Lord Davies of Brixton
Main Page: Lord Davies of Brixton (Labour - Life peer)Public Service Pensions and Judicial Offices Bill
Lord Davies of Brixton ExcerptsMonday 11th October 2021
(3 years, 2 months ago)
Grand CommitteeRead Full debate Public Service Pensions and Judicial Offices Act 2022 View all Public Service Pensions and Judicial Offices Act 2022 Debates Read Hansard Text Amendment Paper: HL Bill 44-I Marshalled list for Grand Committee - (7 Oct 2021)
Member’s explanatory statement
This amendment would require, rather than enable, scheme regulations to make provision about cases where a member has paid voluntary contributions.
Lord Davies of Brixton (Lab)
My Lords, effectively these issues have been presented by my noble friend Lord Ponsonby and I have the great advantage, of course, of having the Minister’s reply to the questions that I have not yet asked. In a sense, I am happy to take them as read.
I do not have an interest to declare but it would be helpful to the Committee if I declared a non-interest: I did have a declarable interest up to the end of August, in that I was a paid adviser to various trade unions on this very issue. Clearly, there would have been a conflict, but I ceased to hold that role at the end of August. The declaration will appear in the register of interests for a year but is no longer valid. I think that covers me for the whole of the Committee stage and that I do not need to say that again.
It might be helpful for the Committee if I say a little more than that, in that I have been a close observer and participant in the process of the reform of public service pensions, it seems, for the whole of the 21st century so far. Although we had the report of the noble Lord, Lord Hutton, in 2011, the process actually started earlier than that in 2005 with what was known as the Warwick accord between the then Labour Government and public service unions. I was involved at that stage, and in the discussions before and after the presentation of the Hutton report. Indeed, if I had to nominate my specialist subject in “Mastermind”, a strong possibility would be public service pensions reform in the 21st century.
These are not exactly random thoughts, but I thought that it might be helpful if I just set out three relevant and little-known facts about public service pension reform. As I mentioned, it did not start with the Hutton report but with the Warwick accord, going back to 2005 and the subsequent public service forum agreement of that year. Major changes took place in public service pensions at that time.
Just to clarify, the reforms were carried out in accordance with the heads of agreement of 15 December 2011 with the then coalition Government. Although it is described as a heads of agreement, it was not a total agreement but, effectively, a decision by the Government that was accepted by some, but not all, trades unions. A background point but an important one is that the new schemes were not worse for everybody. A non-trivial proportion of the public service workforce will gain from the reformed schemes, so the situation is not as simple as it is sometimes presented.
Turning to Amendments 10, 11 and 12, the issue here is that if people had had what they were entitled to following the Supreme Court decision, they might have made different decisions from those which they made at the time. Clause 19 refers to transfers. If you were in the old scheme you decided to make a transfer, but had you been in the new scheme, you might have decided not to, and vice versa. These issues are therefore important. To be honest, I do not envy the job of administering this process, but it is there and the Government are obliged to pursue it.
I listened to what the Minister had to say on the issue of “may” or “must”. I should add that I did some research, along with my noble friend, and we are grateful to the Police Superintendents’ Association for having drawn these issues to our attention. We have with us a magnificent set of legal talent, and perhaps at some stage we might have a definitive view on the difference between “may” and “must”. The problem here is that from the viewpoint of the Police Superintendents’ Association and other members of public service pension schemes, there is a level of mistrust. The issue is not some semantic definition of whether “may” or “must” works; they see “may” and they think, “Maybe the Government are not going to do what they’ve promised.” Saying “We’re going to do it anyway” does not totally answer the question that is put before you by having to choose “may” or “must”, because it invites the rejoinder, “Well, if you’re going to do it anyway, let’s have ‘must’ in there, and everyone can feel comfortable.”
There is no doubt that these issues are going to have to be dealt with in the process of implementing the court judgments, and from the perspective of the scheme member, “must” seems to work. My noble friend and I heard what the Minister had to say, and we will read with interest the precise wording. I take it that the Minister will not be writing separately on the issue, but the statement as set out in Hansard will be the definitive government position and we and the scheme members will study that, come to a view and, if necessary, return to the issue on Report.
I do not know whether I should do this now, but I happily indicate my intention not to push my amendments to Clause 19.
Lord Davies of Brixton (Lab)
Essentially the same background applies: this is the position in which we find ourselves following the Supreme Court judgment. It is a dog’s dinner really. We would never choose to be here but, now that we are here, we have to sort it out—but it is a mess. One of the most complicated issues which will need to be resolved is about people who paid ADCs in one scheme and would not have paid them in the other scheme or did not pay ADCs in the scheme they were in but would have done so if they had been in the other scheme. Some sort of assessment of some alternative reality has to be made, so the issue is complicated.
