Public Service Pensions Bill
Lord Eatwell Excerpts(11 years, 9 months ago)
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Lord Eatwell
Lord Eatwell
My Lords, I will speak also to Amendments 118ZA, 118B, 118C and 119A in this group, which in my name and that of my noble and learned friend Lord Davidson. Clause 20(1)(b) is about consultation and reporting in the context of the responsible authority proposing,
“to make scheme regulations containing retrospective provision which appears to the responsible authority to have significant adverse effects in relation to members of the scheme”.
We are particularly concerned that “significant” is not defined and could be open to interpretation. We do not want the responsible authorities to, let us say, be let off the hook when it comes to consulting on changes that might have an adverse effect on members, especially given that the provision relates to that continuous bugbear in this Bill, retrospective changes. In particular, the protections that are present in Clause 20 do not apply to adverse retrospective changes to any of the non-protected elements of public service schemes—they only kick in if the adverse effect is deemed significant. Amendment 116A would ensure that the protections in Clause 20 apply to any proposal to make an adverse retrospective change.
There are only three protected elements in Clause 20(5): the extent to which the scheme is a career average defined benefit scheme—the main purpose of the Bill—members’ contribution rates and benefit accrual rates. However, this means some very important elements of a pension scheme are not protected, most notably the definition of pensionable earnings, early retirement rights and ill-health benefits. If a responsible authority decides to make adverse retrospective changes to something as important as ill-health retirement benefits, or indeed to the definition of pensionable earnings, which will of course knock on to the final pension provision, it is unacceptable for such adverse retrospective changes to be excluded from the protections in Clause 20.
When this issue was addressed in another place the Minister complained that the effect of the amendment would be to make any,
“adverse change to member benefits subject to the additional protections in clause 20, regardless of how minor that change might be”.
He then said that,
“we believe that almost all retrospective changes will either be minor or technical in nature, or beneficial to members”.—[Official Report, Commons, Public Service Pensions Bill Committee, 20/11/12; col.407.]
That is a welcome belief but it is not knowledge: it is merely a belief. Having members’ protections over such things as ill health and pensionable earnings hanging on a belief is entirely unsatisfactory. Given that the Minister has already made concessions or, to put it better, positive statements about the way in which he will bring forward amendments to the insidious retrospective measures in the Bill, I ask him whether the measures on retrospection will also apply to this matter.
Amendment 118ZA in my name adds to the definition of the “protected period”, as it is called, to accommodate the different closure date of the local government pension scheme. Clause 16 closes the local government pension scheme on 1 April 2014, but all other schemes are closed on 5 April 2015, one year later. However, Clause 20 defines the protected period as one of 25 years beginning on 1 April 2015. This means that there is a window of a year in which the protections under Clause 20 will not apply to the local government pension scheme. This amendment would correct what seems to be a drafting error by ensuring that there is no such peculiar window in which the protected elements of the local government pension scheme are not, in fact, protected, as the Government clearly seem to intend, by Clause 20. By aligning the protected period for the local government pension scheme with the other schemes in the Bill, they will all come to an end and all be dealt with and covered at the same time.
The Minister in the other place was sympathetic to this argument. I am therefore somewhat surprised that the Minister here is not reflecting that sympathy by tabling an appropriate amendment to this oversight in the non-alignment of the two schemes.
Amendment 118B again refers to protection. As we have said, Clause 20 lists various protected elements of the scheme. This amendment would overcome some of the deficiencies that we have already indentified by adding the definition of pensionable earnings, ill-health benefits and retirement rights to the protected list. This overcomes the problem of their being subject to the significant adverse consequences of retrospection. This would be a simpler advantage to dealing with some of the issues to which I have referred.
The Minister in another place argued that his rejection of an amendment like this rested on wishing to maintain flexibility in the arrangements. I do not think that that is a very satisfactory argument. Flexibility is often an attractive characteristic of legislation, but not when it is achieved by undermining the pension rights of members of a pension scheme. Let us remember, these are some of the less well paid members of our community who serve us through a variety of public services. Achieving flexibility by reducing their rights does not seem to me to be a very respectable activity.
Retrospection again rears its ugly head as regards Amendment 118C. The amendment seeks to leave out Clause 20(6), which provides that all the “protected elements” under Clause 20 will not be so protected if a change is required by or as a consequence of a change in the employer cost cap. When we last discussed cost caps, we saw that the definition of the cost cap was entirely in the hands of the Treasury. Therefore, it would be quite possible to place the cost cap at such a position as would lead to a consequential loss of protection under Clause 20.
Once again, the Minister has made a lot of sympathetic noises about the perhaps unfortunate consequences that the current definition and specification of changes in the cost cap bring to this Bill. I hope that his earlier commitment to doing something about the cost cap will carry through to Clause 20 and the various protections that it provides.
Finally, given that we are continuing the same theme into Clause 21, Amendment 119A again refers to the incorporation of “significant” with respect to “adverse effects”. The point is that “significant adverse effects” are designed in the Bill to trigger the use of an affirmative resolution procedure for any changes to scheme regulations. In particular, Clause 21 provides:
“Scheme regulations are subject to the affirmative procedure”,
only,
“if … they amend primary legislation, or … contain”—
and here we go again—
“retrospective provision”,
which would,
“have significant adverse effects in relation to members of the scheme”.
Given the way that retrospection runs continuously through this Bill, creating major uncertainty among members of these schemes, the very least we can expect is that any adverse effects should be subject to an affirmative procedure.
Returning to Amendment 116A about the use of “significant” in defining “adverse effects”, I beg to move.
Lord Flight
My Lords, I rise to speak to Amendment 117A, which—if I may put it thus—heads somewhat in the other direction from the amendment in the name of the noble Lord, Lord Eatwell. As I understand it, Clause 20 says that for 25 years you will not be able to make any changes other than as a result of consultation and agreement among the various parties. The clause refers to the changes containing a provision which,
“changed the protected elements of the scheme”—
defined as where,
“the scheme is a career average revalued earnings scheme”,
in relation to contribution rates and to “benefit accrual rates”, or where the “responsible authority” proposes to make scheme regulations containing retrospective provision which appears to the “responsible authority” to have “significant adverse effects” in relation to members of that scheme. As I said, the protected period is defined as 25 years. My understanding is that although this clause may not cover every detail, it is in effect saying that other than by agreement, no changes can be made which come under the two defined areas for 25 years.
My amendment to reduce that period to 12 years was not entirely random: it was basically part of a previous amendment suggesting a post-2006 review by the OBR of fiduciary valuations. However, the fundamental point is that whatever Government are in power, they will be obliged to make major amendments. We started off with a cash-flow deficit of £15.4 billion by 2017. However, the ONS has advised that the longevity assumption is six years shorter than it ought to be, so that adds another £7.2 billion; and now that we have the government single pension proposals, the public sector pension schemes will not get the contracted-out NI contributions, which worsens the cash flow by about another £5 billion. So, we are going to have a cash-flow deficit per annum of approaching £30 billion.
If anyone thinks that that is sustainable in the present environment of deficits which are well above maintainable levels, they are not seeing reality. I repeat: whoever is in power in the next five years will be obliged to review the whole aspect of public sector pensions if the cash-flow deficits turn out to be at the sort of levels that now look likely. Limiting the protected period to 12 years is hopeful—not being able to change any of the key elements for 25 years is just unrealistic.
Lord Newby
My Lords, this is a rather disparate group of amendments. I will start with government Amendment 117. Amendment 117 is part of the wider package of amendments that seek to meet the desire of the Northern Ireland Executive to be removed from the provisions of the Bill. The provisions in question would have required a report to be laid in the Northern Ireland Assembly, should the responsible authority have sought to make changes to the protected elements in the schemes for which Northern Ireland has devolved competence. Given that this is consequential and in line with many other amendments relating to Northern Ireland, I hope that that amendment will be uncontroversial.
I will now speak to government Amendment 118 and Amendment 118ZA. Government Amendment 118 recasts the timing of the 25-year period of protection. The amendment will ensure that all schemes made under the Bill benefit from this protection until 31 March 2040. It is currently intended that the new Local Government Pension Scheme will be in place earlier than April 2015. Concern was expressed in another place—which the noble Lord, Lord Eatwell, expressed here today—that the scheme would lack the protection in this clause until 1 April 2015 had passed. The amendment seeks to deal with this concern. Although the Government have no intention of making changes to the core elements of the new Local Government Pension Scheme in its first year, we are happy to rectify the situation. The amendment will ensure that all schemes, even those that might be implemented before 1 April 2015, receive the full protection from Clause 20 for 25 years.
Amendments 116A and 119A would increase the required levels of consultation and parliamentary process for all scheme regulations that make adverse retrospective changes to members’ benefits. As the noble Lord, Lord Eatwell, says, we have debated the issue of retrospection a number of times in your Lordships’ House. As discussed when we were considering the potential amendments laid to Clause 3, the Government are aware of the concerns on this issue and intend to bring forward their own amendments in this area. I plan to have a draft amendment available in advance of Report stage and I hope that it will meet the concerns of the noble Lord, Lord Eatwell.
Amendment 117A in the name of the noble Lord, Lord Flight, would, as he said, end the protection set out in Clause 20 after 12 years. It would require a review of the effectiveness of the cost cap to be conducted by the Office for Budget Responsibility, and that review would determine whether the clause’s protections would be extended beyond 2027.
Although I understand the noble Lord’s reluctance to bind subsequent Administrations for 25 years to a more onerous process, I must reiterate the Government’s position on the new 2015 schemes. First, we believe that if the cost cap is necessary, it will work. If it does not, the solution does not lie in reducing the consultation and reporting requirements that govern fundamental changes to public service pension schemes. To make this amendment would risk causing unjustified concern and uncertainty to scheme members about the commitments that the Government have given in the context of negotiating the important reforms made by this Bill. I am very happy in that respect to repeat the statements of my right honourable friend the Chief Secretary to the Treasury when he described the new schemes as,
“a deal that can endure for at least 25 years and hopefully longer”.—[Official Report, Commons, 2/11/11; col. 929.]
We have committed that this belief should be enshrined in the primary legislation governing these schemes. We do not share the gloom of the noble Lord, Lord Flight, as to their unaffordabilty. Therefore, I hope that he will not press his amendment.
Amendment 118B was discussed in another place, and there the Government set out their belief that the elements of the new pension scheme designs which have been designated as “protected” are the right ones. It is right that members and their representatives should seek reassurance from the Government over their commitment to the new schemes that have been negotiated. However, these schemes must work in the real world. Public service pension schemes require regular tweaking to keep them in line with all kinds of other legislation, and the processes in Clause 20 are not designed for such changes. The protected elements, which have been included by the Government in Clause 20, are those which form the core of the new schemes. The kind of regular, purely administrative, changes that are made to the regulations of public service pension schemes are unlikely to touch on these aspects of design. If they ever do, it would be right for scheme members to be reassured about the impact of such changes through the procedures in Clause 20. Those elements suggested by the amendment go beyond this. These are aspects of design which are likely to require administrative changes, and so the proper consultation requirements which should apply to them are those set out in Clause 19. It is not as though the changes are not consulted on at all.
It may be of benefit to the House if I give a couple of examples of the kind of changes to the three heads under the noble Lord’s amendment that have been made in a couple of years, which demonstrate the kind of thing that we are talking about. In respect of pensionable earnings, for example, we are about to remove all references to primary care trusts in connection with their role in establishing pensionable earnings for practitioners. That is a small administrative change to reflect the fact that PCTs are on the way out. On ill health benefits, we have made changes that allow scheme medical advisers to determine that a member can satisfy the severe ill health condition for the purposes of the Finance Act 2004. It is a small administrative change. In respect of early retirement, changes made from 1 April 2010 required that an employer should pay the costs of the early payment of a mandatory retirement lump sum, paid to a member retiring on the grounds of redundancy. So, again, it is a small administrative change.
In view of the reassurance that I have, I hope, been able to give the noble Lord, and my attempt to clarify the way in which the clauses work, I hope that he will feel able not to press his amendments.
