The Chief Secretary to the Treasury (Danny Alexander)
I wish to update the House on progress in the reform of public service pensions and to set out the new offer that we have made as we seek to bring this issue to a conclusion by the end of the year. Our objective is to put in place new schemes that are affordable and fair for taxpayers and public service workers, and that can be sustained for decades to come. That is not easy, but it is the right thing to do and I recognise that this is a contentious area.
Public service workers deserve a good pension in retirement as a fair reward for a lifetime spent serving the public. That is why in June last year, the Chancellor commissioned Lord Hutton, the Secretary of State for Work and Pensions in the previous Government, to take an impartial, dispassionate look at this issue and to bring forward proposals for reform. His landmark report has set the terms of the debate and I am sure that the whole House will share my gratitude for his work.
Lord Hutton’s interim report found that there was a clear justification, based on the past cost increases borne by the taxpayer, for an increase in member contributions. We accepted that recommendation, and increases in member contributions will take place starting next year, although next year’s increase merely reflects the increase already planned by the previous Government. In his final report, he set out a blueprint for a new landscape of public service pensions based on retaining defined benefit schemes, but moving to a fairer career average basis, and increasing the retirement age in line with the state pension age to protect the taxpayer against future increases in life expectancy.
We accepted Lord Hutton’s recommendations in full as a basis for consultation and we have been discussing the recommendations with the trade unions. Those discussions started in February and are still going on. Despite some of the public comment, significant progress has been made. I pay tribute to the Minister for the Cabinet Office and the general secretary of the TUC for their tireless work to reach common ground on reform.
The trade unions have welcomed many of the commitments that we made at the start of this process, including that public sector schemes will remain as defined benefit schemes, with a guaranteed amount provided in retirement, and that all accrued rights will be protected. Everything that public servants have earned until the point of change, they will keep, and those things will be paid out in the terms expected and at the retirement age expected. Final salary means just that: a person’s accrued rights will be based on their final salary not at the point of change, but when their career ends or they choose to leave the scheme. No public sector worker needs to have anything to fear for the entitlements that they have already built up.
We have also reached agreement on the importance of transparency, equality impacts, participation rates and opt-outs, scheme governance, and high level principles to inform consultations on scheme-level pensions. However, the central issue of the value of new schemes remains to be agreed. I believe that two aims need to be met. First, for most low and middle income workers, the new schemes should generate an income at retirement that is at least as good as the amount that they receive now. Secondly, the taxpayer needs to be properly protected from the risks associated with further increases in life expectancy, by linking the scheme normal pension age to state pension age.
In early October, we set cost ceilings to meet those tests. Those cost ceilings are based on Lord Hutton’s recommendations and generate an accrual rate of 1/65th for the new schemes. Scheme-by-scheme discussions have been taking place on that basis since the beginning of October. Although the talks have been productive, trade unions and Ministers have given consistent feedback about what they think needs to change. Last week, the Minister for the Cabinet Office and I met the TUC negotiating team, who pressed for a more generous cost ceiling and explicit protections for those workers nearest to retirement. I have received similar feedback from the Secretary of State for Education and the Secretary of State for Health.
Having listened to those views, I have decided to revise the Government’s offer. Cabinet discussed these matters yesterday, and I met the TUC this morning to set out the terms of our new offer. The offer increases the cost ceiling and provides for generous transitional arrangements for those closest to retirement. I have made available to Members today a document that sets out the detail. This generous offer should be more than sufficient to allow agreement to be reached with the unions, but it is conditional upon agreement being reached. I hope that on the basis of this offer, the trade unions will devote their energy to reaching agreement and not to unnecessary and damaging strike action. In that way, the offer can inform the scheme-by-scheme talks that will continue until the end of the year. Of course, if agreement cannot be reached, we may need to revisit our proposals and consider whether the enhancements remain appropriate.
I can announce today that I have decided to offer an increase to the cost ceiling. Future schemes will now be based on a pension to the value of l/60th of average salary, accruing for each year worked. That is an 8% increase on the previous offer. I will give the House some examples of what that means. A teacher with a lifetime in public service and a salary at retirement of £37,800 would receive £25,200 each year under these proposals, rather than the £19,100 that they would currently earn in the final salary teachers’ pension scheme. A nurse with a lifetime in public service and a salary at retirement of £34,200 would receive £22,800 of pension each year if these reforms were introduced, whereas under the current 1995 NHS pension scheme arrangements they would only get £17,300.
Pensions would remain considerably better than those available in the private sector. To earn the equivalent pension in the private sector, the teacher retiring on £37,000 would need a pension pot of around £675,000, and the nurse retiring on £34,200, a pot of £600,000. Both would require an annual contribution of around a third of salary.
In addition, I have listened to the argument that those closest to retirement should not have to face any change at all. That is the approach that has been taken over the years in relation to increases to the state pension age, and I think it is fair to apply that here too. I can also announce that scheme negotiations will be given the flexibility, outside the cost ceiling, to deliver protection so that no one within 10 years of retirement will see any change in when they can retire or any decrease in the amount of pension they receive. Anyone 10 years or less from retirement age on 1 April 2012 can be assured that there will be no detriment to their retirement income.
We need to be clear about the backdrop against which this offer is made. I fully understand that families across the country are feeling financial pressure right now. These are unprecedented and tough economic times. But reform is essential because the costs of public service pensions have risen dramatically over the last few decades. The bottom line is that we are all living longer. The average 60-year-old today is living 10 years longer now than they did in the 1970s. That is a remarkable and welcome achievement, but it also means that people are living in retirement longer and claiming their pension for longer. As a result, the costs of public service pensions have risen to £32 billion a year, an increase of a third in the last 10 years. While they accounted for just under 1% of GDP in 1970, they account for around 2% of GDP today—more than we spend in total on police, prisons and the courts. And for the most part, it has not been the public service workers footing the bill, but the general taxpayer. We have to reform to ensure that the costs of pensions are sustainable in the long term and to ensure that costs and risks are fairly shared between employees and employers.
