e s w i l l be r e q u i r e d t o apply f o r this purpose to
an Occupational P e n s i o n s B o a r d ,
The B o a r d w i l l be an autonomous
body of s o m e standing, containing r e p r e s e n t a t i v e s of e m p l o y e r s and
e m p l o y e e s a s w e l l a s r e p r e s e n t a t i v e s of o c c u p a t i o n a l p e n s i o n i n t e r e s t s .
It w i l l be c o m p l e t e l y s e p a r a t e f r o m the B o a r d of M a n a g e m e n t of the
reserve scheme.
Its p r i m a r y duty w i l l be to d e a l with applications for
e x e m p t i o n , but it w i l l a l s o be c h a r g e d with a g e n e r a l o v e r s i g h t of the
p r e s e r v a t i o n of p e n s i o n r i g h t s on change of e m p l o y m e n t and with the
e x e r c i s e of p o w e r s t o approve the m o d i f i c a t i o n of s c h e m e s w h e r e this i s
n e c e s s a r y or d e s i r a b l e a s a c o n s e q u e n c e of the l e g i s l a t i o n .
32.
The p r e c i s e nature of the t e s t s which the B o a r d w i l l apply in
c o n s i d e r i n g a p p l i c a t i o n s for e x e m p t i o n w i l l be the s u b j e c t of t e c h n i c a l
d i s c u s s i o n s with occupational p e n s i o n s i n t e r e s t s .
The nature of the
r e s e r v e s c h e m e r u l e s out any t e s t of p r e c i s e e q u i v a l e n c e of benefits
and the a i m w i l l be t o m a k e the conditions a s s i m p l e a s p o s s i b l e ,
E m p l o y e e s l e a v i n g occupational s c h e m e s without p e n s i o n e n t i t l e m e n t
33.
E m p l o y e e s who l e a v e a r e c o g n i s e d occupational s c h e m e b e f o r e
t h e i r s e r v i c e i s sufficient to entitle t h e m t o a p r e s e r v e d p e n s i o n w i l l ,
s u b j e c t to a de m i n i m i s r u l e , have t o b e brought b a c k into the r e s e r v e
s c h e m e by payment of a s u m e q u a l t o the contributions that would have
b e e n payable but for e x e m p t i o n ,
Co
Freaervagionof occupational pension rights
Qualifying conditions
34.
The qualifying conditions for a p r e s e r v e d p e n s i o n under the
l e g i s l a t i o n w i l l be the c o m p l e t i o n of 5 y e a r s pensionable s e r v i c e
(i. e . s e r v i c e a s a m e m b e r of an occupational s c h e m e ) and the a t t a i n m e n t
of age 26 on l e a v i n g .
8
e
B e n e f i t s to be p r o t e c t e d
35.
The p r e s e r v a t i o n r e q u i r e m e n t w i l l apply t o a l l t h o s e b e n e f i t s which
would have b e e n a v a i l a b l e t o the m e m b e r if he had r e a c h e d the s c h e m e d
n o r m a l p e n s i o n age at the date on which he left the e m p l o y e r 's s e r v i c e
e . g. the m e m b e r s p e r s o n a l r e t i r e m e n t b e n e f i t and w i d o w s ' or other
b e n e f i t s payable on h i s death after r e t i r e m e n t .
Further consideration will
be given t o the q u e s t i o n whether i t i s f e a s i b l e to r e q u i r e the p r e s e r v a t i o n
of b e n e f i t s payable on a m e m b e r s death b e f o r e p e n s i o n a g e ; in any e v e n t ,
a contributory s c h e m e w i l l be e x p e c t e d to provide the widow with b e n e f i t s
not l e s s in amount than h e r late h u s b a n d s c o n t r i b u t i o n s ,
!
l
J
P r e s e r v a t i o n t o be m a n d a t o r y
r
3 6 .