Having given reassurance to the noble Lord, Lord Flight, that we believe that the cost caps will work, I am afraid that I cannot support Amendment 118C. This amendment cuts across the provisions relating to the cost cap mechanism set out in Clause 11. As discussed in another place, that mechanism already contains a number of its own consultation requirements. Indeed, the arrangements in Clause 11 are actually more stringent than those set out in Clause 20. It may be to the benefit of the House if I read it out. The Bill says that,
“scheme regulations may provide for … a procedure for the responsible authority, the scheme manager … employers and members (or representatives of employers and members) to reach agreement”.
So there is a requirement in the Bill that they have to reach agreement, whereas Clause 20 requires only consultation with a view to reaching agreement.
Lord Eatwell
The noble Lord is very kind to read out that little piece from the earlier clause. However, it uses the word “may”, and “may” is not a requirement.
Lord Newby
My Lords, we are back to the “may” and “must” issue here. Clause 11(6) states:
“For cases where the cost of the scheme would otherwise go beyond the margins, scheme regulations may provide for—”.
It then lists several things that may be provided for. This is one of those cases where in reality the difference between “may” and “must” is not only negligible, it does not exist. The schemes will include those provisions; that is exactly why they are in the Bill. Having another process for consultation, as the noble Lord suggests, is unnecessary. I hope, therefore, that he will feel able to withdraw the amendment.
Lord Eatwell
My Lords, I am grateful to the Minister for those comments. I am particularly pleased with government Amendment 118, which achieves what we were attempting to achieve through Amendment 118ZA in a very satisfactory and comprehensive manner. Regarding the other amendments which we have proposed, as I have said on numerous occasions, we look forward to the Minister’s amendments with respect to the retrospective measures in this Bill.
I wish to comment on his rejection of Amendment 118B, which seeks to include the scheme’s definition of pensionable earnings, ill-health benefits and early retirement rights under the so-called protected elements in Clause 20. The examples he gave were indeed administrative, but they were not in the least reassuring. The fact that there was a series of administrative changes does not mean that future changes will also be of such limited significance, because the clause allows for greater changes. It is like saying that it might not be very significant if one player on a football team has a shirt that does not quite match those of the others. It is very significant if he is then not allowed on to the pitch. Giving us these so-called reassuring examples is an exercise in which I hope we will not indulge in the future, because it does not address the nature of the argument. However, at this time I beg leave to withdraw Amendment 116A, which deals with the issues of retrospection that we will discuss on Report.
Lord Eatwell
“Scheme participation
The Treasury shall commission an independent review into the appropriateness of increased pension contributions if, following the full implementation of the increases in employee contributions announced in the Government’s 2010 Spending Review, the number of members opting out of any public service pension scheme increases by more than 5 per cent compared with the drop-out rate in the 12 months immediately before any contribution increases were implemented.”
Lord Eatwell
My Lords, the purpose of this proposed new clause is to evaluate scheme participation. I am sure all of us are very concerned that members should participate fully in the pension scheme that is available with their employment. Some of the new measures which will be introduced this year are complex but it will typically be in members’ best interests to remain in their defined benefit scheme—in this case, their average earnings defined benefit scheme.
The role of the proposed new clause is to require the Government to assess the attrition of membership of public sector pension schemes consequent upon the increase in contributions which will take place following the 2010 spending review. The purpose of the amendment is to determine whether the number of members opting out of any public service pension scheme in consequence of the increase in contributions exceeds by 5%—this is an arbitrary number—the drop-out rate immediately before the contribution increases. Therefore, it seeks to pick up what the consequence of contribution increases and the various changes which the Bill will introduce might be.
The amendment is not a challenge to the appropriateness of the contributions but merely seeks to provide the sort of information that the Government, employers who are members of the various schemes and, indeed, the members themselves need in order to understand the dynamics of what is going on in public sector pensions. Providing that information to all those groups would be beneficial and would lead to a better informed debate and better informed consideration in future of the development of public sector schemes. I beg to move.
Lord Newby
My Lords, it is probably sensible to remind ourselves why the increases in employee contributions were felt to be necessary. The noble Lord, Lord Hutton, was clear when he said in his interim report that,
“there is clear rationale for increasing member contributions to ensure a fairer distribution of costs between taxpayers and members”.
He sets this in the context of the cost of public service pensions having risen by a third over the past decade to £32 billion and of those increases having fallen mostly on the taxpayer. Subsequently, in 2010, the Chancellor announced a proposed increase in member contributions of 3.2 percentage points, to be phased in progressively over three years from April 2012. Let me be clear: the Government stand behind the justification for these increases and fully expect them to be implemented and carried forward into the new schemes. Proposed scheme final agreements clarify this. The noble Lord, Lord Eatwell, is right to raise the issue of participation, and I welcome the opportunity to set out what we are doing to maximise this.
First, we have protected the lowest earners from the increases. We know that they are those most likely to opt out, so there will be no increases for those earning under £15,000, and limited increases for those earning under £21,000. Secondly, we have split up each year of proposed increases so that we can assess the impact, particularly on opt-out, of year one, before finalising the approach for the next. As a result, I am pleased to be able to say that following the increases in contributions in April 2012, scheme data show that there has been no discernible increase in opt-out. This perhaps should not come as a surprise. Union representatives at the Bill’s evidence session in the other place unanimously stated that they would continue to advocate membership to their members.
We should also remember that the auto-enrolment policy—begun by the Opposition but implemented by this Government last year—will further encourage pension participation more generally. Therefore, given the clear rationale for rebalancing costs fairly, and the specific steps that the Government have taken to minimise opt-out, we do not intend to revisit the contribution increases after their implementation.
Of course, the Government will closely watch what is happening in practice. We monitor opt-out as a matter of course. In the unlikely eventuality that opt-out rates dramatically rise, naturally we will have to consider the best way forward. However, we think that this is highly unlikely, and the evidence bears that out.
We do not, however, believe that a statutory, independent review of the appropriateness of the increases would be right or necessary. We believe that increasing contributions is appropriate and that it will leave public service workers with pensions which remain the envy of many in the private sector. Introducing a statutory review mechanism would be misleading to members about the intended permanence of these increases.
The Government will continue the implementation of the increases and will continue to monitor opt-outs from schemes, but we cannot agree to this amendment to provide for a formal review, as, in our view, this would set an unrealistic expectation that the increases might be reversed.
Lord Eatwell
It would have been very nice if the Minister had addressed the actual amendment instead of the fictional one that he seems to have been discussing. There is no suggestion in this amendment of looking at the “appropriateness”, as he put it, of higher contributions. The intention is simply an information exercise; we want to know what is happening and we want it to be clearly revealed. The various measures that he described to maximise participation are very appropriate and desirable, but will they work? We are told, “We believe they’re going to work”, but some people believe in fairies.
Lord Newby
My Lords, I suggest to the noble Lord that it is not a question of hoping, thinking or believing; it is a fact that the increases have been implemented and there has not been a discernible increase in the opt-out rate.
Lord Eatwell
The point is that, if there is a proper review available to all—which the noble Lord is not relying on; I presume that he is relying just on the evidence provided by his officials—we will be able to assess the consequences of the increases.
Finally, I think that when the noble Lord was discussing the measures to prevent opt-out, he mis-spoke. It is not correct that somebody earning less than £15,000 a year is not subject to higher contributions. I think he will find that part-time workers earning less than £15,000 per year are subject to higher contributions.
However, given what we heard, which was clearly a misunderstanding of the purpose of the amendment, for the moment I beg leave to withdraw it.
Lord Eatwell
Lord Eatwell
My Lords, this amendment refers to Clause 28(10)(b) whereby the Treasury may by order,
“add any body or office to it”—
that is, to Schedule 10, which lists the various schemes that are the subject of the Bill.
The Government have made a couple of amendments to the clause, particularly regarding the provisions dealing with devolved authorities, on which we spoke earlier, but the Treasury is still given the power to amend quite drastically any career average or other defined benefit scheme relating to a public body simply by adding that body to Schedule 10 at the flick of a pen. That is rather reminiscent of the most notorious part of the Public Bodies Act, which noble Lords will remember, whereby public bodies could just be added to the list of those to be abolished or otherwise changed at will. This House was not willing to accept that position. Similarly, I do not think that the House should be willing to accept this particular situation in which, without any by your leave whatever, public sector schemes or other arrangements in a public body that is not part of our consideration should be simply added at will. Surely there should be a degree of consideration before that is done.
The amendment suggests that paragraph (b), which refers to adding any body or office to Schedule 10, should be left out. The Treasury can remove any body or office from Schedule 10 and the issue relating to devolved authorities will also stand. We cannot rely on a flick of the pen to incorporate bodies into the Bill. We need to know the list that will be incorporated. I appreciate the difficulties that exhaustive lists create but we are dealing with people’s pensions, which is an aspect of life about which people are most nervous and insecure. We cannot say that one day somebody will decide that a fund that was previously not part of these conditions now will be, and that the issue will not be debated—that there is nothing anyone can do and it will just be done by fiat. That is not appropriate. I beg to move.
Lord Newby
My Lords, the Government have always been clear that pension reform should extend to all public service pensions. Clause 28 and Schedule 10 are the means by which that work will be continued, even after enactment of the Bill. To date, the Government have focused their resources on reforming the largest public service pension schemes as these affect the vast majority of public service employees. As such, pension reform for the smaller public bodies is not as advanced as the reforms to these major schemes. Noble Lords may be reassured to know that reform of these smaller schemes is anticipated to be completed by 2018, after the reforms to the larger schemes are operational in 2015.
The Government’s policy with regard to these schemes is clear: any public body whose defined benefit pension scheme needs to be reformed is listed in Schedule 10 or may be added to it. Members of these schemes should be well aware that their pensions are in scope of the reforms. However, the arrangements surrounding some of these pension schemes are complex and it may be unnecessary to include them in Schedule 10 if they are able to reform on their own initiative. If so, they will not need to be listed.
To date, we have worked hard to ensure that all the public bodies that operate pension schemes eligible for reform by the powers under Clause 28 have been listed in Schedule 10. However, we are trying to be realistic with this provision: of the more than 400 public bodies that provide pensions to their employees or officeholders, some may not yet have been identified appropriately. That said, I can assure the noble Lord that the vast majority of public bodies that provide pensions through one of the major public service schemes will be reformed by Clause 1, so the number of public bodies that may have to be added will be extremely low. However, if we need to include such schemes, the Bill needs to provide for the Treasury to add them via Schedule 10.
I note what the noble Lord says about draconian powers but it is worth noting that the Delegated Powers and Regulatory Reform Committee did not express any concerns whatever about this power as currently drafted. It is a sensible way of dealing with the addition of a small number of public bodies to the universal principles of public sector reform. I hope therefore that the noble Lord will withdraw his amendment.
Lord Eatwell
My Lords, perhaps the Minister will clarify for my edification his reference to schemes reforming themselves and then not needing to be incorporated into Schedule 10. What will be the criteria of satisfactory reform and who will do the judging?
Lord Newby
My Lords, the criteria for satisfactory reform is that we want all public bodies to adopt schemes which are in line with the provisions of the Bill. So, if the schemes do that, that is fine. There are a number of schemes, some of which are listed already and some of which may need to be listed subsequently, when the Government and the Treasury believe that the process will be helped if they are formally listed in the Bill or under the Act.
Lord Eatwell
I thank the Minister but this is unsatisfactory. It leaves an area of uncertainty hovering over smaller schemes, which may be in or may be out. I presume, therefore, that the Treasury will make a judgment as to what it thinks in its wisdom is right. I do not think that is a proper way to go forward and may return to this issue later. For the moment, I beg leave to withdraw the amendment.
Public Service Pensions Bill
Lord Eatwell Excerpts(11 years, 9 months ago)
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Lord Eatwell
“Pension policy groups
(1) The Treasury shall make directions providing for the establishment of a pension policy group for each scheme established under section 1.
(2) The pension policy groups will consider and advise on proposals to make significant changes to scheme regulations.
(3) Treasury directions under subsection (1) shall establish a single pension policy group relating to all schemes for local government workers.”