I believe this package is affordable. I believe it is also fair to public service workers, and delivers significant long-term savings to taxpayers who will continue to make a significant contribution to these pensions. If reform along these lines is agreed, I believe that we will have a deal that can endure for at least 25 years and hopefully longer. People are living longer, so public service pension reform is inevitable. But we have listened to the concerns of public sector workers and come up with a deal that is fair and affordable. The lowest paid and people 10 years from retirement will be protected, and public service pensions will still be among the very best available.
If reform of this sort is agreed, then no party in this House will need to seek further reform of the overall package. This sustainability is an important prize. I hope that the trade unions will now grasp the opportunity that this new offer represents. I also hope that the Labour party will do the right thing, put party politics aside, and support the proposals, which—after all—came from John Hutton, in the interests of securing a long term consensus on the future of public service pensions. It is the chance of a lifetime to secure good, high quality, and fair public service pensions.
Yes, we are asking public service workers to contribute more. Yes, we are asking them to work longer, along with the rest of society, but we are offering the chance of a significantly better pension at the end of it for many low and middle income earners. It will be a fairer pension, so that low income workers stop subsidising pensions for the highest earners. It will be a sustainable deal that will endure for at least 25 years, and an affordable deal that will ensure that taxpayers are asked to make a sensible contribution, but will keep costs sustainable and under proper control. That is the new offer I am putting on the table today; it is an offer that the Opposition should support and the unions should agree to and I commend this statement to the House.
Rachel Reeves (Leeds West) (Lab)
I thank the Chief Secretary for his statement and for advance notice of it. I welcome today’s signal that the Government are now willing to enter into proper discussions. That is a welcome change from the months of Treasury and Cabinet Office intransigence that came before.
Too often in recent months it has appeared that the Government have not understood that strikes are a sign of failure on both sides. Let us be clear: it was this Government’s decision to rip up the framework established by the last Labour Government and to go much further much faster. In particular, it was the Chancellor’s decision to pre-empt Lord Hutton and impose a 3% surcharge for all employees announced in the spending review last year, before negotiations had even begun. That decision suggested that rather than negotiating in good faith, the Government were intent on acting unilaterally and so provoking confrontation. It is good news, therefore, that the Government have at last made a constructive move to begin proper discussions.
Let me be clear: no one wants strike action. The Government and the unions have a duty to show that they have exhausted every possible avenue. Our focus is on those who rely on services that would be affected by strikes—from parents who will have to take a day off work to those who rely on home help. However, public sector workers—nurses, teachers and dinner ladies—also care too much about the people they serve day in, day out to consider action as anything other than a last resort, yet those who work in front-line public services are also desperately worried about their future and about whether they will be able to afford retirement. It is for the Government to ensure, therefore, that change is agreed and delivered in a way that brings with them the nurses, teachers, home helps and dinner ladies affected by the changes.
It is welcome that the Government have now recognised that announcing tactical offers on the airwaves, rather than constructive proposals in proper negotiations, is not the right way to proceed. However, I would suggest three key tests for a fair agreement. First, on affordability, do the changes deliver a fair deal for taxpayers when times are tough, taxes are rising and spending is being cut? Secondly, on fairness, do they deliver a fair deal for public sector workers on low and middle incomes, whose pensions are far from gold-plated and who have given so much to the services in which they work? Thirdly, on sustainability, do the changes deliver a workable settlement for the long term that does not undermine the sustainability of existing schemes and which can be flexible in the face of rising life expectancy? That is how we will judge the outcome of the negotiations.
To meet those tests, it has always been clear that public sector workers will need to accept higher contributions on average and, given that people are living longer, an increase in the retirement age, too. That was fundamental to the arrangements put in place by the previous Government for capping the Government’s contributions and then, as costs rose, negotiating how to increase workers’ contributions or change entitlements. Equally, however, the Government have to accept that for many low-paid staff, their pension is the only means of security in retirement. In a time of pay freezes, sharp increases in contributions risk hardship today and increased levels of opt-out, pushing up pensioner poverty in the future, which is why we have been critical of the confrontational stance taken by the Government and of the rush to early industrial action in June.
We will see in the coming days whether these moves are sufficient to restore the much-needed trust in these discussions that could ensure that, even at this late stage, there is still time for both sides to step back from the brink. We must all study the detail of what is now on the table, but on affordability will the Chief Secretary set out the cost of these concessions to the public purse? As he rightly sets out the transitional protections for workers in their 50s and tapering arrangements for those in their late-40s, can he say whether both these additional costs will have to be made by savings elsewhere in the system? On fairness, can he confirm that the proposed increase in contributions, if applied across the board, would still mean an increase in contributions for low-paid and part-time workers earning less than £15,000 a year? Have the Government assessed the impact of the pay freeze on opt-out rates from public sector pension schemes to date?
On sustainability, has an assessment been made of the impact of the 3% increase in contributions proposed from April and of whether increased drop-out rates could affect the viability of funded schemes, such as the local government scheme? Is it the Chief Secretary’s intention that those affected as a result of the settlement will have the certainty of knowing that there will be no further changes for 25 years? How will he deliver on that commitment? Will he give the House a timetable for discussions over the next eight weeks, given his aim to secure agreement by the end of the year? I hope that he can reassure taxpayers and public sector workers—teachers, the police, home helps and others—on those points. The Government must leave no stone unturned in their negotiations to seek a genuinely sustainable agreement that is fair for public sector workers and taxpayers, and avoids a strike this autumn.
Danny Alexander
I am grateful to the hon. Lady for her response, although she left a few questions unanswered herself, which I shall come to.