These amendments repeat “must” and “may” issue—and I have dealt with that—but they also deal with how the issue is resolved. There is a problem with additional voluntary contributions, which people pay voluntarily to secure additional benefits. It clearly is a decision determined by the scheme in which they will accrue benefits. If they misunderstood which scheme they were in, they may well have taken a different decision. The Bill gives the scheme administrator the decision about how that matter is resolved. Amendment 8 would place the decision about how the issue is resolved directly in the hands of the member rather than, as the Bill stands, leaving in the hands of the scheme administrator. It is an issue of the hypothetical: if a member had been in a particular scheme they would have paid contributions. As I understand it—and I would be grateful for the Minister’s clarification—the Bill as it stands deals only with how the contributions that the member has made are handled, but there is also the issue of the additional voluntary contributions that the member did not make but would have made. Finally, Amendment 9 seeks to make it clear, when a refund of contributions is decided on, the contributions that were made will be repaid with interest included in the sum. That covers the issues and I will be grateful for the Minister’s comments. I beg to move.
Viscount Younger of Leckie (Con)
My Lords, here we address six amendments that have been brought forward on Clause 18 by the noble Lord, Lord Davies of Brixton. I note again his declared interests that he pointed out at Second Reading and his expertise in this area, and I very much look forward to his appearance on “Mastermind” on his specialist subject.
Clause 18 provides for scheme regulations to make provision in relation to additional voluntary contributions paid during a member’s remediable service. As the noble Lord, Lord Davies, said, the first two amendments would require, rather than allow, scheme regulations to make provision about these matters. I hope that I can reassure the noble Lord that this is not necessary. I want to give a full response, although not quite as full as on the first group—but it is a full response on some of the important issues that the noble Lord has raised.
The reason this clause is enabling rather than directive is that not all additional benefits purchased during a member’s remediable service will need to be revised as a consequence of the Bill. For example, some legacy schemes provide that members may purchase additional pension by way of a lump-sum payment or periodic additional contributions, so the Government have agreed that members may complete the payment for these benefits when they have already commenced. The resulting benefits will not be changed, regardless of a member’s choice of whether to receive legacy or new scheme benefits. However, making Clause 18 directive would require schemes to vary the benefits, contrary to what schemes and members have asked for and government has agreed to.
The third amendment brought by the noble Lord would extend Clause 18 to require scheme regulations to provide members who were moved to the new schemes but did not make additional contributions with the option to purchase additional legacy scheme benefits, where they can show that they would have done so had they been able. I once again thank the noble Lord for tabling this helpful amendment. The Government will consider the principles underlying it and will take this away before returning with a thorough explanation of how the matter may be addressed in due course. The drafting of this amendment, at present, does not achieve the overall intention here, since Clause 18(1) provides that this applies only to cases where a person has paid voluntary contributions.
The fourth and fifth amendments are concerned with members who did make additional contributions to a new scheme. They would require scheme regulations to provide members with the options available under the Bill—to alternative or equivalent benefits in a legacy scheme, or to compensation for the contributions made. This provision is permissive rather than directive, because not all three options are intended to be used in every case. Alternative benefits are an approach whereby the benefits awarded in the legacy scheme are effectively recreated as though the member’s additional contributions had always been made there. Equivalent benefits are for situations where an appropriate alternative does not exist in the legacy scheme. In such circumstances, a member would instead be offered a benefit in the legacy scheme that is of directly equivalent value. So in both cases, the policy is that the member may choose instead to receive compensation for their additional voluntary contributions, where they do not wish to receive the alternative or equivalent benefit. Making this provision directive rather than permissive would not therefore work, as not all options will exist in all cases. I hope that explanation is clear and helps to answer the questions raised by the noble Lord.
The final amendment brought forward by the noble Lord relates to interest, as he mentioned, and requires that interest is paid on compensation payments. It is a fair point. The Government have committed to pay interest on these compensation payments, and provision is already made under Clause 23 accordingly. With those assurances on all the noble Lord’s amendments, I hope he is willing not to press them.
Lord Davies of Brixton (Lab)
I welcome the Minister’s comments, particularly on unpaid AVCs. I will look forward to his response with interest. In light of his other comments, we will read Hansard with interest and decide what to do on Report. I therefore withdraw Amendment 4.
Member’s explanatory statement
This amendment would require, rather than enable, scheme managers to pay compensation in respect of compensatable losses.
Lord Davies of Brixton (Lab)
My Lords, I shall speak also to Amendments 14 to 19, so it is a bumper bundle. Again, we have the “may/must” issues, and I assume the same position will apply.
Amendment 14 brings us to the issue of Treasury directions, on which we will probably have a more substantive debate in a later group of amendments. There is a general argument about Treasury directions being used in this context—it will be useful to have that debate. The issue raised here is whether it is appropriate to have any directions at all; the issue elsewhere is whether we have directions or regulations. The Bill appears to say that these unknown Treasury directions will lay down how the compensation will be made and the parameters set. I think the strong view here is that it should be in the Bill rather than in directions.