Lord Eatwell
My Lords, this also refers to administrative matters concerning particular pension schemes. The amendment would implement my noble friend Lord Hutton’s recommendation that pension policy groups should be established for each scheme at national level. To quote my noble friend’s report, he said that,
“even if all schemes have a pension board in future, there will still be a need for separate pension policy groups to consider at national level major changes to scheme rules”.
Many schemes already have such groups or bodies at national level, such as the National Health Service and Civil Service pension scheme governance groups, the teachers’ pensions committee, the Police Negotiating Board, the Firefighters’ Pension Committee and so forth. Part of the role of these groups would, as my noble friend recommended, be to ensure that information about key proposals for change and related costs are publicly available. It is very important to maintain confidence in these proposals to ensure good relations with scheme members and the smooth implementation of any changes.
My noble friend’s report also notes that these existing bodies were often established as part of the consultation and negotiation machinery for handling pensions as an element of a remuneration package, and have member and employer representation as appropriate. The appropriateness of member representation would, we hope, be taken into account if this amendment is accepted and pension groups established.
When this issue was considered in another place, the Minister replied to my honourable friend Mr Chris Leslie, who put forward a similar amendment. Mr Sajid Javid said:
“We will give further consideration as to whether it would be necessary or appropriate for the Bill to provide for a scheme-level group for the local government scheme in England and Wales”.—[Official Report, Commons, Public Service Pensions Bill Committee, 22/11/12; col. 453.]
It was on the basis of that commitment by the Minister in the other place that my honourable friend withdrew his amendment.
I would like to hear from the Minister this afternoon the nature of the consideration given by the Government, which the Minister in another place committed the Government to, and why they have not brought forward their own amendment to place the position of pension policy groups in the Bill. After all, if the advisory measures that we have just passed are administrative measures and are in the Bill, these are also essentially administrative measures, as Mr Javid pointed out, and surely they should be in the Bill as well. I beg to move.
Lord Whitty
I fully support the amendment put down by the Front Bench. However, with regard to the arrangements for the Local Government Pension Scheme, would it not have been better if the Government had set out in one place the totality of the arrangements that were intended for the local government scheme, rather than attempt yet again to generalise the provisions to cover most of the public sector schemes? It is probably too late for the Government to do that; in which case, I hope that they will support my noble friend’s amendment.
Lord Eatwell
Perhaps I might respond to the point that the noble Lord has just made. I think that he is being a bit obtuse. Amendment 45 refers to an advisory board to be established for each scheme; it does not refer to general national boards, which would cover a range of schemes that may be within a particular area of concern. This is a different animal. If he thinks that it is the same, it would have been enormously helpful if he had made it clear when he introduced the amendment, which he failed to do.
As I read this, the scheme advisory board refers only to defined benefits schemes. We know that there a small number of defined contribution schemes. Why are they left out? Amendment 45 also states that:
“Scheme regulations … must provide for the establishment of a board”,
which suggests a board related to each scheme, not the overall national bodies referred to in Amendment 46.
Lord Newby
Perhaps I may quote the noble Lord’s Amendment 46:
“The Treasury shall make directions providing for the establishment of a pension policy group for each scheme”.
That is what Amendment 45 says. What is the difference?
Lord Eatwell
Perhaps we are arguing over the definition, but it seems to me that the whole issue of the policy boards was that they were national boards. If we look at the actual boards that have been established, they are national boards, which have a national overview. If that is what was meant by Amendment 45, I am very happy. However, it would have been enormously helpful if the Minister had said so when introducing his amendment.
Lord Newby
I apologise to the noble Lord. There is no doubt in my mind that when government Amendment 45 says:
“Scheme regulations … must provide for the establishment of a board”,
for each scheme, that is the same definition of “scheme” as in Amendment 46. I am sorry if I did not make that clear to the noble Lord. I made in error the assumption that it was relatively straightforward.
Lord Eatwell
“(3A) A scheme under section 1 which replaces a defined benefit scheme may only be established as a defined benefits scheme.”
Lord Eatwell
My Lords, we come now to a series of amendments that have a common theme. We are all aware that the nature of the new structures defined in the Bill will involve a significant change in the terms and conditions of employees in the public sector and, to be frank, in many cases a deterioration of those terms and conditions. The Bill is the outcome both of the careful consideration made by my noble friend in his report and of the negotiations between the Government, the Local Government Association, the trade unions and so on, which reached a deal. What is extraordinary about the series of clauses we are about to consider is that one side of the deal has been put in the Bill—that is, the Government side—while the positions gained by the trade unions in the negotiations have been left out. Instead, those are supposed to be covered by the Government’s declaration that they have no intention of changing things. The Minister at the Dispatch Box can say quite happily that everything will be all right, even though this is a Bill which is intended to last for 25 years and no Administration can bind their successors.
Amendment 47 is characteristic of the problem to which I have just referred. The Government promised to provide public sector workers with defined benefit pension schemes in the form of career average pensions. That was the position put in place so skilfully by my noble friend. The striking thing is that the Bill does not honour that commitment because in Clause 7 it provides that schemes created under the Bill can be defined benefit, defined contribution or,
“a scheme of any other description”.
The only restriction on the type of scheme is that it cannot be a final salary scheme, and that of course was the important gain made by the Government in the deal. Where is the gain for the other side? This greatly undermines the security and confidence that public sector workers can have in their pension provision as they will know that this Bill allows the Government to renege on their promise to replace final salary schemes with career average defined benefit schemes. This amendment merely puts the Government’s promise on a statutory footing.
Noble Lords may think that I am exaggerating the concern that workers may feel about the possibility of the Government reneging on their side of the deal, but let me refer to the speech made by the noble Lord, Lord Newby, at Second Reading where he says that,
“although the Government have absolutely no intention to change the basis of the schemes, it makes sense for a piece of legislation which we hope has a long life itself to allow flexibility in the future if there are unforeseen changes”.—[Official Report, 19/12/12; col. 1585.]
It does not make sense to create a structure in the Bill that could result in a reneging by one significant side of the deal which has been made on people’s pensions for the next 25 years. If, at some future stage because of changes in economic circumstances, pressures on the public purse or whatever it might be, it became necessary to rethink the position established by my noble friend in his report and say, “I am afraid that because of changes in the world, we cannot even maintain career average defined benefit schemes”, it is not appropriate that the removal of career average defined benefit schemes could be done just on the nod.
It is surely important that if that were to happen the Government of the day should come back to Parliament and say that circumstances have changed and that they have to make another major change to public service pensions. When a Minister stands up and says that they have no intention of doing so, the immediate thought is that they are going to do it. As the Government have received the agreement of all parties to the change in the structure of defined benefit schemes, they should keep their part of the deal and have in the Bill that the removal of a defined benefit scheme will result in its replacement by a newly designed one. I beg to move.
Lord Newby
My Lords, this issue has been debated in another place on a number of occasions. There is a technical problem with the amendment over the concept of “replacing schemes”, which is pretty difficult to express in law. The key thing here is not the drafting but the principle that is raised by the amendment.
I am pleased to be able to add my assurances to those of the Chief Secretary and the Economic Secretary in another place. The Government have no—zero—intention of replacing the defined benefit schemes that have been negotiated with different scheme designs. Officials and members’ representatives have worked very hard to ensure that these reforms are sustainable. I am confident that they will last for a generation. The Government would not have invested so much time and energy in developing and legislating for the mechanisms in the Bill if we were intending to do anything other than retain defined benefit schemes. It is not the case that these mechanisms could be amended on the nod. If any future Government wanted to move away from the current defined benefit system, they would have to go through the procedures in Clause 20.
However, that is not really the point. As I have made clear, there is no possibility of this Government wanting to replace the defined benefit schemes that we have worked so hard to develop. We therefore feel that this amendment is unnecessary and I hope that the noble Lord, Lord Eatwell, will withdraw it.
Lord Eatwell
My Lords, that is extraordinary. The noble Lord, Lord Newby, has simply reinforced the argument that I made. We are expected to accept assertions about intentions in the future and that that is to be enough to cover this particular circumstance. I accept that there may be difficult technical issues in drafting but that is not the point, as the Minister himself said.
The point is that those members who have given up their final salary defined benefit schemes, and reached a deal that agrees to the Government implementing career average defined benefit schemes, should have confidence in the Government keeping their part of the deal. It should not just be the Minister standing here and this Government but Governments stretching over the next couple of decades doing this. That confidence would rest in the commitment to maintaining a defined benefit structure.
What I hear from the Minister is an unwillingness to do that. All he will do is say, “I will give assurances”. How can he give an assurance for someone standing at that Dispatch Box, whoever it may be, in 10 years’ time? He cannot, so the point of this amendment, ill drafted though it may be, is to ensure that any Government of the day changing the status of pension schemes for so many of the public servants who make our lives worth while and secure would have to come back to Parliament with primary legislation to change the nature of the scheme. I did not hear any commitment on the part of the Government to do any such thing and to include such security in their pension provision for those who serve us so well. I shall look at the drafting, but we shall certainly return to this on Report. I beg leave to withdraw the amendment.
Lord Whitty
My Lords, I beg to move Amendment 48 and I support Amendments 49 and 50, which are in this group.
I appreciate that the Minister is a bit pained about this, but the need for this amendment is exactly the area to which my noble friend has just referred. There is distrust out there. In respect of this amendment, the distrust was blown out of all proportion by the sudden decision to replace RPI with CPI. I know that for those who run schemes it is quite a useful change as it has put funding on an easier basis, but for millions of pensioners it has reduced their pension expectations and caused considerable distress. What I am addressing here is the continued anxiety that the Government may once again change the terms on which it is based.
This amendment relates to the agreement to which my noble friend referred within the local government scheme between the local government unions and the LGA, which the DCLG and, by implication, the Treasury greatly welcomed. At the moment, the provision in this amendment is the understanding carried forward from the previous scheme in that agreement, which is not reflected in the Bill. Without the amendment, Clause 8 appears to allow the Treasury to change the revaluation again, more generally, from the CPI to another index that may in future be created by the Treasury. That would significantly alter the scheme costs and funding and the likely benefits for pensioners and future pensioners. The scheme design proposal in the agreement between the LGA and the trade unions clearly specifies that the revaluation of pensions shall use the CPI. In setting this revaluation, careful consideration was also given to the value of the accrual rate to be used and to the overall scheme design. In other words, it was a balanced package. The overall cost of the scheme contained that balance and should it change again, clearly those arrangements fall.
These designs were put forward to the employers and were agreed with the unions. There was a vote of union members and a whip around local government employers and, in the circumstances, there was overwhelming support for that agreement. The apparent ability, if we do not adopt this clause, of the Treasury to introduce changes in those arrangements and, in specific terms, to impose a decrease, in certain circumstances, in the accrued pension without consultation or agreement with those affected would seriously undermine the basis of that agreement. One of the benefits—undeserved, in one sense—of the Government’s approach to public service pensions in general was that it forced local government employers and unions to work out what they wanted for the long term. They have done so, and the Government endorsed that agreement. Part of that agreement is that there should be no such reduction and no change away from the CPI. Without provisions similar to those which my noble friend has moved and which are also included in very specific terms in this amendment, the issue of distrust will continue.
This is a relatively simple amendment, but I suspect from the puzzled look on the Minister’s face that he did not even think that the Bill, as it stood, would have allowed a negative adjustment, but it does; while the agreement between the unions and the LGA does not. I therefore hope, for clarification and for some reduction in the degree of distrust out there, that the Minister will be prepared to accept this amendment. I beg to move.
Lord Eatwell
My Lords, my noble friend Lord Whitty has reinforced the issue that I raised in the discussion of the previous amendment. The Government seem to be content to make a deal and then put only their gains in the Bill and cover everything else by declaration of intent. Revaluation is absolutely central to the maintenance particularly of a career averaging scheme. A career averaging scheme requires a structure of revaluation whereby past earnings are revalued to take account of inflation, and earnings related to earlier years of pensionable service will be subject to revaluation year on year—over a very considerable timeframe now that we are looking at a career average as opposed to a final salary scheme, where revaluation is a rather simpler process.
As it stands, the Bill makes this extraordinary statement with respect to revaluation:
“For the purposes of making such an order the Treasury may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate”.
