Economic Prosperity and Employment

Baroness Donaghy Excerpts

Thursday 18th July 2013 Lords Chamber

[Baroness Donaghy]

My Lords, I thank my noble friend Lord Haskel for initiating this important debate. I will concentrate on a couple of things that the Government should not be doing and then move on to some large but neglected sectors to which the Government should turn their attentions.

First, the Government should stop messing about on Europe. Of course there is a need to reform its institutions, but the opt-out approach to Europe is counterproductive and isolating. As John Cridland recently wrote,

“we must focus on a positive vision of reform”.

A recent CBI study looked at the relationship between Norway and Switzerland and the EU. Both countries are outside the EU but Norway is part of the single market through the European Economic Area agreement. It pays €600 million a year for the privilege, making it the 10th-highest contributor to the EU, just to be allowed to follow the EU rules as a non-member. A Norwegian conservative, Mr Nikolai Astrup, said:

“If you want to run Europe, you must be in Europe. If you want to be run by Europe, feel free to join Norway in the EEA”.

The Government should also stop trying to kid themselves that they can opt out of the social wage when rights for part-time workers, maternity leave and all the other workers’ rights enshrined in various directives have become part of the fabric of society and the expectation of a new generation of workers. Not just the trade unions will resist the undermining of those rights.

My second “not” is that the Government should not mistake Whitehall reorganisation for progress. Abolishing departments and even non-departmental public bodies is wasteful if the functions have to continue elsewhere. It halts momentum and it is costly. That is not to say that things should never change, but so often the problem is poor interdepartmental co-operation or a Government who want to prove that they are different from the previous one.

The proposal to increase the number of party-political appointees in government departments is another area that will help things grind to a halt. If the proposal is implemented, I doubt that the appointees will be from diverse backgrounds with plenty of management experience—or even engineers, as the noble Lord, Lord Bradshaw, urged us. They are more likely to consolidate the very narrow background of Oxbridge-educated political advisers who have already caused such alienation between the political classes and the population as a whole.

I turn to the areas on which the Government should spend more effort. Two weeks ago the noble Baroness, Lady Shephard of Northwold, initiated a debate on preparing young people for the world of work, and she made a powerful speech about the importance of careers advice in which she said that the Government’s own National Careers Service had estimated that,

“the cost to the economy of young people making wrong choices amounts to some £28 billion”.—[Official Report, 4/7/13; col. 1330.]

In his summary of the debate the Minister acknowledged the importance of careers guidance. However, he preferred to lay emphasis on the role of good schools. Although that is an admirable sentiment for an individual, it does not constitute a national strategy. Without a more systematic reform, it is difficult to see how the reform of vocational qualifications will have the impact that we all desire. The noble Lord, Lord Cormack, and the noble Baroness, Lady Fookes, also took part in that debate and spoke about the “unfortunate attitude” towards those who work with their hands in craft and horticulture. A good vocational system needs to take account of these areas, which have the potential to employ hundreds of thousands of people.

The situation is even worse with engineering, science and technology. The Royal Academy of Engineering has predicted that in the next eight years there will be an average shortfall of 40,000 new graduates in science, engineering and technology every year. In Germany last year, engineering was the most popular choice in higher education, after law. I pay tribute to the university technical colleges, but we need many more of them; we need an initiative on the scale of the Robbins report for HE. As well as meeting the needs of employers, it is clear that an increase in vocational learning leads to lower youth unemployment. Surely there is a clear role for government here.

To conclude, the Government should focus on functions rather than wasteful institutional reform. They should focus on skills, advice and guidance on careers for our young people and do more to promote Cinderella industries, such as tourism, which could lead to quick results on economic growth and youth unemployment.

Welfare Benefits Up-rating Bill

Baroness Donaghy Excerpts

Monday 11th February 2013 Lords Chamber

[Baroness Donaghy]

My Lords, I pay tribute to the noble Lord, Lord Sheikh, for being a hard-working and successful entrepreneur. I know several people who have two or three part-time jobs who work extremely hard and who remain low paid. I never cease to be surprised that the low paid are always blamed for being low paid and being eligible for tax credits, but low-paying employers are never blamed for their part.

This Bill is political and deserves a political response. The challenge has been issued by the noble Lords, Lord German, Lord Bates and Lord Brooke of Sutton Mandeville: “What would I do instead of this Bill?”. In the words of Yosser Hughes, “Gissa job” and I will tell you. This Bill is completely unnecessary, it is based on a misrepresentation and it is playing politics with people’s lives. All this will become apparent when the impact is actually felt by real people, when the jobless numbers rise and child poverty increases.

First, there was absolutely no need for the Bill, as has already been said by several speakers. The Government already have the power to uprate by 1% this year, next year and the year after at the appropriate time without new primary legislation. So why do it? The Work and Pensions Secretary, Iain Duncan Smith, said that it would,

“provide certainty for taxpayers, the markets and claimants”.—[Official Report, Commons, 8/1/13; col. 189.]

I ask the Minister: what certainty can there possibly be when the level of inflation in the next three years—a key ingredient, she must accept—is unknown? What certainty can there be when the markets are up and down like a yo-yo? I suppose it could be said that higher rate taxpayers have been provided with certainty, and claimants are certain that they will be a lot poorer. The real reason for this unnecessary Bill is to provide a symbolic dividing line between the coalition Government and the Labour Opposition—short-term political gain on the back of those at the bottom of the labour market—and this sleight of hand will be found out.

Secondly, the Bill is based on the false premise that this is about fairness between taxpayers and those out of work. The Chancellor himself stated that,

“over the last five years, those on out-of-work benefits have seen their incomes rise twice as fast as those in work”.—[Official Report, Commons, 5/12/12; col. 879.]

Everything has been pitched to present this Bill as an act of fairness to working people whose earnings have risen by about 10% since 2007 while out-of-work benefits have gone up by about 20%, but we all know how misleading this comparison is. I negotiated wage increases for the poorest paid in universities for 16 years, 90% of them women, mainly part-time. Using percentages to present a case is designed to mislead. We used to say that 10% of nothing is still nothing.

The whole presentation by the Government is about employed versus unemployed, when the reality is nothing of the kind. It is actually about divide and rule. Thirty per cent of households will be affected. Those most likely to be affected are families with children, particularly lone parents, 90% of whom are women. The Government claim that many of those affected by the Bill could cope with the below-inflation benefits by moving into work, but 60% of those households affected are in work. The Government claim that the disabled will be protected, but disabled people in the ESA support group will see their basic allowance of £71 uprated by 1%. This represents almost 70% of their out-of-work support and 991,000 disabled people receiving ESA in 2012 will experience a 1% uprating, representing a loss of £87.65 a year, as has already been said.

The real weasel words come when we are told about child poverty. The Parliament Under-Secretary, Esther McVey, said that there would be,

“an extra 200,000 children being deemed by this measure to be in relative income poverty compared to uprating benefits by CPI … It is misleading to look at the impacts of uprating in isolation”.—[Official Report, Commons, 15/1/13; col. 715-16W.]

Note the words “deemed” and “relative income poverty” in an attempt to minimise the impact. Mr Duncan Smith went on to say:

“If we take the figures on that relative income point across the period covered by the spending review, we can see that some 350,000 children net will be lifted out of poverty, even if we take into account the effect of this Bill”.—[Official Report, Commons, 21/1/13; col. 131.]

So either we have 200,000 extra children in poverty or we have 350,000 fewer in poverty. In a recession we are all poorer so the poorest are comparatively better off—what unbelievable nonsense.