On proper discussions, I reject what she said about the Government’s stance. Talks have been going on constructively for the last eight months. The Minister for the Cabinet Office and I have spent many, many hours in those discussions, and if the hon. Lady talked to the trade unions, she would discover that they, too, see them as constructive. She also referred to the previous Government’s cap and share arrangement. Let me tell her what Lord Hutton said about it in his report:
“Cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer. Also, untested, complex cap and share arrangements cannot of themselves, address the underlying issue of structural reforms, nor significantly reduce current costs to taxpayers.”
In other words, the previous Government’s arrangements were simply not good enough at controlling the costs in the way we need to.
The hon. Lady asked me several questions; let me address them directly. As I said in my statement, transitional protections and tapering are outside the cost ceiling, so they will not be met at the expense of other arrangements, which may be negotiated on a scheme-by-scheme basis. On contributions, there was an assumption, audited by the Office for Budget Responsibility, about the impact that 1% of pay bill would have on opt-out rates, which I accept. We are engaged in a separate track of negotiations with the local government pension scheme—which the hon. Lady also mentioned—precisely in recognition of the fact that it is a funded scheme and that therefore different considerations apply.
On affordability—the first of the hon. Lady’s three tests—let me tell her that, yes, the changes are affordable. Her test is met. This test ensures—[Interruption.] Opposition Front Benchers are saying, “Part-time workers?” The contributions increase has been set out. We have ensured, on a scheme-by-scheme basis, that the contributions will be tiered according to income. Those earning less than £15,000 a year on a full-time equivalent basis will have zero—[Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) likes to hector from a sedentary position. Instead of being the shadow chunterer, perhaps he will sit there and listen. We have made it clear that those earning up to £21,000 on a full-time equivalent basis will have a reduction. The full-time equivalent basis for pension reform is the basis—[Interruption.]
Mr Speaker
Order. There was quite a lot of chuntering earlier when the shadow Chief Secretary was speaking, and that should not happen. Those on the Opposition Front Bench have had their go, and I am afraid that they cannot pursue the debate again from a sedentary position. Let us hear the Chief Secretary. The House knows that I will allow plenty of time for questions, so we need not get aerated about it.
Danny Alexander
The full-time equivalent basis for pension reform is being approached in exactly the same way that the previous Government treated it. The hon. Lady’s tests for affordability, fairness and a workable settlement are all met. She did not say, in the end, whether she supported the deal on the table to date. It is incumbent on the Opposition to understand the deal and support it. It is also incumbent on them to make clear their position on strike action. I hope that she agrees with me that, in light of the new offer and the constructive approach taken to the negotiations, she should not support trade unions going ahead with strike action later this month.
Harriett Baldwin (West Worcestershire) (Con)
I welcome the extensive work that has gone into these proposals and would like to ask a question specific to my constituency and many others. Many teachers in my constituency work in the state sector, but over their careers they will often spend periods in the independent sector too. Will the proposals continue to allow inter-changeability between the two sectors?
Danny Alexander
If agreement is reached, they will. The arrangements that the hon. Lady describes are an important part of the discussions, but they depend on reaching a sustainable agreement on the future of public service pensions along the lines I have set out.
Dame Anne Begg (Aberdeen South) (Lab)
I look forward to studying the proposals, because with pensions the devil is always in the detail. I have spoken to public sector workers, and the two things that they are most concerned about—and which might have encouraged them to vote for strike action at the end of November—are the large increase in individual contributions, on top of what they already contribute, and the move from the retail prices index to the consumer prices index. I did not hear from the Chief Secretary’s statement whether those two things remain in place, which would be a disappointment to public sector workers.
Danny Alexander
Those two things do remain in place. I understood from a previous debate that the Opposition supported the switch from RPI to CPI. We are going ahead with the increase in member contributions, which, as Lord Hutton said in his interim report, is necessary to rebalance the substantial increase in costs over the past few decades, which have been borne almost entirely by the taxpayer. Around the table with the trade union negotiators, the main issues raised in recent weeks have been the accrual rate, the transitional arrangements and the guarantee that we are reaching a long-term settlement.
Dr Phillip Lee (Bracknell) (Con)
I welcome the Chief Secretary’s statement. On many occasions in Bracknell and Finchampstead, I have met people in their 30s and 40s employed in the private sector—the majority of people in my constituency are employed in the private sector. Can he confirm that many in the public sector would have to contribute a third of their salary and pension contributions in order to get similar pensions in the private sector?
Danny Alexander
The hon. Gentleman is absolutely right: I can confirm that that would be the case. In some cases the figure would be more, depending on how the scheme-by-scheme talks that will go forward resolve the issue. In order to acquire a pension of the sort that we are rightly talking about for public sector workers, people in the private sector would need to acquire a pension pot of £500,000 or more, which would require a substantial salary contribution, of the order of a third.
Helen Goodman (Bishop Auckland) (Lab)
The Chief Secretary made much of preserving accrued rights. However, to return to the CPI and RPI, what will the average loss be to public sector workers of making the switch permanent?
Danny Alexander
I think the hon. Lady may have been trying to welcome the protection of accrued rights, in which case I am grateful for her comments. She is right that the switch from RPI is a change to public service pensions that will reduce the benefits over the long term, although that will depend on the scheme and the individual involved. However, it is the right thing to do, because we are talking about the measure of inflation used by the Bank of England to set rates. The answer to the hon. Lady’s question will depend on the individual scheme and the individual person.
Stephen Williams (Bristol West) (LD)
Both the Liberal Democrat manifesto, which my right hon. Friend authored, and the coalition agreement committed the Government to an independent review of pensions, and one cannot get more independent than the former Labour Secretary of State, Lord Hutton. Will my right hon. Friend confirm that what he has set out today is more generous to future pensioners and current employees than Lord Hutton recommended, while maintaining fairness for the taxpayer?
Danny Alexander
My hon. Friend is absolutely right to celebrate Lord Hutton’s independence in this matter. It is a measure of the Opposition’s lack of interest in the subject that they have not even asked for the statement to be repeated in the House of Lords, so that Members there can hear directly from Lord Hutton. He did not recommend a level of adequacy, but he did say that the floor threshold should be the adequacy rates set out by Adair Turner. The offer that I am announcing today is 40% more generous than those floor adequacy rates.