In other words: any way they like. It does not refer particularly to RPI or CPI; it can just be any way they think appropriate.
The amendment tabled in my name and that of my noble and learned friend Lord Davidson would simply require the Treasury to act reasonably in determining the system of revaluation or the particular index structure that it identifies. This imports into the Bill the objective test of acting fairly. If the Treasury plans to be unreasonable and unfair, I would be grateful if the Minister would tell us. It seems to me that the very least we can ask is that the Government—not just this Government but future Administrations—should act reasonably in their selection of a particular index or revaluation scheme. That is the purpose of Amendment 49, which is grouped with the amendment moved by my noble friend Lord Whitty.
Amendment 50 is, if you like, a belt-and-braces amendment. If the Minister were to accept that the Treasury will act reasonably, we would be quite happy to withdraw this amendment. If there is an arbitrary and unreasonable change in the methods of revaluation, the House has to approve such a change by an affirmative resolution. That is the sort of belt and braces standing behind this notion of reasonableness. However, if the Minister is content to say that the Treasury will act reasonably—which also imports, I am advised, the notion of acting fairly—we will be content to withdraw Amendment 50, which is there in case the Treasury is going to be unreasonable and unfair.
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.
Lord Eatwell
I have listened very carefully to what the Minister had to say. Of course, my amendment does not in any way restrict any necessary flexibility in the future in adjusting the manner in which revaluation takes place. However, it would—if I may use the term—sensitise the Treasury when making decisions of this sort to be aware that it is required to act in a reasonable and fair manner.
At the moment, the expression in the Bill provides the Treasury with such a carte blanche—
“estimated in such manner as the Treasury consider appropriate”—
that not even the words “reasonably” or “fairly” appear in the Bill. All we were trying to do was to avoid any rounds of judicial review over these matters and instead to ensure that when Treasury officials look at the calculation of an index—whether they are moving to geometric means or whatever they are doing—they consider very carefully whether this would be deemed reasonable in the public domain. The Minister himself has used the expression “reasonable and fair” in referring to what the Treasury will do, so surely this amendment has either no effect or a positive effect. We may disagree about whether it has no effect or a positive effect, but it does no harm and reinforces what the Minister has said. Surely, he would regard that as a good thing.
Lord Newby
My Lords, this question of putting “reasonable” into the Bill came up in a number of contexts on the Financial Services Bill. It would be perfectly possible to spatter this Bill, that Bill and every Bill with “reasonable”. The view that we took then, and which I take now, is that, of course, the Treasury always operates in a fair and reasonable way, but because it already has a broad legal obligation to do so it is simply unnecessary to put it into the Bill.
Lord Eatwell
Lord Eatwell
My Lords, this group of amendments deals with various issues associated with pension age and the way it is adjusted relative to movements in the state pension age.
First, perhaps I may speak to Amendments 52, 55 and 57. These are minor amendments tabled to address what we see as a drafting anomaly. If it is not an anomaly, it would be very helpful if the Minister could explain why. The exemptions outlined in Clause 9(2) refer only to a person’s normal pension age, not to their deferred pension age. We believe that this means that the exemptions will apply only to active members of pension schemes and not to those who have moved on from their occupation and are classified as deferred members. In another place when this point was raised, time ran out, as it tends to there, and the Minister did not address this question at all.
I now turn to much more substantial amendments. Amendment 56 would insert a caveat with respect to changes in pension age. It says that such changes would not apply to members of a public service pension scheme who would be exempted from the operation of subsection (1) as a result of a scheme-specific capability review—in other words, those who do not come just within the broad categories of the fire and rescue services, a police force or the Armed Forces. There would be a scheme-specific review looking at the necessary capabilities of workers within a particular scheme. After all, some public sector workers not covered by the broad categories in Clause 9(2) have physically demanding jobs and it would not be appropriate to increase their pension age in line with the planned increases in the state pension age. For example, we could refer to mental health nurses, who occasionally have to physically restrain patients, and paramedics might also be considered.
However, what is really important with respect to the examples I have just given is that capability reviews are already under way. In fact, the Department of Health is undertaking the working longer review in relation to the NHS. This will make recommendations about the appropriateness of certain NHS staff working beyond the age of 65. However, the Bill does not exempt any NHS staff from the state pension age link; nor does it make any provision for the findings of a review—including the working longer review, which is now under way—to be taken into account, even though the review has not yet published its conclusions. Therefore, effectively the Bill makes this aspect of that review redundant, and the people working on it might as well just pack up and go home because the Bill effectively excludes any recommendation that they might make with respect to changes in the pension age of specific workers in the NHS. Amendment 56 would insert a caveat into Clause 9 so that a change in pension age would not apply to members of public service pension schemes who should be exempted from the operation of subsection (1) as a result of a scheme-specific capability review.
In another place the Government rejected this review on the basis that the amendment would create confusion and uncertainty. Why it would do that when you have specific capability reviews I am at a loss to understand. Secondly, the reason that certain professions are excluded is not just because of physicality but because they perform a specific public function. Again, that could clearly be undertaken and expressed in the terms of reference of a capability review, wherever that might take place. In this case the Government really have to think very carefully again. They set up the working longer review. They recognise that, in some specific cases not covered by the generality of Clause 9(2), there are cases where the link to state pension age should not be made and yet the Bill does not provide the means of incorporating the results of appropriate reviews.
I shall now speak to Amendment 59 which is also in this group. This refers to a recommendation made by my noble friend Lord Hutton in his review that the link between the state pension age and the normal or deferred pension age should be kept under review and should be reviewed regularly. The report recommends:
“The Government should increase the member’s Normal Pension Age … in most schemes so that it is in line with their State Pension Age”.
That, after all, is one of the key themes of this Bill. Then the report says,
“However, the link between the SPA and NPA should be regularly reviewed to make sure it is still appropriate, with a preference for keeping the two pension ages linked”.
Therefore, it should be reviewed in the light of circumstances. This Bill is implementing one half of my noble friend’s recommendation and leaving out the other half for a regular review.
A regular and independent review into the state pension age link would help to ensure that public service schemes remain sustainable if life expectancy is rising or whatever happens to it. One of the great mysteries of academic life is that one would expect demographers always to be incredibly accurate because they have such a range of data. They know how many people have been born in a particular year and they should be able to look forward to what will happen. However, one learns that demography is a very inexact science and demographers make—and admit that they do—a lot of mistakes and their circumstances change. After all, their profession would die if they did not have new things to worry about as the world changes. We need the possibility of a regular review of the link with the state pension age so we can ensure that members are being treated fairly and that the funding of the schemes, where they are funded, and the provision for non-funded schemes fit within the framework of the Government’s finances.
In another place the Government recognised the recommendation of the noble Lord, Lord Hutton, and said they expected reviews to be undertaken as and when future changes to the state pension age are announced—so they expect it to happen. However, it was not necessary to put it in the Bill as the Government will in due course make announcements about the review process, which is not desirable as it would restrict flexibility. How does it restrict flexibility? This is one of those blanket excuses, like “it is unnecessary”. It does not restrict flexibility at all; it just says, as the Government have conceded, that it would be desirable to have a review whenever the normal pension age is changed.
I have a particular question for the Minister in this respect. Suppose there is a review and it finds that the link is not working and something has gone wrong. What would happen then? Without having the review on the face of the Bill, it seems to me that the Government would have to return with primary legislation. Therefore, we are increasing the flexibility of the Bill by removing that threat to the flexibility of the operation of the Bill as a whole. I beg to move.
Lord Kennedy of Southwark
My Lords, I speak to Amendment 53, which is in my name. When the noble Lord responds to this group, I hope that he will be able to give the Committee some assurances in respect of the Government’s understanding of the special situation that firefighters find themselves in. They put their lives at risk on a regular basis to help and to protect members of the public and their property. I also hope that the noble Lord will confirm that he accepts and understands fully that maintaining high levels of fitness is crucial for firefighters and that there is evidence that, as we get older, cardio-respiratory fitness declines over the whole population. Therefore, asking firefighters to work until they are 60 in these front-line roles is not sensible and not safe for firefighters or the public.
I would like the noble Lord to comment on the review that has been undertaken by Dr Williams and his committee on the normal pension age for firefighters. The committee and Dr Williams were appointed by the previous Fire Minister, Mr Bob Neill, the Member for Bromley and Chislehurst in the other place. Let us be clear that the Department for Communities and Local Government’s document Firefighters’ Pension Scheme: Heads of Agreement in 2012 includes a requirement for the national pension age to be subject to regular review, informed by research carried out by the firefighters’ pension committee. I think that the Bill, coming at this time and relating to firefighters, has pre-empted the review, and that seems odd to me.
These decisions are really important and should be informed by evidence-based research, so I want to understand how the Government will use the research that they commissioned to inform the decisions that they make and the proposals that they will bring before Parliament.
Lord Newby
My Lords, although these amendments all have a common theme, they are quite specific, so I will start with Amendments 52, 55 and 57. It is important to note that the link between the normal pension age and state pension age in most schemes is not the only provision in the Bill which is designed to manage the longevity risk. The link between the deferred pension age and state pension age in all schemes is just as important. This link is universal, with no exceptions. It therefore applies to former members of the police, firefighters and Armed Forces schemes with deferred pensions in those schemes.
There are two reasons why the Government have not extended the exemption from the state pension age link for these workforces to apply to the deferred as well as their normal pension ages. First, it would not be fair to other former public servants whose deferred benefits would not be payable until state pension age. We have been clear that exceptions to normal pension age have been made for police officers, firefighters, and members of the Armed Forces because of the unique nature of the work they do, which we value very much. Once police, firefighters and Armed Forces personnel leave their jobs and no longer carry out those unique duties, there is, in our view, no justification for them to be able to take their deferred benefits earlier than anyone else.
Secondly, there would be cost implications. As we are all aware, increases in—
Lord Eatwell
Perhaps I may deal with that first point about leaving the scheme. I accept that in the case of somebody becoming a police officer at the age of 20 or 21 and leaving at 25 the noble Lord has a good case. But let us suppose that the police officer leaves at the age of 55. Is the case the same? Here is someone who has worked in a physically onerous profession for all that time—34 years, let us say. He has moved to another job because an opportunity has come up but he has performed that physically onerous task for a considerable time, which will have had an effect on his overall well-being. Would it not therefore be reasonable in that case for the deferred pension age to be the same as for those who stay on for just a few years more?
Lord Newby
My Lords, the noble Lord gives an example. I was literally just about to give another example. I will come back to his example. My example concerns a former police officer who leaves service aged 35 to work as an office-based local government worker for the rest of their career. It is by no means an unusual or impossible example. Should their police pension still be available, unreduced, at 60? That is the question, particularly when a local government colleague sitting at a nearby desk must wait until the state pension age to take his or her full pension. Surely the answer can only be no. The strength of that argument is greatest if someone left the police after a year aged 22 and is weakest if they left it aged 59. I agree with that. The argument is not exactly the same at every age.
However, in looking at this, the noble Lord, Lord Hutton, recommended that we should go to the provision that we have indeed gone to, which is that all deferred pensions are payable in full from the state pension age. If we were to move towards what the noble Lord suggests, we would have an extremely complicated position where there were grades of deferment, if you like. We wanted first of all to have a relatively simple approach. We have followed the recommendations of the noble Lord, Lord Hutton, and we think that we have come up with a sensible, practical solution. We understand the argument, but we have deliberatively taken the view that deferred pension age should be the same as normal pension age.
On Amendment 53 in the name of the noble Lord, Lord Kennedy, the noble Lord was asking about the position of firefighters and the Williams review, and where we had got to with that. The starting point, as we know, is that firefighters continue to have their normal pension age at 60, as set out in the new Firefighters’ Pension Scheme in 2006. The Williams review of the normal pension age recognised that, as long as firefighters maintain their physical activity levels and adopt a healthy lifestyle, there is no reason why they cannot maintain operational fitness levels until the age of 60. The report does not call for a change in the normal pension age. However, as the report recommends, firefighters who wish to retire early will continue to be able to do so from 55, with an actuarial adjustment to their pensions. There were other detailed recommendations within the Williams review and the Government are still considering them.