Thirdly, the Government are playing politics with people’s lives. They claim it is about rebalancing the economy and making work pay. Let us say for the sake of argument that the 60% on diminishing tax credits who are in work get better jobs, leaving room for the 40% who are not in work to do the lowest paid jobs. Where are these jobs coming from? Last year 300,000 jobs were lost from the public sector. The OBR predicts the loss of a further 900,000 jobs by 2017-18, while the Institute for Fiscal Studies predicts 1.2 million lost jobs in the public sector over the same period.

The Government think they are all going to come from the private sector, and so far they have, but there is no growth in the economy. People are spending what they have on energy, food and rent, and large retail chains are going out of business. Maybe they will all become self-employed. Between June 2008 and April-June 2012 the number of self-employed rose to 4.2 million, a rise of 367,000. During the same period, the number of employees declined by 434,000. Maybe this is how we are going to work our way out of poverty.

However, if you look at the figures, 80% of that increase in the number of self-employed were aged over 50 and more than likely to be male, according to the Office for National Statistics. So we are turning into a nation of 50 year-old entrepreneurs. When you delve even further, they turn out to be construction workers, carpenters, taxi drivers, et cetera. This suggests people who have little choice about their employment status, whose job prospects have diminished because of age barriers and who are probably bumping along on the bottom of the labour market, getting what they can but not continuous employment. It could also explain why output is flat while employment is growing. It is not the brave new world but more like a twilight zone.

The Government are not looking after the economy; they are looking after their own. The gap between rich and poor, already unacceptable, will widen. The Times Magazine last week said that a child born in Lambeth is likely to die eight years before their counterpart in Kensington and Chelsea. I presume that the latter need the extra eight years in order to spend their tax breaks. It is bad enough that we live in a society that tolerates these differences in mortality rates. This Bill is intended to be a propaganda coup for the Government. It will soon be seen for what it is: a gratuitous attack on the poorest and weakest in an unequal society.

Public Service Pensions Bill

Baroness Donaghy Excerpts

Tuesday 15th January 2013 Lords Chamber

[Lord Newby]

My Lords, as I was saying, this group of amendments is concerned with the recommendation of the noble Lord, Lord Hutton, that each public service pension scheme should have an advisory group. Although these have always been dealt with administratively, we have listened to concerns raised in another place and proposals from stakeholders. As a result, we have decided to make these groups plain on the face of the Bill.

Amendment 45 introduces a new clause to require scheme regulations to establish a scheme advisory board. The central purpose of the scheme advisory board will be to consider and advise on the desirability of future changes to the schemes. The board will advise the responsible authority on any matter that it asks the board to consider, whether wide-ranging or focused on a single issue. The board’s role will supplement, rather than replace, the role of other persons and bodies in responding to consultations under Clauses 11, 19 or 20.

The scheme advisory boards may play an additional role in the locally administered police, fire and local government schemes. In those schemes, the board may also advise the scheme managers and pension boards when such advice is requested or on their own initiative. Subsection (2) provides that the board can advise them on the effective and efficient administration of the scheme, any connected scheme and any pension fund that relates to them.

This amendment is in light of proposals that employer and employee representatives have put forward in respect of the local government scheme in England and Wales. While the precise role will be a matter for scheme regulations, we envisage that the locally administered schemes will want to provide for the advisory board to offer central support to scheme managers. That advice is likely to cover matters such as best practice and ensuring consistent approaches to the management of the schemes.

The advisory board will identify policy and operational issues that need to be resolved, either by better practices at a local authority level or perhaps through changes to scheme regulations or guidance. In turn, the advisory board will be able to advise the relevant parties on how changes should be made to improve the management and administration of the schemes and their pension funds. For example, there will almost certainly be an advisory board role to agree and advise on the interpretation of the legislative requirements—potentially around co-commissioning of expert advice and systems—and the co-ordination and co-commissioning of services. It is likely that, for the funded local government scheme, it will monitor fund performance across the pension funds. The employer and employee representatives in that scheme envisage a role to support scheme managers and pension boards to improve fund management across the scheme. These amendments allow for that.

The scheme advisory board will not have a separate role in advising the scheme managers and pension boards in the nationally administered schemes. That is not needed in those schemes. Unlike the locally administered schemes, the scheme manager and responsible authority will be the same person. Importantly, the amendments maintain a clear separation between the advisory board’s policy role and the scheme manager and pension boards’ responsibilities for the management, administration and governance of the scheme. The noble Lord, Lord Hutton, highlighted the importance of this separation of roles in his report.

Finally, the amendment requires that scheme advisory board members must not have a conflict of interest that could prejudice the way they undertake their role. This does not prevent a scheme member, or an employer or employee representative, being a board member. Those are not interests that would prejudice the way they undertake the role—indeed, they are instead interests that support such an undertaking. I commend these amendments to the Committee.

[Baroness Donaghy]

My Lords, I want to speak to Amendment 45. The Local Government Association and the relevant unions welcome this amendment as it ensures an effective separation of responsibilities for boards at local level and at national level, as was required. While it is a positive step, a concern for the LGA and the unions is the scope of the role of the board as contained in the amendment, particularly the nature of the advice which the scheme advisory board can offer. The current wording of Amendment 45 restricts this advice to that of desired changes to the scheme. The LGA and unions believe that the introduction of a scheme advisory board offers the potential for advice, not only on scheme changes but also other areas including scheme governance, technical advice and cost management. Will the Minister comment on this?

[Lord Hutton of Furness]

My Lords, I briefly add to the welcome that my noble friend has given to this amendment. I am very pleased the Government have brought forward this amendment; as the Minister has said, it is in line with my report and its recommendations and so I welcome it unreservedly.

I have one question that the Minister may be able to answer; I hope he will forgive me for being a little technical. I have noticed there is a different definition of conflict of interest in his new clause to that in Clause 5. The definition in Amendment 45 does not include any membership of a connected scheme; is that a deliberate change in the definition or does he have further thoughts about the matter?

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[Baroness Donaghy]

My Lords, I support this group of amendments. Lest my noble friend Lord Whitty and I are accused of running or producing the local government show, I want to deal with the Civil Service pension scheme in relation to this subject. According to the First Division Association, the current wording of the Bill does not reflect the discussions with the unions on revaluation, and seeks to extend the Treasury’s control far beyond that which is necessary and prudent. In the light of the FDA and others v the Secretary of State for Work and Pensions and others in 2012, there is no need for this clause to be in primary legislation, as it is better suited to the scheme regulations that will lay down the parameters for each distinct scheme. There is no similar clause setting out the terms of the indexation of pensions in payment, even though that element is consistent across all schemes.

Fundamental to the agreement reached with the Civil Service was the understanding that, as with indexation of pensions in payment, revaluation would never be negative. If the relevant index was negative, as has been the case in recent history, the figure of zero is used and there are no increases or decreases applied. This is vital to the confidence of pension saving. Just as pensions in payment should not fall from one year to the next, a principle held by successive Governments, so pensions being accrued should not similarly be reduced. That reflects existing practice.

The FDA was not informed at any stage that the Government intended to deviate from that approach in the new scheme, and to do so now would be a fundamental challenge to the agreement. The continued inclusion in the Bill of a provision allowing negative revaluation to occur could have a profound effect on member behaviour, and specifically opt-outs. Scheme members are likely to react to an announcement that their whole pension is to be revalued downwards as a result of a negative figure for the consumer prices index in September; their response is likely to be one of mass opt-out. This is a hugely counterproductive approach for the Treasury to take on the pretext of share and risk, and the cost of management mechanisms already accounts for inflation—yet the Treasury wants additional cost to be accepted by members through this provision, which puts participation at risk.