The p r e s e r v a t i o n of a l e a v i n g m e m b e r s a c c r u e d p e n s i o n r i g h t s in
r e s p e c t of s e r v i c e af ftei the o p e r a t i v e date w i l l be mandatory w h e r e the
m e m b e r h a s 5 y e a r s s e r v i c e after that date ( p r o v i d e d , of c o u r s e , that he
has attained age 2 6 ) ; in s u c h c a s e s , contributory s c h e m e s w i l l n o l o n g e r
be p e r m i t t e d t o offer a refund of the l e a v i n g m e m b e r s contributions a s an
a l t e r n a t i v e to p r e s e r v a t i o n .
P e n s i o n in r e s p e c t of s e r v i c e b e f o r e the
operative date w i l l a l s o qualify for p r e s e r v a t i o n but t h e r e w i l l be no
r e s t r i c t i o n on a s c h e m e o f f e r i n g , and the m e m b e r a c c e p t i n g , the a l t e r n a t i v e
of a refund of contributions paid b e f o r e that d a t e .
2
r
Payable age 37..
The payable age for a deferred pension will be the scheme's normal pension age; that is the age at which a member would become entitled to receive a full and immediate pension for his years of service, other than in special circumstances such as ill-health warranting earlier retirement. But special consideration will be given to the case of schemes with a particularly early pension age. Calculation of preserved benefits 38. . Benefits v/ill be calculated in accordance with schemes own accrual rules wherever this produces a reasonable equitable result, the amount of pension to be preserved being that to which the member would have been entitled if he had reached the schemed normal pension age at the date on which he left the employer's service. 8
39.
Where the application of the scheme's own rules would not produce an equitable result, schemes will be required to provide the leaving member with a deferred pension calculated on the basis of "uniform accrual"; L, e. representing a fair proportion of the final pension to which he would have become entitled if he had stayed on in the scheme until normal pension age. Pensions increases 40. . Where the rules of a scheme contain contractual provision for periodic increases in full-term pensions, the scheme will be required to increase deferred pensions in payment by corresponding amounts. 41.
A general requirement that deferred pension rights should similarly be increased during the period between withdrawal from the scheme and the payable age would plainly be unreasonable, since it would mean that, in many schemes, a leaving member would receive a higher pension for a particular period of service than if he had continued in the scheme. In the special case of final salary schemes, however, there seems a good case for requiring that the deferred pension (necessarily calculated on the salary at the time of leaving) should be at least partially inflation-proofed, either by linking with the retail prices index or at a predetermined rate to be prescribed. The practical implications of such a requirement will be discussed with the interested organisations. EnforosmeKsfc and adjudication 42.
The Occupational Pensions Board (see paragraph 31) will have power to determine applications from scheme members and other interested parties as to whether a scheme's preservation rules comply with the legislation. The jurisdiction of the board in this respect will not extend to schemes for which a Minister of the Crown is responsible, i. e. schemes whose terms are in an Act or Regulations or are determined 8 COhJPiriFKiiriA
by a M i n i s t e r of the Crown (as d i s t i n c t f r o m s c h e m e s w h o s e t e r m s a r e
m e r e l y approved by a M i n i s t e r ) ,
Once s c h e m e s have i n c o r p o r a t e d
suitable p r e s e r v a t i o n p r o v i s i o n s in their own r u l e s , it w i l l be u p to
m e m b e r s to e n f o r c e their own rights through the s c h e m e d own
a r b i t r a t i o n m a c h i n e r y and (in the l a s t r e s o r t ) in the C o u r t s .
F o r f e i t u r e of e n t i t l e m e n t
43.
P e n s i o n s c h e m e s w i l l be p e r m i t t e d to p r o v i d e for the f o r f e i t u r e
of a s c h e m e m e m b e r s r i g h t s t o a d e f e r r e d p e n s i o n in c a s e s of grave
m i s c o n d u c t , subject to a right of appeal t o an independent tribunal.