Lord Newby
My Lords, I am always willing to meet the noble Lord. However, I will do so on the basis that we are not reopening the whole of the scheme. The Williams review has made it clear that there is no reason why the retirement age should not be 60. That, certainly, is not up for discussion. If there are other issues around it we can discuss those, although my initial view is that it is highly unlikely that anything else he is discussing would require amendments to primary legislation, although it may require amendments to the scheme rules. On that basis, I am very happy to have a meeting.
The next amendment in this group is Amendment 54, tabled by the noble Baroness, Lady Donaghy. It looks at further exemptions from the state pension link. We have set the current exemptions in line with historical precedent and the Hutton review. There are no other groups that are currently recognised in such a way through their normal pension age provisions as the three set out in the Bill. In fact, as a result of the previous Administration’s reforms, new employees in all other groups of public servants already have a normal pension age of 65. This includes ambulance service staff under the most recent changes to the NHS scheme, which were agreed to by unions.
As we are all aware, this Bill seeks to rationalise provisions across the public services, not to add further diversity. We are trying to move away from the general inconsistencies in the current schemes, which lead only to unfairness for subsections of particular workforces. That is not to say that we do not recognise the physical nature of the work that is carried out by groups such as ambulance service staff, or the risks attached to that work. The schemes introduced under Clause 1 have been developed very carefully with this in mind. They follow extensive discussions with members, trade unions and other member representatives to ensure that they best meet the needs of all members of each scheme. This includes ambulance service staff in the development of the NHS scheme. It would be wrong to reopen those negotiations—not least because, as my noble friend Lord Sharkey alluded to, there are many groups with degrees of stress in their job that are greater than those in others. We could spend a vast amount of time assessing afresh all those groups. Over the years that work has been done and it has led to the schemes we have now. It was also looked at again by Hutton. I am therefore extremely unwilling to start a long process of looking at a raft of groups when they have been considered before. I understand only too well the stresses and strains faced by 999 responders, but other groups face stresses and strains as well. As I say, we have decided that the three groups which are already exempt from the normal retirement age provisions are the only ones that we believe are in a distinctly different category from any others.
Amendment 56 also relates to this issue, but the difference from this amendment is that it would allow any group to be exempted from the state pension age link should a capability review recommend it. Presumably that would mean that the pension ages for these groups would be set out in secondary legislation. I have just explained why I do not agree with the spirit of the amendment. The link was a key feature of the Hutton report and was a cornerstone of the constructive discussions we held with unions and member representatives over the course of 18 months. The outcome of those discussions was the proposed final scheme designs, including the universal retirement age link which the Bill honours in full. We have no plans to reopen those designs, although we have made it clear that we will review the link to the state pension age as and when future changes to the state pension age are announced. The DWP White Paper published yesterday says that we intend to hold a review every five years, so the link will be reviewed when a review is announced.
The Bill as it stands takes a sensible future-proof approach to review the provisions when it is most appropriate to do so; that is, when there are other pension age changes that affect public servants. Naturally, those reviews will take into account any evidence submitted by interested parties—
Lord Eatwell
I understand what the noble Lord is saying, but can he tell us what the status of the working longer review in the NHS is?
Lord Newby
The noble Lord has an uncanny ability to ask me a question as I am getting to the relevant paragraph. I was about to say that the capability reviews are not reviewing the pension age link. They are considering the implications of working longer in the light of increased longevity and looking at how people are deployed as they move towards retirement. There is no question of these capability reviews reaching the conclusion that people should retire earlier as a block; rather they say, “If there are professions which have a significant physical component, how can we make sure that, as people move towards retirement age, the proportion of their work which has a significant physical element is reduced?”. A simplistic approach is to say, “Why can we not have firemen doing desk jobs from the age of 55?”. It is not as simple as that because there are not enough of those jobs, but that is the basic thought process we are going through in the reviews.
This is a challenge not just for public sector workers, but for the whole of society. People are living longer and the pension age is going up. Some people who are doing physical work will not be able to maintain the same degree of intensity at the age of 67 as they could at 47 or 27. As a society, how do we deal with this? What sort of mechanisms can we put in place to enable people to work towards a later retirement age in a way that avoids their facing undue stress?
To take an extreme example that does not cover the public services, I have a number of lawyer friends in their early 60s. Traditionally, solicitors in big firms would be forced out at that age because they were not earning as much as they did when they were 40. A very welcome development is that partners, with the encouragement of their firms, are thinking about what they can do that does not necessarily mean that they are expected to generate the profits and income that they did 20 years before, and in this way they can keep their expertise. That is at a different level from the public sector but it is still entirely welcome. The working longer reviews, about which we are talking here, look at exactly that kind of thing for people in the public sector. It is not about pension age but about how to ensure that we manage people who, as they move into their 60s, may not be able to work at the same intensity as they did when younger.
Finally, I turn to Amendment 59 regarding the reviews of the pension age provisions in the Bill. The Government have made a clear commitment to undertake these as and when future changes to the state pension age are announced. These reviews will look at, among other things, whether the provisions remain appropriate in light of scheme members’ longevity. This will ensure a consistent cross-government approach to all pension age policy and follows the recommendation by the noble Lord, Lord Hutton, that the provisions should be kept under review.
The state pension age review process that I have mentioned should mean that the core principle of this amendment, to ensure the public service pension age provisions continue to track appropriately changes in members’ longevity, will happen automatically. The work on state pension age reviews is still in its early stages. Yesterday the DWP published a White Paper that proposed a review every five years. We are still at a consultation stage and it may be that we move on from that but I do not know.
It would be premature at this point to seek to lock down the details of the reviews for public service pension ages. The state pension age reviews will obviously apply to more than just the pensions established in the Bill. It is therefore important that the Bill does not restrict the flexibility to design those reviews. Even though the reviews are not in the Bill, this does not restrict the powers to change the pension age provisions. Changes to state pension age will require primary legislation, so any consequent changes to this Bill could be made in at the same time.
Furthermore, it would be misleading to put reviews in the Bill and give the impression that these provisions may be continually changed when that is not the intention. The Government believe that we have appropriate provisions at the moment and we do not plan to change them. It is important that these are made clear to members so that they can plan for their retirement. I therefore urge the noble Lord to withdraw the amendment.
Lord Eatwell
My Lords, I note the comments in general of the noble Lord, Lord Newby, and I am grateful for the support of the noble Lord, Lord Sharkey, for Amendment 56 in particular. This strengthens the position of those administering public service pensions by incorporating the notion of a specific capability review and therefore providing a standardised mechanism across the various sectors in public service. These could be utilised both to include groups in the exemption and, indeed, to confirm that groups should not be included in it.
The examples given by the Minister, of changes in working practices among his lawyer friends, indicate just the sort of thing that a capability review would take into consideration. It is regrettable that he has dismissed this in rather a cavalier manner, by just saying that it would make the thing too complicated. People’s lives are complicated. People lead very different lives, and we need a degree of flexibility to take account of those differences that they encounter. Simply having a one-size-fits-all approach to the public services, which is the case in the Bill—with the exception, of course, of the uniformed services, which we discussed earlier—does not seem to future-proof the Bill, a factor that the Government are so continuously concerned with. What will happen is that some real anomaly will appear; it will become a scandal and suddenly a matter of major press interest. You can just imagine the sort of the thing: for example, some elderly ambulance worker being unable to assist a prominent celebrity in distress. You can imagine how the tabloids would go for that. Or it could be a much more serious scandal. Being able to perform capability reviews would provide a degree of flexibility, which is exactly what future-proofing this sort of legislation really means.
The Government are being a bit blinkered over this. They are standing on the podium of simplicity, but simplicity does not always make for true effectiveness. However, I am sure that the noble Lord, Lord Sharkey, and I will return to this on Report. I beg leave to withdraw the amendment.
Lord Eatwell
“(4A) A person’s normal or deferred pension age under a scheme under section 1 will not change by operation of this section unless 10 years’ or more notice of the change has been given.”
Lord Eatwell
This is another amendment dealing with the issue of retirement age, but here it is a question of giving notice of a change in retirement age. The essence of this is that if people are aware a significant time in advance that their retirement age is going to change, then they have the opportunity of making provision for that change. If it is only a few years before the date at which they retire, it is much more difficult for them to change their circumstances or their arrangements in the light of the changed pension age.
This amendment is necessary because the Bill links the normal or deferred pension age in public service pension schemes to the state pension age and the state pension age can be changed in law with no protection for those approaching retirement. The Government have recently imposed changes to the state pension age when they gave women in their 50s only six years’ notice of an increase. I think that was excessively short. That meant that women in those circumstances had a relatively short time to make adjustments in their circumstances appropriate to the new change in the pension age that they face.
This amendment would ensure that if the Government were again to act in this arbitrary manner with respect to an increase in the state pension age it would not have a similar rapid knock-on effect for public service pensions. When the noble Lord, Lord Turner, carried out a review of state pensions for the previous Government, he recommended that a 15-year notice period be given before changing the state pension age, and the Pensions Policy Institute, which also looked at this with some care, recommended a 10-year period. During the Second Reading debate in another place, a Conservative Member, Mr Richard Graham, the Member for Gloucester, said:
“The Bill also protects everybody who is within 10 years of retirement, which is very important for so many of our constituents who are in their 40s and early 50s”.—[Official Report, Commons, 29/10/12; col. 114.]
Unfortunately, this Conservative Member had actually got it wrong because there is no such protection in the Bill for those within 10 years of retirement. Given that he was a Conservative Member, perhaps he had had some whispers from the Front Bench that there was an intention to include such a provision and this was left out by an oversight. So now we are giving the Government the opportunity to rescue their omission. Providing that the Government are not planning to increase pension ages with less than 10 years’ notice, they surely can have no objection to this amendment.
Lord Newby
My Lords, we agree with the underlying concept of this amendment that the pension age for those close to it should not change without sufficient notice. When normal and deferred pension ages change, there must be consideration of how such changes will impact on all those who are most affected. However, I hope I have made it clear that a key pillar of the Bill is the clear link that it will provide between the normal pension age and the state pension age. The DWP’s White Paper on state pension reform, published yesterday, sets out that future changes to the state pension age will be subject to a 10-year notice period. It therefore follows that the normal pension age changes will be subject to the same minimum notice period while the link remains in place. Therefore, from the noble Lord’s point of view, fortunately this amendment is unnecessary.
Lord Eatwell
“Fair Deal
A member of a public service pension scheme is entitled to remain an active member of that scheme following—(a) the compulsory transfer of his contract of employment to an independent contractor; and(b) any subsequent compulsory transfer of his contract of employment.”
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.
Lord Eatwell
My Lords, I looked carefully at Clauses 22 and 26 and they seem to be enabling clauses. They enable members who are compulsorily transferred to retain their membership of a public sector scheme, but they do not ensure that they will. That is the import of our Amendment 61. It seems to me that it was also the import of the Chief Secretary’s Statement. He said very clearly that following transfers, those members “will retain membership”. He did not say that they “may” or “could”, or that “facilities will be made available for them to”, but that they “will” retain membership. The Bill certainly does not make that provision.
The noble Lord also said that considerations are under way to find a means of implementing the Chief Secretary’s promise in an appropriate manner. I must say that it would have been a jolly good idea if that had been done before we got to this stage of the Bill, but people are busy and I understand that. Let us hope that this is resolved by Report, so that the Government can then bring forward the results of those considerations in the form of an appropriate amendment in order to keep their fair deal promise. They have made the promise, and we want to see that promise in the Bill—as, I presume, do they—in an appropriate form. If those considerations could be expedited over the next couple of weeks, we look forward to considering an appropriate fair deal amendment on Report. In the mean time, I beg leave to withdraw the amendment.
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 Whitty
My Lords, I strongly support Amendment 62 and the other amendments that have been spoken to. I have a simple amendment in this group—Amendment 64. Clause 10(4) states:
“Treasury directions … variations and revocations … may only be made after the Treasury has consulted the Government Actuary”.
My amendment probably reflects my general suspicion of the Treasury, which is deplorable, as the Minister is indicating. Nevertheless it is shared by many in the pensions industry and beyond. I would have thought that it should be agreed with the Government Actuary’s Department that the Treasury or that department should come to an accommodation on what the basis for the variations, revocations and directions should be.