John McDonnell (Hayes and Harlington) (Lab)
Is it not true that the vast majority of public servants will still be paying more and working longer, and that a significant number will still lose out? The protections for the lower-paid will not affect trained firefighters, trained teachers or trained doctors, or many other public servants. The accrued rights that the right hon. Gentleman has offered are actually a legal duty, and he will exacerbate the industrial relations climate by making an offer, but at the same time threatening to take it off the table.
Danny Alexander
I know that the hon. Gentleman has taken a long interest in these matters, but he is wrong in his characterisation. He is of course right that we are asking public sector workers to work longer, to set the normal pension age in line with the state pension age, but frankly that is happening to every single person in this country. Public sector workers cannot be immune from that trend any more than anyone else. He mentioned firefighters. Let me say that good discussions are taking place on the firefighters’ pension scheme. We have delayed setting a cost ceiling to take account of all the factors in the firefighters’ pension scheme, particularly the double accrual.
Heather Wheeler (South Derbyshire) (Con)
May I welcome today’s statement and pass on the comments made to me by teachers in South Derbyshire in both the private sector and the public sector? It is important that accrued rights remain and that it is easy to move between the two areas, because the private sector is very strong indeed in Derbyshire.
Danny Alexander
I am grateful for those comments. It is important that teachers, health workers and civil servants study for themselves what the Government are offering. There has been a great deal of misinformation around this debate. We are setting out a document today that describes the position in detail. A new website, too, will be available for public sector workers to see precisely what it might mean for them. I hope those people will seek to form their own opinion of what the Government are offering.
John Cryer (Leyton and Wanstead) (Lab)
Will the Chief Secretary clarify one comment he made in his statement, when he said that the offer is conditional upon reaching agreement? Does that imply that any industrial action taken anywhere by any trade union member will mean the offer being withdrawn?
Danny Alexander
No, this is not conditional on industrial action. Some unions are saying that they are planning strikes on 30 November. Talks on a scheme-by-scheme basis will still be going on at that time. I hope that those unions will feel that, on the basis of this offer, they no longer need to go ahead with that action. I think that would be a constructive response to what I have set out today. The offer is conditional upon an agreement being reached—an agreement by the end of the year on the heads of terms on a scheme-by-scheme basis. It is appropriate that we set out a good offer; as a Government, we want to reach agreement, but at the end of the day the trade unions need to want that, too.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
May I commend my right hon. Friend for his statement and for the tone in which he has delivered it—and, indeed, commend my right hon. Friend the Minister for the Cabinet Office and Paymaster General? Will the Chief Secretary welcome the notes of conciliation in the response by Her Majesty’s official Opposition? Although our politics does not lend itself to consensus, is this not a subject on which we wish to reach a broad consensus both for the well-being of public sector pensions and for the country and economy as a whole?
Danny Alexander
I am grateful to my hon. Friend for his welcome and I agree wholeheartedly with his comments. It is precisely the sort of subject on which there should be a cross-party consensus. I think a consensus could be formed around the proposals we have made today. The shadow Chief Secretary says that she wishes to study our proposals. That is fair enough, but I hope that she will see on reflection that the proposals we are putting forward are the right way to go forward on public service pensions both for public sector workers, who are fully entitled to a proper and decent pension, and for the taxpayer as a whole.
Geraint Davies (Swansea West) (Lab/Co-op)
Does the Minister agree that the statement consisted of sacrificing long-term pension rights to pay for a short-term failure to stimulate economic growth? What we are seeing, after 13 years of industrial peace, is the return of mass strike action due to Tory economic failure and a threatening, macho approach to negotiation. [Interruption.]
Mr Speaker
Order. It would be more seemly if the hon. Gentleman were not standing with his hand in his pocket, but I must say to the Education Secretary that he really should not keep on expostulating noisily from a sedentary position. If he were to do that in one of the nation’s classrooms, he would be in detention by now.
Danny Alexander
The Education Secretary’s noisy expostulations have been thoroughly in support of what the Government are doing; as such, I welcome them. I think that the tone struck by the hon. Member for Swansea West (Geraint Davies) is entirely out of keeping with the tone of the debate so far. For all the reasons I have given, reform of public sector pensions is necessary. It is important that we get it right and that we do so by agreement if we can. That is this Government’s objective.
Mrs Anne Main (St Albans) (Con)
I share the disappointment at the rather lukewarm response on the Labour Benches. May I ask my right hon. Friend to stress to the unions that this is not the opening salvo in further negotiations, so they really should take this as a realistic opportunity to come up with a long-term solution for the 25-year period that would be best for the taxpayer? I sincerely hope that the unions take that in the spirit in which it is intended so that we do not have industrial action over the winter.
Danny Alexander
I am grateful to the hon. Lady for her comments. I sensed from our earlier discussions that the trade unions recognised that this was a constructive step by the Government. It is the best offer that is going to be on the table; I think it is important that it is understood in that sense.
Tony Lloyd (Manchester Central) (Lab)
Neither the Chancellor yesterday nor the Chief Secretary today answered the question about part-time workers—specifically about those earning less than £15,000 whose wages would be above that if they were working full time. Will the Minister tell us clearly whether those people will end up paying the 3% contribution? If so, he must understand why there cannot be an easy consensus on the issue.
Danny Alexander
As I said in answer to the shadow Chief Secretary, the proposals are on a full-time equivalent basis, which is exactly the way pension reform was carried out under the previous Government. Of course, the matter was open for discussion in the consultations about the first year’s contribution increases. We look forward to hearing the results of those consultations.