In
addition, s u b j e c t to c e r t a i n safeguards and the n o r m a l Inland R e v e n u e
r u l e s , an e m p l o y e r w i l l be p e r m i t t e d t o have a l i e n on the d e f e r r e d
pension r i g h t s when he has suffered a quantifiable financial l o s s at the
hands of an e m p l o y e e .
s
Staffing i m p l i c a t i o n s and c o s t
44.
The staff r e q u i r e m e n t of the Occupational P e n s i o n s B o a r d has
b e e n taken fully into account in the staff e s t i m a t e s g i v e n in C P ( 7 1 ) 1 2 .
The e x t r a c o s t of providing d e f e r r e d p e n s i o n s for t h e i r l e a v i n g m e m b e r s
w i l l , of c o u r s e , f a l l on occupational s c h e m e s t h e m s e l v e s and h a s b e e n
p r o v i s i o n a l l y e s t i m a t e d at about £25 m i l l i o n a y e a r a t the o u t s e t , r i s i n g
to a t o t a l of about £ 4 0 m i l l i o n after 20 y e a r s ,
(The e s t i m a t e a s s u m e s
that about t w o - t h i r d s of m e m b e r s l e a v i n g contributory s c h e m e s w i l l take
a refund of contributions paid b e f o r e the o p e r a t i v e d a t e . )
Timetable
45.
The intention i s that p r o v i s i o n for the p r e s e r v a t i o n of occupational
pension r i g h t s , a s outlined a b o v e , should be p h a s e d in with the p r o g r a m m e
for r e c o n s t r u c t i n g the national i n s u r a n c e s c h e m e and should t h e r e f o r e
c o m e into e f f e c t f r o m A p r i l 3-974.
Before reaching a firm decision
t h e r e w i l l of c o u r s e be consultations with the e m p l o y e r s and
occupational pension o r g a n i s a t i o n s .
1
K J
D e p a r t m e n t of Health and S o c i a l S e c u r i t y , SE1
28 January 1971
Jtoaio8 c heno Con t r :lb utioiia (l.ion)
t
n
Tho following tables illustrate the levels of contributions at the percentages
proposed under the new soheco if it had come into operation this year find
compare them with the present scheme contributions and those that would havo
been payable under the Croaaiaan schene oh tho savno assumption. The corresponding
figures when tho new scheme actually starts will of course depend on the levels
of earnings and on present o o n e r o contributions at that time. As in/lioat ed^ in
.^ y f CP(21) f ' i
t w o ucro.1:in'-:s are due to o c c u r ^ b o f c r o 1^7^.
god^ Si^sjf/iJ.l^^ive^ na:i 0 fjc a s hubstarri;iaT'c' t o n l b i g a t c t h o i n c r e a s e ' i n t h e i r c o n t r i b u t i o h ' at-^the s t a r t of the new scheaa. ­
0
Table 1A,
5iyo of earnings up to £ 2 / 1 0 0 a year,
Employ8S3j-
Earnings
Annual
Increase or Decrease Contributions
New"
Scheme
Weekly
Present
Scheme1
New
New
Grossman?
V
V
Present
£
3
d
£
s
d
8 13 0
9
1
1
0
i
9
0
14
1
1
0
6
18
0
1
8
3
1
6
6
7 0
2
2
4
')
8
9
£
1,50
700
13
1400
26
2100
40
3
£
d
£
a d
3
d
Grossman
3
d
9
5
- 11
0
4
14
8
-
6
5
7
1
9
4
*
1
9
-
2
4
0
* 13
7
-
1
1
1 8
^Contracted-out T a b l e IB.