I accepted the Government’s argument that in relation to other sorts of consultation—for example, consultation with stakeholders—regrettably, agreement, or certainly consensus, is not usually the outcome. However, as regards an issue relating to the basis of valuation between the Treasury and the Government’s own actuary, surely the Bill should state that those provisions are agreed rather than that the Treasury may act after what may be quite a superficial consultation with the GAD. I hope that that was the Government’s intention anyway but I wish to make the position clear through my amendment. I hope that the Government will agree to it.
Lord Eatwell
“(4A) Treasury directions under subsection (3) may only be made after consultation with the persons or representatives of the persons who appear to the Treasury to be likely to be affected by the employer cost cap.”
Lord Eatwell
My Lords, as my noble friend Lord Whitty said, we turn to the general issue of employer cost caps. There is no doubt whatever that a cost cap is an appropriate measure with which we agree, as a means of ensuring that schemes are managed in a cost-efficient way. However, the way in which the cost cap is set is of crucial importance, not least because Clause 11(7) allows a scheme’s regulations to reduce members’ benefits or increase their contributions to meet a target cost for the scheme. How the cost cap is set is therefore important.
What does Clause 11 say? It states that the cost cap will,
“be set in accordance with Treasury directions”.
That is all. There is no requirement for the Treasury to consult or to relate cost considerations to any other set of criteria or measurement. The Treasury therefore has the widest possible discretion on how the cost cap could be set. This means, as my noble friend Lord Whitty suggested with respect to local government schemes—but it is true with respect to schemes in general—that there is nothing to prevent the Treasury setting the cap in such a way that it is easily exceeded, thus triggering the sort of reduction in benefits or increase in contributions anticipated in Clause 11(7).
All that the amendment seeks is to say, “Look, if you are going to change the cost cap, you should consult the people to whom this is being done, the people actually running the schemes, and you may find a degree of information that you otherwise did not have. You may find that measures can be taken, perhaps with mutual advice, to reduce the costs and bring them more into line with what is deemed appropriate”. The failure to consult on even the imposition of cost caps is a serious matter that reduces trust in the overall management of the scheme—and particularly in the Treasury’s role in the management of the scheme. All that the amendment says is, “Okay, the Treasury still has the role of setting the cost cap but it should at least consult before changing the cost cap or setting it in the first place”.
A point about this arose from our discussions in Committee on 9 January, when the noble Lord, Lord Newby, referred to the extension of Treasury regulations specifically to Scotland. He sought to reassure the Committee that the Treasury really was going to stay at arm’s length, as it has done in the past, and would not impose any rules on the Scots. They would have the opportunity, as they have now, to manage the details of their scheme, subject to this ultimate backstop in the sky that will never be used. I therefore ask the Minister specifically whether the cost-cap regulations, as set out in Clause 11, will apply in Scotland—in particular, to local government pension schemes. If they do, and there is no requirement for consultation, there is trouble ahead. This amendment will not only bolster the Government’s position with respect to the confidence with which their changes to public sector pension schemes are received, but will also secure the Government’s position with respect to any amendments to the cost cap in Scotland. I beg to move.
Lord Eatwell
My Lords, I wish the Minister well in his negotiations with the Scottish Government in this respect. I recognise the general issue of the regulation set in Clause 19, but it is of such importance, as I will illustrate when we come to Amendment 68, that it would be of particular relevance to have the notion of consultation included at this point. However, I will elaborate that argument when I turn to Amendment 68. In the mean time, I beg leave to withdraw Amendment 67.
Lord Eatwell
Lord Eatwell
My Lords, we return to the issue that I anticipated in my remarks a few moments ago, of the relationship between the cost cap and the benefits to be received.
I remind the House that Clause 11(7), in referring to the cost cap, says that the steps taken in conditions where the cost cap is not met,
“may include the increase or decrease of members’ benefits or contributions”.
Clause 11(7) is entirely unqualified in that respect. It could lead to an increase or a decrease in benefits. As currently drafted, there is absolutely nothing to prevent accrued benefits from being reduced. Indeed, one of the main concerns of the noble Lord, Lord Hutton, about the Bill, which he expressed in written evidence, is that it does not offer proper protection for accrued rights.
Interestingly enough, there is a Treasury paper on the issue of the employer cost cap. On page 6 of that paper it says:
“There is no intention to make changes to benefits already accrued via the cost cap mechanism”.
The very statement that there is no intention to reduce accrued benefits demonstrates that the clause as drafted includes the possibility of the reduction in accrued benefits. As we all know, in politics, the phrase “we have no intention” means “we are going to do it in due course”.
Surely the Minister can have no objection to this amendment, as he has promised that the Government will not reduce any accrued benefits. What is more, this amendment would not change the Bill in any way that is detrimental to the Government. It would be of enormous benefit, providing millions of public service workers with the confidence that the accrued benefits of their pensions are safe. After all, the Government may declare that they have no intention of using Clause 11(7) to reduce accrued benefits but, as we have said several times this afternoon, it cannot bind future Administrations. If the Minister really wants to ensure that accrued rights are safe, why not include this amendment in the Bill so that if the cost cap were ever to be used to attack accrued benefits, any future Administration would have to come to Parliament to amend the legislation?
I stress that this is not a repeat of our discussion about retrospection in Clause 3(3)(c). This is a different issue. It speaks specifically to a statement that benefits might be reduced and does not qualify which benefits might be reduced. It would be enormously helpful to the Government if they accepted this amendment and made it clear that not only do they have no intention but that they intend to legislate to ensure that members’ accrued benefits are not reduced, let us say, unintentionally by the cost cap coming in to exercise its role in maintaining efficiency in the provision of pensions. I beg to move.
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.
Lord Eatwell
My Lords, I am grateful to the Minister for that. Of course, he made that commitment at the previous day of Committee when we were discussing the whole issue of retrospection. I am delighted to hear that the amendments he will bring forward—relatively soon, I hope, so that we will have the opportunity to examine them carefully before we discuss them on the first day of Report—will also cover this particular eventuality. On the basis of that assurance I beg leave to withdraw the amendment.
Lord Eatwell
Lord Eatwell
My Lords, this is again a belt-and-braces amendment. If the Government had not made a commitment to protect accrued benefits in an appropriate way, including benefits in general as referred to in Clause 11(7), we would want any change in the cost cap and the consequences of such to be considered on the basis of an affirmative Motion. Given that the Minister has made a commitment to bring forward amendments to deal with the issue of accrued benefits I will not move Amendment 69.
Lord Newby
My Lords, Amendment 72 delivers on the Government’s commitment to come forward with an amendment to require scheme members to be provided with information about their pension benefits. Amendment 83, in the name of the noble Lord, Lord Eatwell, is also in this group and is based on an amendment, tabled in another place, which we believe is not quite right for a number of reasons. I hope the noble Lord will be satisfied that Amendment 72 is an appropriate alternative.
The new clause will apply to each public service pension scheme made under Clause 1 of the Bill and, by virtue of Amendment 137, all new public body pension schemes. It requires that every active member of the schemes must be regularly provided with information about the pension benefits they have earned. The clause allows for this to be done in a number of ways, including via electronic media. The first statement must be provided within 17 months of the new schemes coming into effect and at least annually thereafter. Like me, noble Lords may wonder why 17 months has been chosen as the period in the amendment. The reason is that 17 months would take us to September of next year, which would mean that scheme members would have this information before they needed to submit their tax return. This is relevant only to high- end earners, who may need to take account of the contributions going into their schemes for tax purposes. This period will ensure that the schemes have the correct infrastructure in place to carry out this commitment. They can, of course, provide statements earlier where they are ready.
In developing the clause we have been mindful of the obligations that already apply to all occupational pension schemes, including the public service schemes. Regulations made under Section 113 of the Pension Schemes Act 1993 set out various information requirements. These are known as the disclosure regulations and include requirements to provide deferred members with information about the benefits they have earned up to the point at which they leave the scheme. As this legislation already requires information to be provided to those members, it would not be appropriate for our amendment to address them. The disclosure regulations also require defined benefit pension schemes to provide information to active members, but only upon request. The effect of our amendments will be to require each of the public service pension schemes to go further than this. Once they are up and running, information will automatically be provided to all active members at least once a year.
The disclosure regulations specify the information that all schemes must provide on request, how it may be provided and certain detailed points about how it must be calculated. Our policy is for the new benefit statements provided under this clause to be produced to the same standards. Rather than mirror the requirements of the disclosure regulations in the Bill, our amendment provides for Treasury directions to specify the information that must be provided to members. We have taken this approach because we are mindful that the disclosure regulations themselves may change over time and we will want the public schemes to keep in step. In fact, the regulations governing the disclosure of information in occupational pension schemes are currently under review. We have set out a commitment to consult on those provisions later this year.
We propose to retain parity between the Bill provisions and the disclosure regulations wherever appropriate. It is important that members are given consistent and complementary information about their pension scheme benefits. This approach is also consistent with that we have taken elsewhere in the Bill in extending the role of the Pensions Regulator to the public schemes. The Pensions Regulator will also have a role in overseeing the provision of benefit information to members of the public schemes.
Amendment 86 adds annual benefit information to the list of matters that the regulator will issue guidance on. Amendments 84 and 87 also include the new clause in the areas that the regulator will oversee and on which they can take enforcement action should schemes fail to comply with their duties. The amendments meet the commitment that we made on making information available and I hope that noble Lords will agree with them.
Lord Eatwell
My Lords, I listened carefully to what the noble Lord had to say and I am cognisant that this is a response to the arguments made in another place by my honourable friend about the disclosure and availability of information. My Amendment 83, which is in this group, also seeks to enhance communication to members. I will not go into in any great detail the argument about why that should be done because the noble Lord has already said why it should be done. But I would be grateful if he could set out what are deemed to be the deficiencies of Amendment 83 so that I have the opportunity to study his arguments between now and Report.
Lord Newby
My Lords, the main difference between the two is that the noble Lord’s amendment sets out what information would be included in the benefit statement. We are saying that we wish the information to mirror the disclosure regulations that apply to private sector schemes. These will change from time to time. They have improved over the years and become less opaque. They may change again and we want the information that people under public sector schemes receive to keep up with what is, if not the gold standard, the best practice under those regulations.
We will provide information that mirrors the regulations, which may change. The noble Lord’s amendment is very prescriptive about what the information is. I have not gone through it to see what it misses, if anything, beyond what we are planning, but I hope that when he reads what I have said he will find that we are covering rather more than he wants covered and enabling a certain amount of flexibility to meet best practice.
Public Service Pensions Bill
Lord Eatwell Excerpts(11 years, 9 months ago)
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Lord Eatwell
My Lords, my noble friend has made some interesting and important points. One of the issues that really need to be faced, on Report in particular, is that in the negotiations that followed the Hutton report, Local Government Employers, the unions and the Government managed to formulate what could be called a “deal” about the way in which pensions were to go forward. Regrettably, elements of that deal do not appear in the Bill. In response to challenges in the Commons, Ministers gave assurances on a number of occasions but, given that this is expected to be a Bill lasting 25 years, covering several Administrations, these assurances should be in the Bill. A deal is a deal and simply going back to assurances is, at least partially, reneging on the deal.
Having said that in support of my noble friend, I will now speak to Amendment 35, which is also in this group. My noble friend Lord Hutton’s report recommends:
“Every public service pension scheme (and individual LGPS Fund) should have a properly constituted, trained and competent Pension Board, with member nominees, responsible for meeting good standards of governance including effective and efficient administration.”
One can understand why my noble friend recommended this given that, as my noble friend Lord Whitty has commented, there are 89 local government pension funds, with over £150 billion of assets under management, as well as the other pension schemes. Clause 1 currently provides for the establishment of a pension board for a scheme but leaves it completely unclear whether there is a requirement for one pension board for each fund in the Local Government Pension Scheme. Under the clause as drafted, it would be perfectly possible to have one pension board for all 89 pension funds—that is not ruled out. The Minister in another place said the combined effects of Clauses 4 and 5 rule this out. I have studied these clauses carefully and have taken advice, and have been assured that they do not rule this out. Indeed, one could have various combinations of boards servicing the 89 LGPS funds and other schemes.