George Freeman (Mid Norfolk) (Con)
I welcome the statement and congratulate the Front-Bench team on the work they have done to go as far as they can to help the low-paid. Is it not the truth that we are facing a crisis of spiralling costs from an irresponsible boom in the public sector under the last Government—with unfunded pension liabilities, bankrupt public finances and debt interest set to rise to £76 billion? Is it not the truth that it is always the poorest that pick up the bills for Labour and that a responsible—
Mr Speaker
Order. The trouble with Members crafting their questions word for word is that they tend to be rather long.
Danny Alexander
The hon. Gentleman is right that the poorest in society end up paying the price for the loss of financial control that we saw in this country under the previous Government. He referred to the liabilities in public service pensions. Those liabilities are, on the latest figures, more than £1.1 trillion. That is the entire education budget for more than 20 years.
Mr Nigel Dodds (Belfast North) (DUP)
I welcome the flexibility that the Government are showing today in moving this whole issue forward. Where the statement dealt with the Government’s revised offer, the Chief Secretary provided some examples of the benefits that will accrue to some workers. Will he outline some examples of where people will be worse off? To press him on the point about the consumer prices index, he must surely have the facts and figures, but by how much on average will people be worse off as a result of the switch from RPI?
Danny Alexander
The right hon. Gentleman asks who will be worse off, which is a fair question. One flaw with the current final salary arrangements in the public sector is that the contributions of low-paid workers go towards subsidising the pensions of the highest earners. That is one reason why we want to move to a career average basis. Some of the losers from that would be the highest paid, particularly those such as chief executives of local authorities, who receive a large jump in salary at the end of their career and then get a pension as if that were their salary for their whole lifetime.
Jenny Willott (Cardiff Central) (LD)
There has been much concern over the last few years about a race to the bottom with pensions, particularly given the parlous state of pensions in much of the private sector. Can the Minister reassure us that the proposals currently on the table will remain a gold standard and will ensure generous but sustainable pensions in the public sector in the long run?
Danny Alexander
My hon. Friend is right to remind us of the context in which 13 million workers in the private sector have no pension provision at all. That is something that will be taken care of as the NEST—National Employment Savings Trust—scheme is introduced. These will remain gold standard pensions. It is quite right that public sector workers who make a lifetime of contribution to serving this country should get the best pensions available, but the proposal will ensure that the costs are brought under control and that it is affordable to the taxpayer—not just now, but in the decades to come.
Nic Dakin (Scunthorpe) (Lab)
I very much welcome the tone of the Chief Secretary’s statement. In line with the principle of transparency, which he underscored in his statement, will he make sure that there is an independent valuation of the teachers’ pension scheme?
Danny Alexander
I am grateful for the hon. Gentleman’s welcome of the tone we have taken. I hope that, in due course, he will welcome the substance as well. As to valuation information, it is being provided in the context of the scheme-by-scheme discussions. The trade unions have put forward many requests for information to be provided so that alternatives can be costed. All that work is going on in the context of the scheme-by-scheme discussions, but the valuation that was going to take place has been suspended on the basis that changes have been made, not least to the discount rate, which make that work invalid. It is best to wait until a new scheme is in place before we carry that work forward.
Margot James (Stourbridge) (Con)
I very much welcome the transitional arrangements outlined by my right hon. Friend for people 10 years away from retirement. It is particularly important for groups that would have joined the public services at a time when, unlike now, public sector pay was less than private sector pay. Will he outline roughly how many people will be affected?
Danny Alexander
I am grateful for those comments. The transitional protection is a very important part of this new offer. It is right that people who are within 10 years of retirement should have certainty about their planning for retirement. That principle has been observed on both sides in respect of the state pension age. I estimate that the transitional provision will protect more than 1 million public sector workers from any impact at all as a result of the changes.
Gordon Banks (Ochil and South Perthshire) (Lab)
Can the Chief Secretary confirm that every penny paid in increased pension contributions will find its way into pension pots?
Danny Alexander
As the hon. Gentleman should know, in unfunded schemes there is no such thing as a pension pot. The money is not gathered together and invested. The contributions made today do not in any way meet the costs of the pensions being paid out today. What we are offering is what might be called a new deal for public service pensions, whereby additional contributions and longer working will help to ensure that public sector workers can still have the best pensions available. Many low-income workers will actually receive better pensions in retirement.
Sarah Newton (Truro and Falmouth) (Con)
I welcome the statement, because I think it demonstrates that the Government are listening to the concerns expressed by nurses, teachers and firefighters in my constituency. During the scheme-by-scheme discussions, will the Chief Secretary bear in mind those with physically demanding jobs, such as firefighters? Will they retain the right to retire before reaching the state pension age, while still benefiting from their pensions?
Danny Alexander
That is a very good question. We are, of course, listening carefully to representations. As I have said, we have delayed setting a cost ceiling for the firefighters’ pension scheme, particularly in the light of some of the issues that my hon. Friend has mentioned, but what we are discussing now is the normal pension age for schemes; early retirement arrangements on an actuarily reduced basis will remain in place.
Pat Glass (North West Durham) (Lab)
Most of the examples given by the Chief Secretary have involved well-paid public sector workers who have been in continuous employment, but many of my constituents do not fall into that category. Can he tell us how a low-paid part-time worker earning, say, £8,000 a year and working 15 hours a week would fare?
Danny Alexander
I cannot give a specific example, because I do not have the necessary figures to hand, but I can say that I expect the lowest-paid people to benefit most from these arrangements. At present, those on the lowest salaries and with the flattest career paths contribute most to the pensions of the highest earners. The change to a career-average basis will ensure that many workers, particularly of the sort whom the hon. Lady has described, end up with more rather than less income in retirement. I consider that to be a right and proper reward for those people’s commitment to public service.
Guto Bebb (Aberconwy) (Con)
I too welcome the statement, but given that economic growth, economic development and job creation in my constituency depend on the small business community, can the Chief Secretary advise owners of small businesses how they should go about amassing a pension pot of half a million pounds before they retire?