[Lord Newby]

My Lords, the amendment proposed by the noble Lord, Lord Whitty, raises the important question about how negative growth should be treated in these new schemes. For the revaluation of active members’ accruals each year the Treasury will lay an order which will establish the changes in earnings or prices. Scheme regulations will then use these changes when applying the revaluation mechanism that they decided on in their proposed final scheme designs. This approach mimics the current arrangements for the indexation of public service pensions in payment; it allows for the agreed scheme-specific variations, but also ensures that the underlying growth measures are transparent and consistent.

As the noble Lords have pointed out, this approach allows for the growth measure to be negative. I am not looking bemused because I did not realise that that was the case; we have never sought to hide that fact. Before explaining the rationale behind this, I should point out that brief periods of negative growth are unlikely to impact significantly upon the total value of any pension, in much the same way that brief periods of unusually high growth would not. After all, pensions are built up over a long period. I should remind the Committee that negative growth is exceptionally rare. It is not the case that in recent times the preferred index has been negative; the CPI has never been negative. The Committee should also be aware that this clause impacts only on those scheme members who are in employment, building up their pensions. It does not impact at all on pensions in payment.

However rare negative growth might be, if scheme members can benefit from the upside risk of revaluation—which they will, since there are no plans to cap revaluation rates—it would be unfair, in our view, for them to be shielded from any potential downside risk. Furthermore, by imposing a revaluation floor, scheme costs would rise and could lead to a breach of the cost cap set out in Clause 11. This is because previous scheme valuations based on standard, long-term growth assumptions would have essentially underestimated the cost of future accruals. If this were the case, it would be likely to lead to an increase in members’ contributions or a reduction in the scheme accrual rate. This would be unfair to anybody reaching pension age when positive growth returns. Their benefits would have been reduced to pay for those people who benefited from the revaluation floor.

It is only right that public servants receive their defined benefit pensions so that they can plan properly for their retirement. However, there is no logic in going beyond this by protecting their accruing benefits from any brief periods of deflation before their pensions come into payment. I believe the approach of directly tracking growth—with no caps or floors—is the fairest way forward. As I have said before, the noble Lord, Lord Hutton, described the idea of an indexation floor as an “asymmetric sharing of risk”. We agree. It is fair to say that the Local Government Pension Scheme does not specify, as the noble Lord, Lord Whitty, implied, that there will be no decrease possible within the scheme rules. My understanding is that it says that the basis of revaluation would be CPI.

Another point was raised about legislating for the measure. I am now coming on to the amendment of the noble Lord, Lord Eatwell, about whether we should legislate for a specific measure and whether the Treasury is being given too much discretion. It has obviously been the case within the last generation that the basis of measuring prices has changed: it has changed from the RPI to the CPI. Our expectation is that the CPI would continue for a very long time, but these things sometimes change and we therefore believe that the best way of dealing with it is in primary legislation. Incidentally, I am not implying that if the measure changed, the pensions would change. It would simply be that the scheme rules would have to reflect any new measure that came into general use.

Moving on to Amendment 49, it is worth re-emphasising that the annual revaluation will set out the general changes determined by the Government’s preferred measure, which is CPI at the present time. As I said, it is necessary to give a limited amount of discretion to the Treasury to determine the measures, but we do not believe that this is going to be a likely or common thing. It is apparent from the wording of the clause that the estimates of changes must be made in a reasonable and appropriate manner. Any attempt to exercise this discretion in such a way that did not produce accurate and appropriate estimates, with reference to a reasonable index of prices or earnings, could be challenged by scheme members. Any decision which is not reasonable—even without this amendment—could be challenged by judicial review and struck down by the High Court, so we do not believe that this amendment would change the position or provide any additional protection to members.

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[Baroness Donaghy]

My Lords, I shall speak to Amendment 54. At Second Reading I referred to ambulance service staff. I am hoping for the inclusion of ambulance service staff in the protected uniform services section of the pension regulations. I propose that the Bill should refer to ambulance service staff providing 999 responder services as opposed to referring to particular occupational groups such as paramedics, as there is a large number of non-registered ambulance staff who provide 999 responder services and registered paramedics who fulfil administration and managerial roles.

It is well documented that the main cause of ill-health retirement in the ambulance service is muscular-skeletal injuries and mental and behavioural disorders. These occupational hazards are not limited to staff working in paramedic grades and above but can be experienced by all staff providing 999 responder services. In addition, as a cost-saving measure, many ambulance services have created new support roles for 999 staff. Although the level of clinical intervention is different from that of a registered paramedic, their exposure to hazards and highly distressing circumstances remains the same. You have only to walk through the town centre of practically anywhere in the UK on a Saturday night to know that. They should be exempt from working longer.

The current NHS job evaluation scheme recognises these occupational hazards in job profiling for ambulance service staff. All ambulance grades that provide 999 responder services receive the same job evaluation level on the factors that contribute most to ill-health retirement. For example, an ambulance practitioner at the bottom of the Agenda for Change band 4 and an advanced ambulance practitioner on the top of band 6 score the same job evaluation level on physical effort, emotional effort and working conditions despite there being a difference of 19 pay points between these two jobs. The factors that heighten the risk of ill-health retirement remain the same.

In 2008, NHS Pension Scheme research indicated that the average retirement age in the NHS was 63, while in the ambulance service it is estimated that only one in 100 front-line staff reach normal retirement age. Staff working in the ambulance services are four to six times more likely to retire on the grounds of ill health compared with the rest of the NHS. A UNISON freedom of information request has shown that between 2008 and 2011 the average age of ambulance staff retiring on the grounds of ill health was 52. Muscular-skeletal injuries and mental and behavioural disorders—for example, post-traumatic stress disorder—represent more than 50% of the reasons for ill-health retirement. For that reason I believe that ambulance service staff providing 999 responder services should be included in these regulations.

[Lord Sharkey]

My Lords, I rise to speak in support of Amendment 56. I also have great sympathy for Amendment 54 in the name of the noble Baroness, Lady Donaghy. As the noble Baroness has so eloquently said, the working conditions and physical requirements of ambulance service staff who are 999 responders are very similar to those of the other exempt categories. However, the problem may be that there are quite a few other occupations whose members feel there is an equally strong case for inclusion within the exempt categories. Some of these occupations were discussed when this issue was debated in the Commons. I have heard Northern Ireland prison warders and staff in secure psychiatric institutions mentioned in this context and I know there are other claimants, too.

It is obviously very difficult to make judgments about which groups, if any, should be included alongside the uniform groups recommended by the noble Lord, Lord Hutton. I am not at all certain that it would be appropriate to add one particular category to those groups without considering, in detail, the claims of the other groups. That is not to say that there are no other groups that should be exempted from the standard state retirement age. In fact, I am personally convinced of the case put forward for ambulance service staff who are 999 responders. I think a sensible approach to this is contained in the amendment of the noble Lord, Lord Eatwell, to which he has spoken so forcefully. It is surely sensible to give the Secretary of State the power by order to include other occupations in the exempt groups if he thinks the case has been objectively made and thoroughly examined by a scheme-specific capability review.