Given that, as the Hutton report says,
“all scheme members deserve to know that their scheme is being properly run”,
it is entirely desirable to make clear in the Bill that a pension board for each pension fund is a prerequisite, both as a measure of efficient management and to give confidence to the members of individual schemes that they have a board that they can identify with and have access to. I will, in due course, ask the Minister to consider carefully taking on board Amendment 35 to give suitable clarity to what is meant by the establishment of pension boards and ensure that there is a pension board for each scheme.
Lord Newby
My Lords, the noble Lord, Lord Whitty, has proposed Amendments 33, 36, and 44, which are concerned with ensuring that there is a scheme manager and pension board for each local authority pension fund. The amendments also provide for national pension boards in the Local Government Pension Scheme. Amendment 35, tabled by the noble Lord, Lord Eatwell, raises much the same issue.
Both noble Lords seek assurance that there must be a pension board for each local authority pension fund within the local government scheme. I can reassure them on that point. Police, fire and local authorities will be scheme managers in respect of their part of the pension schemes for those workforces. The effect of Clause 5 is that the scheme regulations must provide for a pension board to assist each scheme manager in that role. It follows that there will be a pension board for each scheme manager.
Noble Lords may say that Clause 4 does not in explicit terms require there to be a scheme manager for each local pension fund, and hence a pension board also for that fund, but that is the purpose of Clause 4(5). The intention is also clear from Clause 5(6). This anticipates that the scheme managers of locally administered funds will be the local authority or a committee of the authority.
Amendment 36 is also concerned with requiring national pension boards to be established in the Local Government Pension Scheme for England and Wales, and the one for Scotland.
Lord Eatwell
I ask the noble Lord to return to the point he just made, because it is similar to a point made in another place. There is a scheme manager for each scheme. Clause 5(1) states:
“Scheme regulations for a scheme under section 1 must provide for the establishment of a board with responsibility for assisting the scheme manager”.
That does not suggest that there should be a board associated with each scheme manager. It does not say that, but a board might be just one gargantuan board that serves a variety of scheme managers. I quite understand that the noble Lord is sympathetic on this issue and wishes to assure us that that is what the Government mean but it is not what they say.
Lord Newby
My Lords, that is what we mean and I am advised that that is what the clause says. I will look at it again and if there is any further clarification that I can give the noble Lord, I will write to him. I think that we just have a difference of view about what the current provision states.
Amendment 36 would require national pension boards to be established in the Local Government Pension Scheme for England and Wales, and the one for Scotland. We cannot support these amendments but, as the noble Lord, Lord Whitty, will be aware, we have tabled Amendment 45 to deal with that issue, which we will consider in due course. When we do, I hope that the noble Lord will be persuaded of it.
Amendment 115 concerns Schedule 7, which sets out the mechanism to maintain the final salary link for service in the current schemes. The schedule is designed to allow public servants’ final salary benefits to remain fixed to their final salary on leaving pensionable public service, even after they enter the new schemes. This was a key part of the recommendations of the noble Lord, Lord Hutton, and a vital aspect of the reform deal for public servants. The mechanism also includes provisions for this link to be maintained even if the person moves between public service schemes or leaves public service for periods of not more than five years. Again, this is exactly in keeping with what the noble Lord, Lord Hutton, proposed.
This approach allows public servants the flexibility, for example, to take carer’s leave or gain experience in other sectors, without being inhibited from doing so by the detrimental impact on their final salary pensions. This is consistent with a wider objective to modernise public service terms and conditions, and it smoothes movement between different sectors and departments to enable the sort of skills-sharing that is required for a modern-day workforce. Amendment 115 seeks to remove this flexibility for those in the Local Government Pension Scheme by stipulating that the link is maintained only if the person remains in pensionable service for the purpose of the new local government scheme.
I am not sure that the amendment delivers on its purpose but, none the less, I must oppose it on principle. It would leave in place a movement barrier that we wish to dislodge and be inherently unfair to local government workers. It would lead to the unfair scenario where a teacher who moves to local government for a period before returning to teaching would maintain their final salary link, whereas a local government worker who moves to the education sector before returning to local government could lose their final salary link. That would not be right.
I reassure the House, however, that the Bill does not impose any new liabilities on the funded local government scheme while a person is not in local government scheme employment. Under paragraph 2 of Schedule 7, the link applies only where someone who leaves the local government scheme transfers their rights to benefits from the old scheme, and therefore the liability, to their new employer’s final salary scheme.
Amendment 126 seeks to remove local government pension schemes from the powers set out in Clause 23, which allows pension payments to be made outside schemes that will be established under Clause 1. Although the pensions that will be made under the Bill will continue to be among the best, not every last person working in the public sector will want to be part of them. In these circumstances, it is important that alternative provision can be made so that public servants can continue to save for their retirement, where the scheme manager or employer considers this appropriate. The clause therefore allows for pension payments, or other benefit payments, to be made outside the new schemes to people who are entitled to join the schemes made under this Bill.
An example of an alternative arrangement would be the employer making contributions to an individual’s personal pension scheme where that individual is on a short-term contract and does not wish to be part of the public service scheme for just that short period. This is nothing new across public service schemes as a whole. The power already exists for some of the current schemes; for example, in Section 1 of the Superannuation Act 1972.
However, I recognise that there is some concern, expressed by the noble Lord, Lord Whitty, and no doubt shared by others, that these powers may be used to override eligibility for the schemes that will be established under Clause 1. I can reassure noble Lords that the clause will not allow eligibility for the main scheme benefits to be overridden. The scheme regulations will spell out who is eligible to be a member of a pension scheme made under the Bill. This scheme could not be used to remove these eligibility rights. In short, while this clause could allow alternative arrangements to be offered, where these suit an individual’s personal circumstances, it does not allow schemes and employers to make such alternative arrangements mandatory. I hope I have reassured the noble Lord, Lord Whitty, that any fears he has about the operation of Clause 23 with regard to the LGPS are entirely unfounded, and that this amendment is not necessary.
Finally, Amendment 127 seeks to remove the reformed Local Government Pension Scheme from the provisions of the Pensions (Increase) Act 1971. This Act provides for the indexation of pensions in payment across the public sector. The amendment would mean that the provisions of that Act would not apply to the CARE element of the LGPS, instead, indexation of CARE pensions in payment would be linked to the revaluation of active member benefits, which is provided for under this Bill.
I understand that this amendment has been tabled to overcome a perceived problem with the Pensions (Increase) Act, which creates difficulties for uprating pensions in the year the member retires. However, this amendment is both unnecessary and undesirable. It is undesirable in a piece of framework legislation such as this to carve out one particular scheme for special treatment. This is especially the case when the revaluation of CARE benefits in the year of retirement is a calculation that will have to be made by all the new CARE schemes established under the Bill.
Furthermore, it is unnecessary. I am pleased to be able to reassure the noble Lord that the Government already run a CARE scheme: the Nuvos section of the Principal Civil Service Pension Scheme, which makes provisions for civil servants. This issue was addressed when that scheme was introduced, and is dealt with via the scheme rules. Should the noble Lord care to look at the detail of this, I refer him to rule C.9—the retirement index addition—in the 2007 rules for the existing civil service scheme. The reformed schemes set up under this Bill, including the LGPS, will also be able to overcome any technical difficulties with appropriate provisions in scheme regulations. There is no need to make any further provision in the Bill to allow them to do so.
With these reassurances, I hope that the noble Lord will feel able to withdraw this amendment.
Lord Eatwell
My Lords, before speaking to the amendments in this group tabled in my name and that of my noble and learned friend Lord Davidson of Glen Clova, perhaps I may associate myself most heartily with the words of the noble Lord, Lord Sharkey. That should not be surprising as the first part of my Amendment 41 is virtually exactly the same as his amendment, but I must say that he put the argument beautifully. The idea that one could not accept the notion that one-third of pension board members are nominated by members of the scheme seems extraordinary. One-third is a lower limit which should certainly be accepted.
On the pension fund board which I have the honour of chairing there is one independent member; namely, myself. Otherwise one half of the remaining members are nominated by the members of the scheme and the other half by the employer. It is just under 50% because of one independent member. If that can be the case in what is, I hope, a harmonious pension scheme, I do not see why it cannot be appropriate for public sector schemes. The argument that the public sector is widely spread over different locales and can cover lots of different activities is clearly spurious as a private scheme for a very large company would be doing the same thing. That is the argument which was presented in another place, but it has been dismissed by the noble Lord, Lord Sharkey, and he was absolutely right to do so. It really has no substance at all.
I shall deal briefly with the amendments tabled in my name. Amendment 38 is all about transparency and effective governance. Under Clause 6(2)(c) pension boards are obliged to publish information about,
“matters falling within the board’s responsibility”.
As we can see in Clause 5(2), these include compliance with a whole series of aspects of the scheme’s regulations, whether it be an unfunded scheme, a defined contribution scheme or, indeed, a funded scheme with respect to its investment strategy. All the amendment seeks to do is ensure that the financial information associated with the running of the scheme is available to the board members so that they can comply with the requirements set out elsewhere in the Bill. If they do not have all the financial information they need, how can they fulfil the responsibility of ensuring that the scheme complies with regulations and other legislation relating to governance? Surely having knowledge of the financial structure and oversight thereof is key to this. We learnt from the Financial Services Bill that oversight does not mean control of but simply access to information about, so if this Bill is to be consistent with that Bill, oversight here would mean access to information that will allow the board to fulfil its responsibilities.
Amendment 39 similarly is devoted to transparency and requires that a policy governing the appointment of board members should be published. High quality board members are absolutely essential if public service pension schemes are to be well run. It is vital that the process for appointment is clear and well considered. It is therefore important that this is a transparent process so that members are reassured as to the quality of their board members. This will also promote fairness in appointments. Given that under Clause 5(4) scheme managers have an obligation to ensure that board members do not have any conflicts of interest, a clear and open appointment process with established criteria for appointment will aid scheme managers in fulfilling that statutory obligation. All Amendment 39 does is say, “Publish your policy on your appointment so that everybody knows what the criteria are, how they can apply, and so on”.
Regarding Amendment 41, I have already referred to the part which deals with the one-third of board members, and the noble Lord, Lord Sharkey, has put it better than I could. Amendment 41 also includes the requirement that there be one independent member. It is enormously valuable to have independent members, who often have professional expertise, to assist on pension fund boards. The report of the noble Lord, Lord Hutton, made it clear that it would be desirable for pension boards to have independent members. The amendment seeks to ensure that the recommendation of the noble Lord, Lord Hutton, is taken into account.
Finally, Amendment 42 uses exactly the same definition of member nominee and independent board member as the Pensions Act 2004 and provides for a nomination process for board members. In that respect, it simply mirrors the Pensions Act 2004, and in particular mirrors the definition of an independent board member, referring specifically to the nature of their independence. The criteria set out in Amendment 42 are those which we have already accepted for the private sector, and it seems entirely appropriate that they should fit here. These amendments are to provide transparency, which will enable the boards to do their jobs better. Transparency over an appointments process and a nomination process will enable the boards to be better constructed.
Lord Newby
My Lords, I begin by speaking to government Amendment 40. It deals with matters related to those that have been raised by the noble Lords, Lord Sharkey and Lord Eatwell. Amendment 40 delivers the Government’s policy commitment for scheme members to be represented on pension boards. Our amendment explicitly requires scheme regulations to provide for members of a public pension scheme, and any connected scheme, to be represented on the pension board. Unlike the amendments proposed by the noble Lords, Lord Sharkey and Lord Eatwell, it does not specify a proportion of board members that must be member representatives, nor does it say how member representatives are to be appointed to the pension board.
The noble Lord, Lord Sharkey, asked whether draft regulations could be made available to Members of your Lordships’ House. I confirm that we will make them available to all Members who have spoken in the debate today. In our view, these matters are rightly left to scheme regulations. In their amendments, the noble Lords have broadly sought to replicate the requirements that relate to boards of trustees in other occupational pension schemes. Amendments 34 and 41 seek to adopt the requirement for at least one-third of board members to be members or their representatives in trust-based schemes. Amendment 42 seeks to adopt a similar process for nominating member representatives to the board.