As above, but paying 1-gfo extra up to £ 2 / 1 0 0 a year for
the reserve scheme. The additional 1-^;o will of course
earn extra /pension
lfoplcyeo3:
Earnings
Annual
Increase or Decrease Contributions
New
Scheme
Weekly
Present
Scheme*
New New
1
Cross-man''
V
V
Grossman
Present
£
a
d
8 13
0
11
8
9
0
18
2
1
1400
26 18
0
1 16
21 CO
40
7
0
2 14
450
700
£
13
£
3
d
£
d
3
£
a
d
3
d
.17
8
11
7
-
6
0
1
8
18
2
-
3
6
4
1 11
9
1 16
4
*
4
7
6
I 14
0
2 14
6
* 20
6
*Not contract ed-out 12, a
d
\
the
same
J
Reserve sohome ponaions in -ffcorias of 1 9 / 0 earnings
(Assuming real earnings rising at
j
mi
WIDOWS
j
Weekly pensj.cn for man
Age (of
husband
earn a.ng
vrhsro
4; national national
appron-average
average
riate)
j at start
Qf
reserve
scheme i
Heserve
Weekly pensiori for vriaov;
scheme - whose husband died in
pension
retirement and had earned
as % of
-k national
national
earnings
average
average
at
retiren:e nt £
" j o
per annum) r
o
.£
10
1
0
k%
45
2
2
4
8;o
10
1
2
35
1 . 16
3
10
*\%
18
1
23
2
10
5
0
19)?
1
6
2-1
2
16
K
14
22-/C
1
8
.?
Reserve
scheme
v/idov;'s
psns5.cn
as )i of
husband 's
earnings at retire­
merit Age at
"Weekly pension for woman
start
earning
of
-k national
national
reserve
average
average
scheme
s.
55
6
WOKEN
£
10
ci
£
Reserve scheme
pension
as jo of
earnings
at retire­
ment s.
50
8
'k$
40
18
1
14
16
1%
30
1
8
2
16
2
10
1C*0
25
1
14
3
8
i3^
2
16
11%
21
2
0
3
18
. 15£
16
35b
i NOTE. : (i)
(2)
"national average?' means male national average earnings, ie £ 2 6 a week in 1 9 7 0 terms.
Cash figures are rounded to the nearest 2 s *
p;iiQ J5: Basic and. Reserve ,Scheme,--Ppnsxonn.. (Men)
f
Single man s pension as percentage. of earnings at retirement under the basic plus reserve scheme compared with' Grossman ^
scheme rates ^ 1
m
1
(with widow'3 pension of half husband a entitlement)
Per cant Reserve plus basic pensions
Age
Age at star
start
t
^- national
/of
/o
f
average
schem
scheme
e Crosaman scheme Pensions national
average
1-£ national
average
1 national
2 average
national
average
49
31
25
60
43
37
55
42
23
17
45
47
28
21
35
52 '
33
26
25
58
. 38
21
60
41
32 35
1-g- national average
)
)
)
)
)
)
)
The figures for the reserve plus basic pensions assume a rise in real earnings of
per cent a year (ie they are on the same basis as Table 2 ) and that basic
pensions are increased in line with earnings. 14* CONFIDENTIAL
Table h',
Comparison with present scheme
Pensions payable at age 65 on national average earnings for
men under the present flat-rate plus graduated schemes compared
with those payable under the basic plus' reserve schemes under the
pro "Dosed new o.c cvm/seraont s
Age at entry to graduated/! Period of
reserve
membership
schemes
New Pension Present Pe nsion
Flat--rate
£
s.
Graduated
£
a,
Total Flat -rate
£
£
3.
Reserve
£
a.
Total
£
So
25
40
5
0
4
17
9
17
5
0
8
16
13
16
35
30
5 ' 0
3
13
8
13
5
0
5
6
10
6
45
20
5
0
2
8
7
8
5
0
2
16
7
16
55
10
5
0
1
4
6
4
5
0
1
2
6
2
... ,u
The figures in this table, unlike those in Tables 2 and 3 are based on an
assumption of constant prices and earnings, for ease of comparison with the The amount of graduated pension is calculated on the basis graduated schema,
of a person joining the graduated scheme in 1974 and contributing at the present
contribution rate and on the present range of rsckonable earnings, . It is to bo note& howevor, that the flat-rate and reserve scheme pensions may 5
be expected to increase as prices and earnings rise, whereas the -graduated pension would not. 15,