A very similar, or perhaps even identical, clause to that of the noble Lord, Lord Eatwell, was put forward by Chris Leslie in the Commons. I have read Hansard carefully and the Government’s response did not seem entirely convincing. I am glad that our different rules of procedure in this House will enable the case for Amendment 56 to be put once more and I am glad that the Minister will have the opportunity to reply in full. I hope that when he does reply he will find himself in sympathy with Amendment 56.

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[Lord Eatwell]

My Lords, this is part of the deal that was made between the Government, the local authorities and the trade unions in putting together the agreement that was reached following the report by my noble friend Lord Hutton. It is a part on which the Government seem to be reneging. I really think that this is very important. This so-called fair deal amendment will ensure that a member of a public service pension scheme who is compulsorily transferred from his contract of employment to an independent contractor will be entitled to remain an active member of that scheme; and, indeed, if there is any subsequent compulsory transfer of his contract of employment, he could still remain a member of that scheme. This was a key part of the agreement reached with public sector employees and their representatives—this notion of a fair deal for outsourced workers. It would ensure that all public service workers compulsorily transferred would stay as active members.

As I say, the Chief Secretary to the Treasury confirmed the Government’s commitment to the new fair deal in July, in a Written Statement. He said:

“I can … confirm that the Government have reviewed the fair deal policy and agreed to maintain the overall approach, but deliver this by offering access to public service pension schemes for transferring staff. When implemented, this means that all staff whose employment is compulsorily transferred from the public service under TUPE, including subsequent TUPE transfers, to independent providers of public services will retain membership of their current employer’s pension arrangements.”.—[Official Report, Commons, 4/7/12; col. 54WS.]

Where is that promise on the face of the Bill? This is a promise that the Chief Secretary to the Treasury made, but it now seems to have evaporated. Where has it gone? As it stands, the Bill is very one-sided in how it reflects the negotiated agreement. The Government are happy to include the size of the agreement which suits them—for example, the requirement that no schemes are final salary schemes—but are not forthcoming with their corresponding promises made to public sector workers.

The Minister has repeatedly said that the Government’s word is adequate for protection of workers, and that government promises do not need to be enshrined in legislation. But if we take what the Chief Secretary to the Treasury said, surely the public would be rather bemused that that promise was made in terms and it has now evaporated. It is not there—where is it on the face of the Bill?

One issue to which we have continuously referred is that of the future-proofing of the Bill. Future-proofing does not mean not sticking to a deal or not making coherent commitments; it means having a degree of flexibility over major changes in circumstances discussed and agreed by the parties to the agreement. It does not mean just leaving part of the agreement out, as seems to be the case here.

Given the Statement from the Chief Secretary to the Treasury, I feel that this amendment could have been moved by him, and indeed I move it on his behalf.

[Baroness Donaghy]

My Lords, I support my noble friend Lord Eatwell on this important amendment. This was a key part of the national agreement between employers’ unions and the Government. In the local government scheme, which is a funded scheme, employers choosing to withdraw from that scheme could leave substantial costs relating to future fund income to be paid by the council tax payer. Information is already coming in that some higher and further education employers, and recently an academy school, are seeking to find ways in which to get around their obligations to provide the local government pension scheme for support staff. We should bear it in mind that those jobs are often low paid and part time. We should also remind ourselves that having an occupational pension will make sure that those people are self-sufficient when they retire and do not become dependent on the state. So it is in all our interest that these schemes are upheld.

The news that we are hearing is that shared services companies are being created, or that people are attempting to create them, as a way of getting round the obligations that they entered into by allowing their staff to remain in the local government pension scheme. I remind the Minister that, as I am sure he is aware, a big drift away by employers could undermine all the schemes.

[Lord Newby]

I thank the noble Lord for moving this amendment on behalf of my colleague, the Chief Secretary. I am sure he will be very pleased when I tell him that he did so. The Government are completely committed to the fair deal policy and to its reform. Commitments have been made, both in this House and in the other place, to ensure that members of the schemes who are compulsorily transferred to independent contractors can retain membership of those schemes.

The noble Lord asked about the provisions in the Bill that are relevant to achieve this. Clause 26 will extend access to the existing civil service pension scheme to allow those members who are compulsorily transferred out to stay in the scheme. Clause 22 will allow scheme regulations to make provisions for pensions for other employees who would not otherwise be members of the scheme. The policy will be delivered via the contracts made with independent providers. This will ensure that members of the schemes will be entitled to accrue future benefits through the scheme after the first tender and any subsequent retendering.

There are specific reasons why the proposed amendment cannot be accepted. The Government are currently considering when and how the new fair deal policy will be implemented. We are also consulting on how the new fair deal should be applied to those who have already been transferred out of the public sector under the old arrangements. It would be premature to put something on the statute book while this work is under way.

The amendment also captures the Local Government Pension Scheme. We have been absolutely clear that the principles of the new fair deal policy should apply to the reformed Local Government Pension Scheme, but the policy has always operated differently in that scheme. The Department for Communities and Local Government will bring forward detailed proposals in due course; again, in our view it would be premature to legislate while this work is under way. However, if the noble Baroness, Lady Donaghy, has some specific instances which she can show us of how the current arrangements might be being subverted, we would obviously look at exactly what is going on and how we might deal with that. My guess is that the most effective way of doing it would not necessarily be via this amendment. Obviously, however, because we are committed to the principle, if that principle is being undermined, we would want to look at how that is happening and what we could do to stop it. With those comments, I hope the noble Lord would feel able to withdraw his amendment.

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Moved by

[Baroness Donaghy]

62: Clause 10, page 6, line 20, at end insert “and Treasury directions would not apply to individual Local Government Pension Scheme funds”

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[Baroness Donaghy]

My Lords, in moving Amendment 62, I wish to speak also to Amendment 65. Clause 10 sets the Treasury powers to dictate to the individual public service schemes how they are to conduct their valuations and the assumptions, data and methodology they should use. I seek to clarify two issues through amendment to the wording of this clause.

The first issue, contained in Amendment 62, is that the Local Government Pension Scheme in England and Wales consists of 89 funds. Each fund appoints its own actuary and agrees with that actuary the assumptions and methodology most appropriate to its specific fund. Funds vary significantly in their size, demographics and proportion of active contributing members to retirees and those who have left with deferred pensions. It would be unworkable for the Treasury simply to impose central assumptions on individual funds.

The Local Government Pension Scheme regulations already set out when funds have to undertake valuations, while control of fund valuations is set out in Clause 12. Therefore, I seek to amend Clause 10(2) to make clear that these valuations do not apply to the Local Government Pension Scheme, as the Government have already acknowledged. The Bill states:

“Such a valuation is to be carried out in accordance with Treasury directions”.

I want Amendment 62 to amend the subsection so that,

“Treasury directions would not apply to individual Local Government Pension … funds”.

The second issue, in Amendment 65, is that the assumptions, methodology and data used in scheme-wide valuations will determine the cost of the scheme. To ensure that the assumptions used in scheme valuations are robust and appropriate will require the input of scheme pension boards and scheme managers, which is why I seek to amend Clause 10(4). I beg to move.

[Lord Eatwell]

My Lords, my noble friend Lady Donaghy has identified a considerable problem with cost control as expressed in Clause 10—the valuations section of the cost control part of the Bill. My noble friend’s amendment is very direct and clear with respect to the Treasury directions that she would like to see. My Amendment 63 takes a somewhat more ameliorative and subdued approach to dealing with this problem. However, it would ensure that Treasury directions are tailored to each local government fund and would therefore be much more accurate, rather than the possibility of a single set of directions being expected to apply to 89 local government funds which have significantly different characteristics. After all, each local government fund has its own assets and investment strategy. Different employers are involved and, crucially, most of the funds have different demographics. This means that each valuation needs to take into account the individual characteristics of those funds.