Amendment 15 would add a new subsection setting out where compensation would be paid. I readily admit that it probably needs tighter wording, but it raises the three areas that are of concern to scheme members. Again, I have to mention that the lead here has been taken by the Police Superintendents’ Association.
The first circumstance is where individual scheme members would have made other decisions had they been in another scheme and, because of that, have encountered some financial loss; that is, had they known they were really in scheme B rather than thinking they were in scheme A, their decisions would have been different and, because of that, they have incurred some financial loss. I do not envy the job of working out how to assess losses in these circumstances, but they can be real and important, so the issue needs to be addressed. The example we have been given is where, because of the fall in their income, members have incurred loss in selling and buying a house; they incurred financial charges because they thought their income would be lower as a result of being in a different scheme. However, they were not in a different scheme so they did not need to incur that expenditure.
The second area set out in the amendment again affects the police service in particular and concerns where a scheme member genuinely thought that a binding commitment had been given by the Government on the nature of the scheme to which they belong, and they believe that that binding promise has been broken. This is the subject of legal action at the moment. There is no doubt that it is a real concern; it is going through a legal process. We should recognise the level of concern among members about the losses they have incurred because the Government are resiling from promises which they reasonably thought had been made.
The third area of loss is what is called the pensions trap. I will spend a bit of time talking about that because it has gained considerable traction. The first point to make is that, although the uniformed services—the fire service, firefighters and the police—have made most of the running on this issue, it affects all schemes; well, I have not checked them all, but it affects all the major schemes. It is just that, in the case of firefighters and the police, it is of much greater salience. That is why those services have raised this issue most strongly. I think we would admit that there are also areas of employment where we would be particularly concerned because of what we owe to our uniformed services.
(1A) In subsection (3), for “directions” substitute “regulations” .(1B) In subsection (4), for “directions” substitute “regulations” and delete paragraph (c).”Member’s explanatory statement
This amendment requires the calculation of the employer cost cap to be set in accordance with Treasury regulations, rather than Treasury directions. It also removes from the calculation the effect of changes in the cost of connected schemes.
Lord Davies of Brixton (Lab)
Amendment 26 is a twofold amendment. Two issues that are connected, but are potentially distinct, are wrapped into one amendment. On the one hand, the amendment states that the requirements for the cost cap mechanism should be set out in regulations rather than directions; on the other, it states that the cost of remedy should be excluded from the cost cap mechanism. They work together, but they are distinct.
The use of directions as opposed to other means of establishing regulations and subsidiary legislation of any sort is an important issue that potentially needs to be discussed in principle. I shall not start discussing it in principle today. There is a debate to be had and concern that a Government could use directions to exclude important matters from parliamentary scrutiny. It is a real fear that should be taken seriously. However, that is not the case I am making today. There is a general, generic problem with directions.
The argument is related directly to these directions. It is important to understand that “directions” in this amendment are not directions in the current Bill but directions under the provisions of the principal legislation: the Public Service Pensions Act 2013. Section 12 of that Act sets out the basis on which the cost cap mechanism works. It provides in subsections (3) and (4) that the cost cap mechanism should be
“in accordance with Treasury directions.”
The Minister said, quite rightly, that when this Bill went to the Delegated Powers and Regulatory Reform Committee, it had no comment on it. I remind the Committee that it is not the directions in this Bill that I am talking about today but the directions in the principal legislation. The debate on the principal legislation took place on 5 December 2012. In the memorandum prepared by the Treasury, comments were made about these directions. The Treasury’s submission to the committee, which was accepted, was:
“The effect of the directions on the design of the scheme will be subject to parliamentary oversight when the scheme regulations are made. It is therefore considered unnecessary for the directions themselves to be subject to additional parliamentary control.”
My argument now is that the directions—which, coincidentally, were agreed last Thursday—do impinge on the design of the scheme and hence are not subject to regulations and are outside parliamentary control. The specific issue is the generic use of directions, but in this case, the Government are seeking to introduce directions—they did so last Thursday—which do subvert parliamentary control.
They do that in two important ways. The decision is made in those directions that the cost of the remedy should be included in the cost control mechanism. I believe that there is a debate to be had about that issue and the Government are avoiding it by making the decision in the directions.
I must mention again that this is currently subject to legal action—potentially; I am not sure whether or not the formal case has been submitted. A number of trade unions are in the process of challenging the inclusion of the cost of the remedy in the cost control mechanism. Obviously, we cannot interfere in the legal process but, as a matter of parliamentary sovereignty, we need to assert that a decision as important as how the cost of the remedy should be met should be subject to parliamentary oversight.
Lord Davies of Brixton (Lab)
I thank the Minister for his detailed response and I look forward to the opportunity for more detailed discussion at a meeting. I am not totally convinced, and I suspect that this is something we will return to on Report, but I beg leave to withdraw the amendment.