Danny Alexander
It is true that in the private sector an enormous volume of contributions would be necessary to build up the pension pot that is required to fund the pensions that we are discussing today. The equivalent would be a pension pot of £600,000 or £700,000 a year. That is a measure of the Government’s recognition of the commitment that public service workers make.
Derek Twigg (Halton) (Lab)
The Chief Secretary said earlier that the general taxpayer rather than public service workers had been footing the bill. May I point out to him that public service workers are also taxpayers, and that it has not helped that some people have been able to use the high pensions of the best-paid in the public sector as a typical example of those in the rest of the sector? We all know that pensions in the rest of the sector are very low.
Will the Chief Secretary place in the House of Commons Library some typical examples of the way in which the change from RPI to CPI has affected different sectors? Perhaps he could include examples involving part-time workers such as those cited by my hon. Friend the Member for North West Durham (Pat Glass).
Danny Alexander
As I said earlier, that depends on a variety of circumstances, but today we are publishing a document that the hon. Gentleman can obtain from the Vote Office, entitled “Public sector pensions: good pensions that last”, and I am sure that it will provide much of the information that he requires.
Jo Swinson (East Dunbartonshire) (LD)
I welcome my right hon. Friend’s improved offer on public sector pensions, which shows that the Government are serious about meaningful negotiations. Will he challenge the rather misleading claims from some quarters that people will have to pay more, work longer and get less? Surely the truth is that—although people will indeed have to pay more and work longer—far from getting less, they will get much more, not least because on average they will receive 10 years’ more pension payments than the previous generation.
Danny Alexander
My hon. Friend is absolutely right, and she is also right to warn people against some of the misleading propaganda that is circulating. I think it important for public sector workers—teachers, nurses and civil servants—to take time to study the offer that we are making for themselves. The document that we are publishing will be available on a website, so they can check out the new arrangements. As my hon. Friend says, yes, we are asking people to work longer and yes, we are asking them to contribute more, but many people will receive a significantly better pension on retirement than they would receive now.
Fiona Mactaggart (Slough) (Lab)
I was grateful to the Chief Secretary yesterday for answering my question about public sector workers who will no longer contribute to their pensions. He told me then that he expected 1% of the pay bill to cease to contribute, but added that he did not know who that 1% were. Given that they are very likely to be low-paid part-time workers rather than the highly paid chief executives to whom he has referred, will he make the figures available to the House?
Danny Alexander
It is true that I gave the figure of 1% of the pay bill. That is an assumption that was audited by the Office for Budget Responsibility and published in the relevant fiscal forecast that it presented. It is precisely for the reason given by the hon. Lady that we have chosen to tier the pension contribution increases according to income, so that no one earning less than £15,000 a year will experience any contribution increase. Those earning between £15,000 and £21,000 a year will experience a much reduced increase, while the heaviest burden of increases will be borne by the highest earners. That is the right and proper way in which to ensure that there are no opt-outs.
Andrew Percy (Brigg and Goole) (Con)
While it is true that all taxpayers pay for the pensions that we are discussing, it is low-paid private sector workers working beyond retirement age—such as my dad—who are subsidising public sector pensions while receiving none of the benefits. I therefore welcome the proposed changes, and hope that my former colleagues in the teaching profession will accept them.
Firefighters’ pensions were mentioned earlier. Firefighters from my constituency whom I met yesterday were worried less about change than about whether they would be fit to do their job after the age of 55. Are the Government still prepared to discuss that issue with the union?
Danny Alexander
Yes, and John Hutton said in his report that he thought it appropriate to retain a lower retirement age for firefighters, the armed forces and the police. It is precisely because of the importance of such issues that the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Bromley and Chislehurst (Robert Neill)—who is leading the negotiations—is taking longer than expected to set the cost ceiling. That will enable us to ensure that the arrangements for firefighters are appropriate and will allow them to continue to receive a very decent pension in return for what is a very important contribution to our society.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Like many other Members, I received a delegation of teachers last week, and they told me that their current scheme was fair and sustainable. They will be less than delighted by the Chief Secretary’s earlier answer relating to a valuation of that scheme, for which they have been calling for some time. Does the Chief Secretary recognise that he must come clean about the costs to both taxpayers and employees if he is to win the battle to change hearts and minds?
Danny Alexander
Of course I recognise that we must win that battle for hearts and minds. That is why I am providing so much information today, and urging public sector workers to look at the Government’s deal directly rather than necessarily relying on the information that they receive from their trade unions.
I do not think it right to suggest that the current teachers’ pension scheme is fair and sustainable. Let us consider the relevant contribution rates. When the scheme was introduced many decades ago, employer and employee each contributed 5%. Now the employer contributes 16%, while the employee contributes about 6%. There has been a big change in the affordability of the scheme, and so far all the cost has fallen on the taxpayer.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Does my right hon. Friend agree that the public sector should examine very carefully the generous revised terms that he has announced before considering strike action? Such action would merely serve to hurt millions in the private sector who pay their taxes in order to produce public sector pensions that they themselves can only dream of.
Danny Alexander
I do indeed hope that the trade unions will examine the proposals carefully. I was encouraged when they said that they would at our meeting this morning. Of course trade unions need to take time to understand the impact of the changes, but I hope that on reflection they will accept that the new offer constitutes a generous enhancement from the Government, and a fair and reasonable basis on which to reach agreement in the scheme-by-scheme talks that will take place during the next couple of months.
Lilian Greenwood (Nottingham South) (Lab)
The Chief Secretary said he believed that pension changes should be sustainable and fair. Will he confirm that he intends additional contributions to the local government pension scheme—which is a funded scheme—by scheme members to go straight to the Treasury rather than into their pension fund?
David Rutley (Macclesfield) (Con)
According to reports in today’s press, only 40% of private sector workers receive pension contributions, while 85% of public sector servants receive not only a pension, but a more generous one. Does my right hon. Friend agree that it is time to address these differences, rather than engage in irresponsible strike action?