Considerable concern has been expressed about Clause 10 by well informed persons who are much better informed than me. For example, Alison Hamilton, the chair of the local government committee of the Association of Consulting Actuaries, said:

“Clause 10 certainly gives me cause for concern. … It is very important that the valuation takes account of the local demographics, and the local investment of the assets backing those pension funds. I attended a meeting where the Bill team tried to give some sort of reassurance that the valuation would be carried out as a one-size-fits-all under Treasury directions. That was not intended for the local government pension scheme. I would like the Committee to explore that and get something drafted”.—[Official Report, Commons, Public Service Pensions Bill Committee, 6/11/12; col. 169.]

Similar concerns have been expressed by the National Association of Pension Funds. I will not repeat what it said as it echoes what was said by Ms Hamilton.

When faced with this argument in the other place, the Government acknowledged that there was merit in it and stated that the Treasury would,

“take into account the individual nuances and features of the various … schemes”,—[Official Report, Commons, Public Service Pensions Bill Committee, 13/11/12; col. 347.]

when setting directions. They felt that the clause already allows enough flexibility for directions to take account of the differences between schemes. However, our amendment simply states what the Government’s intention apparently is—that the Treasury directions should not be based on, or be rigidly bound by, but should take into account,

“the individual nature of each of the different funded schemes”.

That is in accord not only with what is obviously sensible practice, according to the views of experts, but with what Ministers claimed in another place was their intention.

[Lord Newby]

My Lords, the Bill makes provision for pension scheme valuations across all the public service schemes. These will be carried out in accordance with Treasury directions to ensure that valuations are carried out on a clear and consistent basis.

Amendments 62 and 63 seek to clarify how Clause 10 will apply to the valuation of the individual funds in the local government pension scheme or to disapply the provisions of the clause to those valuations. The Government are well aware of the concerns referred to by the noble Lord, Lord Eatwell, and other noble Lords who have spoken, that this clause will be used by the Treasury to impose inappropriate valuation assumptions on individual LGPS funds. The amendments would ensure that this could not happen by removing these funds’ valuations from the scope of the clause or requiring the Treasury to take account of the nature of individual funds when making directions.

I hope that I can reassure noble Lords that these amendments are not necessary. First, the Government have no intention of making directions relating to the valuations of individual LGPS funds. This commitment has already been made in this House and in the policy paper published by the Treasury in November 2012, copies of which are in the Library. Secondly, Clause 10 needs to be read in the light of the Bill as a whole. It is clearly intended to deal with valuation at the scheme level, as can be seen from Clause 12, which makes provision for valuations at the level of individual pension funds. While that clause would provide for greater oversight of the local fund valuations, it will not mandate how they are to be carried out. Accordingly, we do not think that Amendment 63 is necessary.

In relation to the Local Government Pension Scheme, Clause 10 will be used only—I repeat, only—to set directions of how the model fund, an aggregation of the scheme costs at the national level, will be valued. We need to do that for the operation of the cost-control mechanism at a scheme level in LGPS but it will not directly affect the contributions paid into individual funds.

Turning to Amendment 64, Clause 10 already requires that the Government consult with the Government Actuary before making directions on scheme valuations. That amendment would add an additional requirement that the Government Actuary agrees the directions rather than just being consulted. The intention is to ensure that these directions form a sound basis for the scheme valuations and the Government, of course, support this aim. However, the Government cannot accept this amendment, as it does not achieve this aim and has unwelcome consequences.

The aim of the Government Actuary’s Department is to be,

“a highly valued principal provider of actuarial analysis and advice to all parts of the UK Government and other relevant UK and overseas public bodies”.

The highly valuable, actuarial advice that it provides is independent and professional and this aim would be compromised by the amendment. If this change were made, the Government Actuary’s decisions would inevitably influence the policy on valuations and he could come under pressure to determine elements of the directions themselves. This would fundamentally compromise his position as a truly independent adviser. This is not an outcome which anyone, including the Government Actuary, wants to see.

Amendment 65 highlights the importance of Treasury directions that will be made under Clause 10. These directions will set out the detail of how valuations of public service pension schemes should be carried out. Everybody has agreed that these valuations are of vital importance given their implications on both employer contributions and the employer cost cap. As such, all scheme stakeholders will need to be involved as the valuations are developed. However, the statutory consultation requirement that would be imposed by this amendment is unnecessary. I can reassure the Committee that we will seek to discuss these directions as they are developed. All stakeholders, including scheme managers, their actuaries, pension boards, and member representatives, will be given the opportunity to participate in this process.

I hope this reassures the noble Baroness that the consultation of scheme managers and pension boards that she has proposed will be carried out without the need for Amendment 65 and that she will feel able to withdraw the amendment.

[Baroness Donaghy]

I thank noble Lords who have participated in this debate. There is a certain irony, particularly on Amendment 65. This was a very mild response to the Minister’s reply at Second Reading when I, like the noble Lord, Lord Whitty, asked for the agreement of the Government Actuary’s Department. He commented then that it did not wish to participate in what would be seen to be a political event, but wanted to maintain its independence. Amendment 65 was an attempt to recognise the reality of that and write in the involvement of scheme managers and scheme boards as a mild substitute. I am still sorry that the Minister is not willing to include that. However, until I have had a chance to study the official record of the Minister’s reply, I beg leave to withdraw the amendment.

Amendment 62 withdrawn.

--- Later in debate ---

[Baroness Donaghy]

I will speak briefly in support of my noble friend Lord Eatwell. I think I said at Second Reading that the issue of accrued benefits is a deal-breaker as far as the negotiations are concerned. It is about keeping one’s word. Enshrining this in the Bill would do a huge amount to reassure public servants, particularly those in Scotland who have not yet been properly consulted. I believe that if a public servant sat down and did an audit of all the discussions that we have had on Committee days one and two, they would see the Government’s unwillingness to put in the Bill all the areas in those agreements, saying, “No, we do not think that this, this or this needs to go in” and so on. I realise that this Bill is a legal framework but we are talking about the confidence that people can have in their pensions in the future.

We should not forget that it is not only Governments that can opt out of these things; individuals will make assessments about their own benefits and welfare and future, and it is very important for all our sakes that we maintain some kind of stability in this turmoil. If I can use a pun, the accrued failure of the Government to put any real assurances in the Bill might be viewed in a negative light by a lot of people who are very involved in this debate.

[Lord Newby]

My Lords, I will respond first to the noble Baroness, Lady Donaghy, before returning to the specific issue raised by the amendment. The vast bulk of the provisions that will affect people are not in the Bill; they are under the schemes. I have circulated the draft Civil Service scheme, an extremely long and detailed document that has in it most of the things—the headlines—that people will look at in determining whether they think the pensions they will get are fair and reasonable. I hope that those who worry that the Bill does not cover a lot of the things that they want covered can be reassured, as I have sought to reassure the House, that in the vast bulk of cases these points will be in the regulations, which obviously have the same force as the Bill.

With regard to Amendment 68, I will not repeat at great length that we have no intention to do what the amendment seeks to prevent. I do not need to refer the noble Lord, Lord Eatwell, to the Treasury paper because he has read it. I do not need to remind people about the UK and European legislation that would limit the Government’s freedom to do what the amendment prevents because I have already done so. What I will say is that we are committed to giving further consideration to the protection of accrued benefits, of all sorts, in all circumstances. I plan to have amendments to that effect ready for Report; they will cover this point along with accrued benefits, so I hope that is a reassurance to the noble Lord.

--- Later in debate ---

[Lord Newby]

I think I will have to write to the noble and learned Lord. I am very happy to do so.

I shall return to the amendments and start with Amendment 91D regarding the Scottish scheme. I heard what the noble and learned Lord said about the Scottish Government being unable to implement the reformed schemes in the 27 months available, but the Scottish Government have at no stage asked a Minister for a delay to the implementation of the schemes, and we think there are very good reasons for avoiding a delay.

A delay in implementing the reforms would, for example, result in hundreds of millions of pounds of additional liabilities being accrued in the Scottish schemes. These additional costs would have to be met from the Scottish budget at the expense of Scottish jobs and services. Furthermore, a delay would disadvantage Scottish public service workers on lower and middle incomes by prolonging the period that they will continue to subsidise the pensions of high flyers. I am sure that the noble and learned Lord does not think that that is desirable. The only thing I would say by way of general comment is that it has been clear since the point at which this legislation was introduced that it would apply to Scotland and how it would apply to Scotland. My right honourable friend the Chief Secretary has written repeatedly to the Scottish Government about what is going on in England and how we are making progress, and therefore there is no objective reason why the Scottish Government should not be absolutely marching in lockstep with the Government in London in terms of producing the scheme rules. We think that the time has come for the Scottish Government to get their skates on, and we do not believe that there should be a delay in Scotland for the reasons that I have given.

[Baroness Donaghy]

As the Minister knows, I am extremely concerned about equality of consultation on this issue. Can he say objectively if the same applies to local government employers and all public servants in Scotland and that they are equally in step and are fully involved?

Public Service Pensions Bill

Baroness Donaghy Excerpts

Wednesday 9th January 2013 Lords Chamber

[Baroness Donaghy]

My Lords, when I was chair of ACAS, one of my jobs was to try to read between the lines of documents like this, which is very difficult to absorb at such short notice. In reading between the lines—I am only guessing—it seems possible that the Minister has been placed in a difficult position in terms of timetable, which might not be entirely under his control.

I want to make a slightly narrower point than that made by my noble friend Lord Eatwell and probe a little on this issue of Scotland. When the Minister was summing up at Second Reading, he indicated that the Scottish Government had accepted the “generality” of the Government’s proposals, which he said were very much based on those put forward by my noble friend Lord Hutton. In terms of the more detailed proposals, the noble Lord informed us that,

“the Chief Secretary has written to Scottish Ministers inviting them to propose amendments if they feel the provisions of the Bill are not suitable for the Scottish pension scheme”,

and that as of 19 December, no such amendments had been proposed. He concluded that:

“Any regulations made by Scottish Ministers will be subject to the procedures in the Scottish Parliament”.—[Official Report, 19/12/12; col. 1585.]

I am setting this scene because the point that I want to emphasise is that the Bill is based upon negotiations—these are not technical points that I am trying to make. The Bill is based upon negotiations in England and Wales and has not been subject to the same level of negotiations in Scotland. I am talking about the parties involved in the local government scheme there. I may not know much about the detail of the relationship or the liaison between the Chief Secretary and the Scottish Government, but I do know about genuine involvement and consultation. If you invite someone to a party that is in full swing, they are entitled to feel various emotions, and one of them will almost certainly be resentment that they were not invited earlier. I cannot expect the Minister to be completely frank in the Chamber, but I am slightly puzzled about why the invitation was delayed.

This Bill prescribes the design of Scottish schemes in a way that current UK primary legislation does not. It is vital that the Scots be fully involved in this process and that the Bill should be amended to maintain the powers of the Scottish Parliament to design and regulate the public service pension schemes that are devolved to Scotland. I know that this is a slightly different point from that made by my noble friend Lord Eatwell, but as we are where we are on this. I just want an assurance that the parties involved in this are being fully involved. I hope that the Minister will accept Amendment 28A.

[Lord Newby]

My Lords, I hope that I can clear up some of the confusion in the mind of the noble Lord, Lord Eatwell, about this, and I am very pleased that the House has not been deprived of his Second Reading speech.

The noble Lord asked about what this meant in terms of the differences in the way in which the schemes will be applied across the various component parts of the UK. I will deal first with Northern Ireland. I point out that I made it clear at Second Reading that the Northern Ireland Executive were intending to proceed in the way to which these amendments give effect. We were not hiding anything from the House. The other point is that the Northern Ireland Executive have accepted the principles of the report of the noble Lord, Lord Hutton, and therefore we would expect that where we end up in Northern Ireland will be very similar to where we are in the rest of the UK.

However, this is a decision for the Northern Ireland Executive, not for us. The Government would have been very happy to include Northern Ireland in the Bill; indeed, that is the basis on which we started, that it would be easier to take something out than to put it in. But it is their decision and their power as a devolved Administration.

In respect of public sector pensions in Scotland and Wales, the areas for which the Scots and Welsh have complete devolved authority are very small. In Scotland, we are talking about part of the judiciary—I gather it involves six judges—and certain public bodies. For the generality of public servants in Scotland, 98% to 99% of them will be covered by the Bill. Those that are being excluded are these small numbers. Equally, in Wales, the number of people for whom the Welsh Assembly has total authority is very small. I think, although I may be wrong, that it only involves councillors and Assembly Members. Again, the vast bulk of the public servants in Wales will be covered by the Bill even as amended. I do not think that we are going to have quite the hotchpotch that the noble Lord is concerned about.

[Baroness Donaghy]

If this covers so few people—and I come back to Scotland again—why did this not emerge in the Second Reading debate? Why was the House left with the impression that the Scottish devolution issue would cover more than just the few public servants referred to? A slightly misleading impression was given, if the Minister does not mind my saying so, because there is a feeling that the public servants in Scotland have been left behind on this. I emphasise that the negotiations that took place in England and Wales did not take place in Scotland. This is a very important point. I am sorry to keep going on about it, but it is all very well to hide behind technicalities about how many people are involved—I am really quite shocked that it has emerged today that so few people were involved. I just wonder whether this would not have led to a bigger debate at Second Reading.

[Lord Newby]

The distinction between the very small numbers that I have been talking about and the rest of the public servants in Scotland is that the rest of the public servants in Scotland are covered by the Bill. The schemes established under the Bill for public servants in Scotland were still negotiated in Scotland, but the framework for public sector pensions in Scotland, with the exception of those very small numbers, will be the same as in the rest of the UK. There is devolved power to the extent of the scheme negotiations within the framework of the Bill.

--- Later in debate ---

[Baroness Hollins]

My Lords, much concern has been expressed about the Bill’s granting of sweeping powers to the Government to make future further changes without adequate public or parliamentary scrutiny. Clause 3 grants extremely wide and retrospective powers to the Government for further radical public sector pension changes adversely affecting public sector employees’ pensions. This undermines the Government’s claim that this would be a “settlement for a generation”. It is generally accepted that public sector pensions represent an element of deferred public sector pay. Clause 3 is an extreme example of a Henry VIII clause. It is one that gives successive Governments the power to make unilateral and retrospective changes to accrued benefits in public sector pension schemes, changing the retirement age without effective parliamentary scrutiny.