Danny Alexander
I wholeheartedly agree that it is time to address these differences, but not by trying to get public sector involvement in pensions down to the level in the private sector. What we need to do is what we have done today: set out an offer that combines affordability for the general taxpayer with proper pensions as a reward for a career in the public service, along with steps to encourage more private sector workers to involve themselves in pensions. That is precisely the basis of the new NEST scheme, which the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb), is taking forward.
Diana Johnson (Kingston upon Hull North) (Lab)
Does the Chief Secretary regret the way negotiations have been conducted so far, with him practising megaphone diplomacy, not providing information requested by the trade unions, and causing a great deal of distress and upset to my constituents who are public sector workers?
Danny Alexander
I think what the hon. Lady has said is total nonsense; that is not an appropriate characterisation of what we have done. I do not regret the way the talks have progressed for the past eight months, and I look forward to reaching agreement on this issue, with or without the support of the Opposition.
Gavin Williamson (South Staffordshire) (Con)
Will my right hon. Friend outline how he thinks the unions should respond to the proposals he has set out today? Does he agree with most Members on the Government Benches, who think the unions should respond by today calling off any planned industrial action?
Danny Alexander
It is for the unions to reflect and decide on their response. I am not standing here at the Dispatch Box to respond for them; it is strange enough to respond for the Liberal Democrats and the Conservative party. I hope that the trade unions will, on reflection, realise that this offer provides a justification for putting renewed effort and vigour into the scheme-by-scheme discussions and much less effort and vigour into any possible strike action.
Kevin Brennan (Cardiff West) (Lab)
What is the cost to the public purse of the changes the right hon. Gentleman has announced today?
Danny Alexander
The cost ceiling under these changes will be 8% higher than the previous cost ceiling we set out.
Mr Dominic Raab (Esher and Walton) (Con)
My question has just been answered.
Mark Durkan (Foyle) (SDLP)
Has the Chief Secretary taken into account the particular responsibilities of devolved Administrations and the rights of their public sector workers—many of them low paid, and all of them tax-paying—and do the terms of today’s offer differ from the previous terms about which he wrote to those Administrations?
Danny Alexander
The hon. Gentleman makes a very important point. These matters have been discussed regularly at the Finance Ministers quadrilaterals, which bring the Finance Ministers of the devolved Administrations and me together, so people have been kept informed. The tradition has been that the devolved pension schemes follow by analogy the agreements reached at a UK level. I will write to the devolved Finance Ministers to set out what I have announced today, so they can take that into account in their own decisions on these matters.
Martin Horwood (Cheltenham) (LD)
I strongly welcome the improved flexibility, and ask that we be as generous as that allows. This is not just about fair rewards in future or burdens on the taxpayer; it is also about recruitment and retention now, to keep people in the police, teaching and, in my constituency, GCHQ, working for the well-being and safety of taxpayers and non-taxpayers alike.
Danny Alexander
My hon. Friend makes the point that public sector workers have traditionally considered the level of pension to be an important part of their reward package, and they are right to think that. I hope my hon. Friend agrees that the offer we have set out today constitutes a very fair reward for a career spent in precisely the sort of public service institutions he has described.
Katy Clark (North Ayrshire and Arran) (Lab)
The Chief Secretary will be aware that one of the concerns about increasing contributions is that that will lead to a rise in opt-out rates, particularly among low-paid and part-time workers, most of whom are women. In his answer to my hon. Friend the Member for Slough (Fiona Mactaggart), he mentioned an assumption of 1% of the pay bill, but the schemes and their memberships are very different. Will he ensure that opt-out rates are analysed on a scheme-by-scheme basis, as rising contributions could have a major effect on the viability of some schemes?
Danny Alexander
We have taken that on board through the proposals for a tiered increase in contributions. The hon. Lady will be aware that 80% of the public sector workers who earn less than £15,000 a year and will not have any contribution rate at all are women.
Richard Graham (Gloucester) (Con)
Some months ago, when the Minister for the Cabinet Office and Paymaster General told the House that one of his key negotiating goals was to protect, if not improve, the pensions of lower and middle-earning public sector workers, not all my constituents were convinced. Today, he and the Chief Secretary have delivered on that promise, and hard-working nurses at the Gloucestershire royal hospital and teachers in Gloucester will welcome the news that many of them will have better pensions than at present. However, does the Chief Secretary share my disappointment that the Opposition Front-Bench team has been unable to welcome today’s news, especially as workers in businesses such as Wall’s in my constituency have recently seen their own pensions significantly watered down?
Danny Alexander
I agree. My hon. Friend is right to draw attention to the important role played by the Minister for the Cabinet Office and Paymaster General. If I may say so, we make a good team in these negotiations. These are very generous pension schemes, particularly for low and middle-income earners, and rightly so. We must make sure the funding of them is sustainable in both the short term and the long term. That is one of the reasons why I find the Opposition’s lack of welcome for the announcement so frustrating.
Julie Elliott (Sunderland Central) (Lab)
Although I welcome the Chief Secretary’s statement, I am disappointed that it has taken eight months to get any serious negotiation and any movement from the Government. I am particularly concerned about two issues. The first is to do with low-paid women workers in the pension scheme, and particularly those who work part time. Has any analysis been done of the possible impacts if they opt out of their pension scheme, therefore receiving less money when they retire from the benefits they then receive? On the firefighters’ pension scheme, we have heard conflicting answers from the Chief Secretary: he has said they will have actuarially reduced pensions, but he has also said they will be allowed to retire early. I am therefore a little confused as to where the Chief Secretary stands on that.
Danny Alexander
I am very grateful indeed for the first welcome for my statement from an Opposition Member. The hon. Lady is right that it is important to consider low-paid workers, which is why we are proposing to move to a career-average basis, under which low-paid workers will keep more of their own contributions, instead of subsidising the pensions of the highest earners. It is also why we have tiered the contributions increase in order to try to prevent opt-out. The negotiations on the firefighters’ scheme are ongoing, and I am told they are going well. We have delayed the publication of the cost ceiling to make sure we can take into account all the issues raised by firefighters in the discussions.