This clause should be severely limited, in the view of the BMA, in which I should declare an interest as president, and other health unions. It has expressed concern about the wide scope of powers and has called for limits. The provision runs directly contrary to the Government’s pension guarantee for no more reform for at least 25 years, safeguarding the current generation of public sector workers, and that the Bill protects the benefits already earned by members of existing public sector pension schemes. Instead of protecting accrued rights and making a once-in-a-working-lifetime change to public service pensions, the Bill allows for those very rights to be undermined, throwing public sector workers into uncertainty surrounding their future financial security, even those who will shortly reach retirement age.

The powers granted to the Government in the Bill go beyond the stated purpose as set out in its Explanatory Notes, which is to make changes where legislation is inconsistent with, or requires modification as a consequence of, scheme regulations. Instead, and without justification, this clause allows the Government to make radical changes—for example, to reduce accrued final salary rights without the need for primary legislation and with minimal safeguards of the affirmative procedure, and to drastically change the design of pension schemes and scheme regulations—for instance, making different provisions for different cases or descriptions of persons without having to come back to Parliament to debate primary legislation. It would allow any person to exercise a discretion that was not defined in the Bill, and to breach the 25-year guarantee with no effective means of resisting any breach. The power to retrospectively amend means that accrued pension rights could be affected, which would likely result in a challenge under the Human Rights Act 1998 and may well lead to a declaration of incompatibility and other legal challenges.

During the debate on the Bill in another place, the Government stated that most changes affecting members’ rights would be minor and technical, but the Bill is not explicit in this regard. If the Government intend the changes to be minor and technical, then the Bill should say so to avoid this or any future Government having the power to undermine the 25-year guarantee.

[Baroness Donaghy]

My Lords, I know that the Minister thought that I overdid it a bit at Second Reading when I said that the confidence of public servants was shattered by two successive large sets of negotiations on their pensions. However, I think that this comes back to an issue of trust, and obviously everyone is going through the Bill line by line to see where that trust might be undermined in future.

I support everything that my noble friend Lord Whitty said. As currently drafted, the Bill would allow scheme regulations to make retrospective changes. I made it clear that in principle I did not disagree with that. However, the absolute crunch would be that scheme members or their representatives should agree to any retrospective change and the Government’s commitment that accrued rights up to the date when the scheme was changed would not be reduced. As has already been said, this would simply ensure that workers in public service pension schemes enjoyed the same protection in relation to their accrued pension rights as exist for workers in the private sector under pensions law.

I was concerned about the noble Lord’s reply on this issue at Second Reading. I understand that there is no set standard of protection across the current schemes, as he said. Apparently the Government have chosen not to carry across the protections in retrospectivity that can be seen in previous legislation, such as the Superannuation Act 1972. They are concerned that what the Minister referred to as the “most extreme” of these protections—member consent locks—is not the way forward. The Government say that they are trying to strike the right balance between the protection of members and the efficiency of the scheme, and no one can disagree with that. However, I cannot help thinking that this obsession with member consent locks is all about not getting unanimous agreement to the deal, and that is throwing out the baby with the bath water. What these very reasoned amendments do is codify the Minister’s precise intention. He said that he would take this issue back and further consider the provisions of the Bill, and I hope that he will give the reassurances that we are seeking.

[Lord Newby]

My Lords, I begin by saying that I completely agree that we are dealing with extremely important provisions in the Bill, particularly with regard to retrospective and legislation-amending powers. I should also say that I am sympathetic to the concerns that have been expressed. I should like to go through each of the amendments in order, and I hope that I will not detain the House for too long.

Amendment 26 is the first of the two amendments in the name of the noble Lord, Lord Eatwell, dealing with retrospection. I should begin by explaining that some powers of retrospection are needed because of the way that pensions legislation is typically split between primary and secondary provisions. This Bill exemplifies that combination. It sets the core framework in primary legislation while the scheme design details, such as the accrual rate, will be set out in secondary legislation. When future changes are made to the secondary legislation, which typically happens in most years to ensure that they run smoothly, it can be necessary to bridge any gaps to the underlying primary legislation, as well as adjusting existing secondary legislation to ensure that it remains consistent. By allowing scheme regulations, which are themselves secondary legislation, to make necessary changes to primary legislation via the affirmative procedure, we believe that we are striking a sensible balance between member protections and parliamentary scrutiny. This approach is commonplace in existing pensions legislation.

However, the Government have listened to what noble Lords have said and have read with interest the 10th Report of the Delegated Powers Committee, which calls into question aspects of the scope of the proposed power. In particular, the report recommends that the power to amend primary legislation should be restricted to amending Acts that have already passed and to making only consequential or consistency provision.

We are considering the recommendations of the Delegated Powers Committee very carefully and on Report I hope to be able to bring forward amendments on this issue that will satisfy noble Lords’ concerns. I was extremely grateful to the noble Lord, Lord Eatwell, for saying that if we are able to do so successfully, he will support those amendments. These are important but complicated issues and we are determined to get them right. In responding to the individual amendments that have been tabled, I hope that I can tease out some of the complications and ensure that we do indeed get these issues right.

Public Service Pensions Bill

Baroness Donaghy Excerpts

Wednesday 9th January 2013 Lords Chamber

[The Deputy Chairman of Committees (Lord Colwyn)]

My Lords, if this amendment were to be agreed I could not call Amendment 35 due to pre-emption.

[Baroness Donaghy]

My Lords, I identify with every word that the noble Lord, Lord Sharkey, said on that issue. In doing so, I shall speak to my amendment about the European directive, which is related to the structure and governance of schemes. In view of the time, I shall give the short version because it is a rather technical issue.

Of course the European directive was intended to have a minimum EU-wide standard for security of benefits, but that was not its sole objective. It was also aimed at improving standards of management and allowing pension fund schemes to play a full part in investment markets. All funded schemes should meet these objectives whether government guaranteed or not.

On the question of legal separation, at present the funds in England and Wales of the Local Government Pension Scheme are not legally separated. They are under the control of the councils that administer them. Most are run by a council committee under local authority legislation. On the issue of the Local Government Pension Scheme meeting the requirements of Article 18, the article states:

“Member States shall require institutions located in their territories to invest in accordance with the ‘prudent person’ rule and in particular in accordance with the following rules … The assets shall be invested in the best interests of members and beneficiaries. In the case of a potential conflict of interest, the institution, or the entity which manages its portfolio, shall ensure that the investment is made in the sole interest of members and beneficiaries”.

Therefore, the Local Government Pension Scheme has its own investment regulations. They do not contain any requirement to the effect of the prudent person rule or to invest in the best interests of scheme members and so are non-compliant with the directive in this respect.

Let me make clear that I am not making any outright criticism of the Local Government Pension Scheme. It has been well run and has the trust of its members. I am aware, of course, that the Minister has said that, in his view, the Government are already fully compliant with the directive. The previous Government, which implemented these articles, also believed that they were fully compliant. I simply make the point that I do not think that is entirely accurate.

The investment regulations of the Local Government Pension Scheme do not contain any requirement to the effect of the prudent person rule or to invest in the best interests of scheme members and so they are non-compliant. Even with the benefit of the directive’s existing legal framework, which is not present in the Local Government Pension Scheme, Parliament has seen the need to provide further protection for members’ interests in particular by requiring the appointment of member-nominated trustees or trustee directors, imposing obligations to provide information to members, requiring trustees to be informed and trained so that they understand their responsibilities, and requiring trustees to appoint professional advisers, whose duty it is to act only for them in situations where there may be a conflict of interest with the employer imposing restrictions on the amount of permissible investment in the employer.