Jane Ellison (Battersea) (Con)
I welcome today’s statement. Many of the measures will meet the concerns of people such as the firefighters I met yesterday. On career-average earnings, does my right hon. Friend share my aspiration about the system being fairer to those who have taken career breaks, many of whom will be women?
Danny Alexander
I am grateful to my hon. Friend for reminding me of that important point. Public service pensions must reflect not only the careers of people who spend an unbroken working life in the public sector, but the careers of the many people who take time out. By having a career-average basis, especially when each year’s contribution is revalued by earnings, people who take a career break will still get the full value of the contributions they have made in both parts of their career.
Christopher Pincher (Tamworth) (Con)
I congratulate the Chief Secretary on listening so carefully and responding so generously to the representations on pensions. The police cannot strike, of course, and Lord Hutton has dealt with them separately, but can the Chief Secretary tell us a little more about the proposals for police pensions?
Danny Alexander
Those proposals will be brought forward later. Police pensions are being considered by Tom Winsor in his second report. His recommendations will not be about the police alone, but we need to make sure that police officers get a proper, fair and decent pension for the contribution they make to our society.
Mr Clive Betts (Sheffield South East) (Lab)
The Chief Secretary has once again said that all accrued rights will be protected. Will he confirm, however, that the change from the retail prices index to the consumer prices index will, in practice, affect the accrued rights of every single member of every public sector pension scheme?
Danny Alexander
I do not believe that that is a correct use of the term “accrued rights”. Of course we will protect the accrued rights in full. The RPI to CPI switch will have the effect that I described in my statement. That is the subject of a legal dispute at the moment, but it was the right decision by the Government.
Andrew Bridgen (North West Leicestershire) (Con)
Has the Chief Secretary received any constructive representations from the Labour party regarding this important topic or has its involvement been limited to the irresponsible words of the shadow education spokesman, who is no longer in his place, condoning teachers’ strikes?
Danny Alexander
I am yet to receive a constructive suggestion from the Labour party, but I live in hope.
Stephen Lloyd (Eastbourne) (LD)
I welcome the statement. As the Chief Secretary knows, I broadly support the direction of travel that the Government have been taking, but I had some concerns. I think that tremendous progress has been made and I am grateful for that. I have a technical question that is important to a lot of my constituents: what is the current split between employer and employee contributions for teachers and nurses, and how would that change under his proposals?
Danny Alexander
I am grateful for my hon. Friend's welcome. Today’s announcement will increase the cost ceiling for the talks. We will make sure that the employer contribution is still significantly greater than the employee contribution, but of course the contributions increase that we are proposing rebalances them to take account of past increases and longevity. On the teachers’ pension scheme for England and Wales, the gross cost ceiling that we are setting out today will be 21.7%, the taxpayer contribution will be 12.1% and the employee contribution will be 9.6%. Of course these matters still have to be discussed in the teacher scheme-specific negotiations, but that is the basic framework that we are setting out today.
Mr Peter Bone (Wellingborough) (Con)
The whole House will welcome the statement from one of the most capable Ministers in the coalition Government, who has been keeping the House informed. The point about the transition was the biggest concern to constituents who came to see me. May we have it clearly put on the record that nobody who is within 10 years of their current retirement date will have to retire later or will be worse off?
Danny Alexander
I am grateful for the hon. Gentleman’s comments, and I hope that Mrs Bone shares his views. He is right to say that nobody who is within 10 years of retirement on 1 April next year will see any change either to their retirement age or to the benefits that they receive.
Mr Speaker
That answer will doubtless wing its way to Mrs Bone in a matter of minutes.
Stephen Mosley (City of Chester) (Con)
I congratulate the Chief Secretary on his statement. May I also ask him to continue to negotiate and engage positively with the trade unions in the weeks and months ahead?
Danny Alexander
The hon. Gentleman can certainly ask that and I certainly will do so. The Government are setting out this new offer, which is conditional on agreement being reached. The Government will continue to work very hard to achieve that agreement, both in the scheme-specific discussions and in the central process, which we will also continue.
Charlie Elphicke (Dover) (Con)
Does the Chief Secretary agree that, as longevity is still increasing by about two years a decade and is likely to carry on doing so, we cannot stick our head in the sand or sit on the fence, as we have seen the Opposition do? All parties need to work together to reach a proper consensus, so that we can achieve a long-lasting, sustainable settlement.
Danny Alexander
I think that it would be in the national interest to have a proper cross-party consensus on today’s proposals. The hon. Gentleman is right to highlight the increases in longevity. By linking the normal pension age to the state pension age we can ensure that the taxpayer is protected from that in future, because as longevity increases, the state pension age can be changed. That is the right way to protect pensions, rather than the previous Government’s cap and share arrangement, which would have meant complex negotiations every three years. That would have resulted in both increases in contributions and reductions in benefits every three years. By setting out this scheme now, we have one that can last for 25 years without the need for further negotiation.
Mr Philip Hollobone (Kettering) (Con)
In the private sector, where most people work, getting an annual pension of £10,000 typically requires a pension pot of £200,000, which would buy a very nice house in Kettering. Does the Chief Secretary share my concern that many public sector workers seem to think that private sector provision is far more generous than it actually is?
Danny Alexander
The hon. Gentleman is right about that, and he makes an important point. Part of the reason for setting out some of the information about pension pots today is precisely to widen public understanding of the comparison. That is not to do down public sector workers—in fact, what we are setting out today is a properly positive and generous offer to them—but we are making it clear that there is a wide gulf and we need to raise standards in the private sector too.
Mr Speaker
I thank the Chief Secretary and colleagues, whose succinctness enabled 47 Back-Bench Members to question the Chief Secretary in 41 minutes of exclusively Back-Bench time. It shows what can be done when we try.