The position under the Local Government Pension Scheme, as matters stand, is completely different. The equivalent of the trustee is the administering authority, which is likely to be a major employer in relation to the fund it manages. Not only that, all decisions taken about investing the fund are taken by councillors, officers and employees of the administering authority or representatives of other employer bodies. There is no provision in the legislation which replicates the duty that trustees owe to their beneficiaries. On the face of the legislation as it stands, therefore, there is nothing to stop the administering authority from taking decisions on investments which prefer its interests and the interests of other employers over the interests of members of the Local Government Pension Scheme. My amendment is therefore necessary to ensure that reform of the Local Government Pension Scheme should address the provisions of the IORP directive.

Public Service Pensions Bill

Baroness Donaghy Excerpts

Wednesday 19th December 2012 Lords Chamber

[Baroness Donaghy]

My Lords, I should declare an interest as I am in receipt of two public sector pensions—one from my university career and the second from ACAS. I have been involved in public service pensions since the early 1970s and I helped to establish a final salary pension scheme for non-teaching and support staff at the University of London in the mid-1970s. Many of the schemes established before that were administered by insurance companies, which charged significant administration fees and allowed the staff no voice. I mention this because I have direct experience of the world before a decent occupational pension was established. There was no consultation with staff and no transparency, and the insurance companies exercised powers that would make Henry VIII look like a wimp. Therefore, I do not want to go back to that world.

I should also say that I was president of NALGO in 1989. This was a lay member position. NALGO was one of the forerunners of the union UNISON, and I am grateful to it for briefing me on this subject.

Framework agreements were reached with most of the unions involved in the negotiations last year. The main objective is to make sure that some of the fundamentals are adhered to in this Bill—that Treasury powers should not undermine scheme arrangements or introduce retrospection. The trust of public sector workers, which has been shattered by having to negotiate two major changes in a very short space of time, should now be rebuilt. The Bill should not cut across negotiations which are taking place in the health service and fire service on normal pension age, and the unique features of the Local Government Pension Scheme should be recognised. I fully support the noble Baroness, Lady Eaton, in what she said on that. Ministers have given certain assurances which are not reflected in the Bill, and I will be seeking to table amendments, if necessary, to try to make sure that those assurances become a reality.

The Bill is based on negotiations in England and Wales, and has not been subject to the same level of negotiation in Scotland. I am aware that the noble Lord, Lord Newby, referred to this and hoped that the Scots would come along, but my emphasis would be that the Scots should be given full consultation rights and that the Bill should be amended to maintain the powers of the Scottish Parliament to design and regulate the public service pension schemes that are devolved to Scotland. The Bill prescribes the design of Scottish schemes in a way that current UK primary legislation does not.

As has already been referred to, the Chief Secretary to the Treasury, Danny Alexander, incorporated an assurance that:

“The Government intend to include provisions on the face of the … Bill to ensure that a high bar is set for future Governments to change the design of the schemes”.—[Official Report, Commons, 20/12/11; col. 1203.]

The wording of the Bill erects a much lower hurdle for scheme design changes than currently exists by introducing wide-ranging new Treasury powers, repealing relevant sections of the Superannuation Act 1972 and replacing them with limited consultation rights.

On retrospection changes, which have already been referred to, the Government indicated at the Report stage in the Commons that they do not have a closed mind on this issue, and that is welcome. Clause 3(3)(c) provides for enabling provisions which would allow scheme regulations to make retrospective changes. Although I do not object to that in principle, it is essential that regulations that have the effect of reducing accrued rights to pension benefits cannot be made unless the scheme members or their representatives agree to that change. The absence of such wording could undermine the commitment given by government that accrued rights up to the date the schemes are changed will not be reduced. This would ensure that workers in public service pension schemes enjoyed the same protection in relation to their accrued pension rights as exist for workers in the private sector under pensions law.

On the subject of retrospection, the Bill currently allows for pension revaluation rates to be negative, meaning that someone’s accrued pension earned to date can be negatively revalued if inflation is negative. This was not mentioned in the scheme negotiations and is a change from current practice whereby scheme revaluations can never be less than zero. This would have been a deal breaker in the local government scheme and Civil Service schemes where a revaluation of CPI alone has been agreed. No other pension funds outside those provided for in this Bill have the potential for negative revaluation and I hope the Government will be prepared to accept an amendment to ensure that a revaluation will never be less than zero.

On consultation and scrutiny, members should receive the same level of protection accorded to scheme members as that provided under the Superannuation Act 1972. It is essential to the spirit of the agreement that any future changes to the scheme design that are likely to have an adverse effect on members’ benefits are subject to meaningful consultation and at least require the affirmative procedure rather than the negative. There are a number of issues on governance which need to be clarified in the Bill and on these matters I support the words of the noble Lord, Lord Sharkey. There should be a clear separation of powers between scheme managers and scheme boards to avoid conflict of interest, as recommended by the noble Lord, Lord Hutton. There should be national and local boards for the Local Government Pension Scheme to ensure effective separation of responsibilities. Although there was a small amendment in Committee in the other place, it identifies only the structure of the local boards within the Local Government Pension Scheme and not the relationship between them and the national board. Once established, national boards must have explicit powers to make real recommendations to scheme managers, as they do now, otherwise they have little purpose. The Bill should clarify the advisory nature of such boards. Although I accept there was no agreement in negotiation about the number of member representatives on scheme boards, nevertheless the Bill should require explicitly that boards must include member representatives among their number.

I hope the Minister will give an assurance that all the schemes will comply fully with the European legislation—namely, the institutions for occupational retirement provision. The Bill sets the local authority as a scheme manager but does not say how that board is to be constituted. The current Local Government Pension Scheme is not compliant with Articles 8 and 18 of the European directive. Article 8 requires the legal separation of fund institution from any sponsoring employer. Article 18 requires pension funds to invest in accordance with the “prudent person” rule. That is, investments should be made in the sole interest of members and beneficiaries. Will the Minister agree to add sub clauses on compliance with Articles 8 and 18 of the EU directive and ensure that one of the pension board’s functions is to ensure such compliance?

The power currently in Clause 7 of the Bill, to replace defined benefit schemes, will undermine confidence in the negotiated agreement and we will have to come back to that in Committee. We will also have to return then to the issue of normal retirement age. The current wording of the Bill restricts the work currently being undertaken by the NHS Working Longer Review Group to make evidence-based recommendations. There is also no mention in the Bill to there being regular review of the link between state pension age and normal pension age, which was a specific recommendation of the review of the noble Lord, Lord Hutton. At the very least, ambulance service staff should be included in any exemptions.

In Clause 10 on scheme valuations, it should be made clear that Treasury directions should be subject not just to consultation but to the agreement of the Government Actuary. Also, the Treasury should be required to consult and to take into account the opinions of the existing scheme governance structures before making a direction. To do otherwise would undermine the role of scheme-specific governance structures.

Clause 11, as it stands, gives the Treasury discretion over how the cost cap is set. The negotiated agreement in local government ensures that control of cost management issues are the responsibility of the principal stakeholders of the scheme and, as mentioned by the noble Baroness, Lady Eaton, this should be made clear in the Bill. The issue of Fair Deal has already been mentioned by other speakers and I simply wish to endorse this.

There is much to be done. If the trust of public service workers is to be rebuilt, it is vital that the Government keep faith with the negotiated agreements by reflecting them in the Bill.