The noble Lord, Lord Sharkey, asked me to explain our rationale from first principles. I am not sure whether I shall go quite that far back, but I will attempt to explain it. We believe that the amendments fail to recognise the major differences between the public service pension schemes and the trust-based schemes that these provisions were designed for. For example, the effect of Amendment 42 would be to require Norfolk County Council to allow every member of the local government pension scheme in England and Wales, directly or indirectly, to participate in the selection of member representatives to their pension boards. The same would apply to each of the other 88 funds in the Local Government Pension Scheme. This is clearly unintended but it serves to highlight the fact that the public service schemes are indeed different. A one-size-fits-all process for nominating member representatives to pension boards would not, in our view, be appropriate, nor is it appropriate to set a quota. The public schemes are not directly comparable to trust-based pension schemes. The public service schemes are significantly bigger than most occupational pension schemes and many involve multiple and diverse employers. For example, there are over 5,000 employers in the LGPS in England and Wales. Those are not just local councils but also local charities and housing associations. That broad range of interests needs to be represented on the public service pension boards too.
Consequently, our view is that imposing a requirement for one-third of pension board members to be members, or their representatives, could lead to them being the largest interest group on the pension boards. Of course this is not an issue in private sector schemes, where there is often only a single employer to accommodate on the trustee board. The Bill already provides the necessary flexibility for the details to be agreed in each scheme, following consultations with members and other interests. This approach will allow the pension board membership to be tailored to the varying structures of each of the public schemes. The pension boards will then be able to appropriately reflect the range of employees and employers in each scheme. We believe that this is the right approach.
One of the other amendments in the name of the noble Lord, Lord Eatwell, relates to public pension boards having an independent member. The noble Lord, Lord Hutton, did indeed say in his report that it was important that pension boards include independent members. Although we accept that independent members can play a role in pension boards, we do not see a case for mandating each pension board to have such members. The reasons for mandating independent trustees in the private sector do not, in our view, flow through to the public sector schemes. Independent trustees reinforce the separation of pension schemes from the employer in the private sector and, as we have discussed previously, we are not convinced that this is required in the public scheme.
Amendment 39 would require a scheme manager rather than scheme regulations to determine the policy governing the appointment of pension board members. Clause 5 provides that it is the scheme regulations that would provide for the establishment of a board. Within that, schemes are likely to set out the detail of a board appointment process in the scheme regulations. If schemes determine to delegate this matter to scheme managers, then scheme regulations could require the scheme manager to publish these matters. It would be wrong for the Bill to prejudge the outcome of scheme-level discussions about how to best constitute and appoint pension boards in each of the schemes.
Having said that, we agree with the sentiment of the amendment. Pension boards must be transparent and representative of the interests of stakeholders, both members and employers. That is why Clause 6 already requires the publication of details of pension board membership and the board’s responsibilities.
In responding to Amendment 37 from the noble Baroness, Lady Donaghy, I hope she will not mind if I repeat what I said at Second Reading: the Government believe that the Local Government Pension Scheme,
“is fully compliant with Articles 8 and 18 of this directive. We believe this compliance is achieved by the high standard of legal security that applies to LGPS funds and benefits”.—[Official Report, 19/12/12; col. 1586.]
I am well aware that Unison has long argued that the scheme is not compliant with the European directive, and I recognise that it feels strongly on this issue, but we simply do not agree. The reasons why have been set out in a number of letters from Ministers to Unison over the past five years, not just the past two.
The previous Government implemented EU directive 41/2003 through the Pensions Act 2004. As that Act relates to the governance and administration of pension funds, that legislation is therefore already within the scope of Clause 5(2). I assure the noble Baroness that Amendment 37 is therefore not necessary. I hope that she will feel reassured and not press it at the appropriate time.
The final amendment in this group is Amendment 38, tabled by the noble Lord, Lord Eatwell. This amendment was considered in another place and resisted on the grounds that its application would be inappropriate. One of the key concerns that we have with this amendment is that it seeks to give the pension board of a funded scheme responsibility for the oversight of investment management. The existence, performance or level of any local authority pension fund has no bearing on the benefits that members receive.
Public Service Pensions Bill
Lord Eatwell Excerpts(11 years, 9 months ago)
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Lord Newby
My Lords, this is an extremely long group of government amendments. I preface my remarks with an apology to noble Lords who have taken an interest in the Bill. The letter that I circulated about government amendments was done at an extremely late stage. There is nothing Machiavellian about that: it flows directly from the fact that we are having this debate two days after the end of the Christmas Recess. The Bill team, myself and others were not working over Christmas to the extent that would have permitted us to get the amendments down earlier and inform noble Lords about them. However, I hope that in most cases, if not all, noble Lords will find them helpful and so will forgive me for that.
I start by noting that I will not move government Amendment 3, which relates to Northern Ireland civil servants. On reflection, that amendment is considered unnecessary because Amendment 9 to Schedule 1 does what is needed to remove Northern Ireland civil servants from the scope of the Bill.
In line with the recommendations of the noble Lord, Lord Hutton of Furness, the Bill was drafted to provide a legislative vehicle for the reform of all public service pension schemes in the UK to make them fairer and sustainable. However, legislative competence for some of the pension schemes is devolved to the Administrations in Northern Ireland, Scotland and Wales. We have always been clear that the devolved Administrations would have the final decision as to whether or not the Bill should apply to their devolved pension schemes.
On 26 November, the Northern Ireland Executive announced their decision to bring forward their own legislation to reform the pension schemes of their public servants. These schemes will be based on the recommendations of the noble Lord, Lord Hutton. This will affect schemes relating to Northern Ireland civil servants, the devolved Northern Ireland judiciary and, in relation to Northern Ireland, local government workers, teachers, health service workers, fire and rescue workers, and police and public bodies whose pension provision has been devolved.
On 28 November, the Scottish Executive announced their decision to exclude the small schemes for which they have legislative competence from these reforms. This will affect a small number of members of the junior Scottish judiciary and some Scottish public bodies whose pension provision has been devolved. The Bill will still make provision for Scottish schemes for which Scottish Ministers have executive, but not legislative, competence. These are schemes relating to teachers, health service workers, firefighters, police and local government workers in Scotland. Consequently, I beg to move these amendments that will collectively ensure that the Bill is disapplied from those pension schemes for which the Northern Ireland Executive and the Scottish Government have legislative competence.
Amendments 102 and 109 relate to the Scottish Government’s wish to extend a power in the Police and Fire Reform (Scotland) Act 2012 to enable pension and other benefit schemes to be made for Scottish police cadets and special constables. This will be done by way of an order made under the Scotland Act 1998 which will be laid before Parliament shortly and is expected to commence in 2013. In anticipation of that order, these amendments will ensure that these pension schemes will be included in the reforms legislated for in the Bill. As such, the new pension schemes made for Scottish police cadets and special constables will be reformed in the same way as the other public service pension schemes in Scotland.
The amendments also ensure that any compensation or injury benefit schemes made under the extended powers will not be subject to the reforms. This is consistent with the Bill’s treatment of compensation and injury benefit schemes in other areas of public service, such as the main police schemes. I am sure that noble Lords will agree that such equitable treatment is fair and proper, and I beg to move these amendments to the Bill.
Lord Eatwell
My Lords, I am grateful to the Minister for introducing his amendments, and for his apology with respect to their late arrival. It is of course understandable that this comes after the holiday period, although I was slightly taken aback to hear just now that the Northern Ireland announcement was made on 26 November. What has been happening since then? Christmas started a month later. I am very surprised that we now have Northern Ireland effectively removed from the Bill on the day before Committee, and the House not being informed about this when the team apparently knew of it a month and a half ago.
Before commenting on these amendments, I myself apologise to the House for being unable to be here for Second Reading. I am grateful to my noble friend Lord Davies for having stood in on that occasion.
In considering the Bill most broadly, the first thing that strikes one is the list of professions under Clause 1. These people are the very bedrock of our society. It is crucial to ensure that they have the best conditions, including the best pensions, that are affordable. At the same time, we have to recognise the pressures that an ageing society places on pension provision. The key to squaring the circle is trust; this is going to be a theme in discussing all the amendments to come. We need to incorporate into the Bill a framework that provides clear assurance so that people who perform the public services on which we all depend can face the future with confidence. That means that the Government must place clear, unambiguous commitments in the Bill—not vague promises of Ministers—about what they may really intend. Ministerial promises are simply not good enough, because these measures are intended to be long-term. In the long term, Administrations change and no Administration can bind its successor, so in the long term ministerial assurances are virtually worthless. But if future Administrations are faced with clear primary legislation, then change can be made only by returning to Parliament.
It does not assist in the building of trust when the Government table well over 100 amendments on the day before Committee. Most of these—although not all, as the Minister pointed out and I will demonstrate—arise from the refusal of the Northern Ireland Administration to pass a legislative consent Motion in respect of the Bill. In effect, as we have heard, Northern Ireland is being written out of the Bill. It would be interesting to know what Northern Irish colleagues in this House feel about this. Moreover, given that an important objective of the Bill is to manage the cost of pensions, what implications does this last-minute decision have for the public finances? Presumably this will increase long-term deficit projections—by how much?
More importantly, what negotiations are under way with the Northern Ireland Administration about the future shape of pensions in Northern Ireland; and, indeed, with the Scottish Parliament about the future shape of pensions in Scotland; and, indeed, with the Welsh Assembly, which we are told is still to consider the matter? This Bill has passed the Commons and we do not even yet know who is to be included in it because the Welsh Assembly has not reached its decision.
I am astonished that we have this brief note, circulated the night before, with amendments. We have this brief introduction from the Minister when the Bill has been changed in such a radical and fundamental way. What are the Government going to do now about both Northern Ireland and Scotland? What are they going to do about Wales if the Welsh also refuse to pass a legislative consent Motion? Given that the terms of devolution are different in Northern Ireland, Scotland and Wales, the result of all this is going to be a confused plethora of pension conditions throughout the UK—exactly the sort of confused melange that the admirable report by my noble friend Lord Hutton sought to eliminate. Indeed, it was my noble friend’s recommendation 24 that the Government should introduce primary legislation to adopt a new common UK legal framework for public service schemes. This is clearly what the Government are failing to do.
The reference to Scotland is important, because not all the amendments in this group refer solely to Northern Ireland. The Minister referred to Amendment 96, to a “holder of devolved office”. That therefore applies to Northern Ireland and Scotland. Interestingly, the noble Lord did not refer to Amendment 148, which, in defining what a “devolved office” might actually be, excludes Wales. What will happen to Amendment 148 if the Welsh now refuse to accept being included in national procedures? We really ought to be told to whom this legislation is actually going to apply.
Amendments 102 and 109 expressly include Scottish schemes, established under the Police and Fire Reform (Scotland) Act 2012, within the scope of the Bill. Amendment 139 on the approval of new schemes again refers to all devolved Administrations. What does that mean? It certainly does not mean what is defined by Amendment 148, because we do not know what the Welsh are going to do.
What we have here is a bit of a mess. The Minister must tell us how this mess is going to be resolved. How are we going to try to have some degree of consistency in public pension provision in which people can have confidence throughout the United Kingdom? We can go two particular ways. One is to attempt to negotiate an all-UK structure, which has the sort of simplicity and clarity that was suggested by my noble friend Lord Hutton. The Minister should then tell me what negotiations are proceeding to establish that common UK structure, given the devolved responsibilities of the devolved Governments and Assemblies. We should be completely clear that pensions in Northern Ireland are different from pensions in Scotland, different from pensions in Wales and different from pensions in England, and that the relevant authorities have responsibilities for their particular jurisdictions. However, of course, we do not have that. In Scotland, we have a mixture: some pensions are the responsibility of the Scottish Parliament and some are not.
Our Amendment 28A—which noble Lords may have noticed is buried in this group so that it is almost undetectable, but it is there, although the noble Lord did not deign to refer to it in his opening remarks—seeks to make some sense of this mess by recognising that regulations relating to local government workers in Scotland should require the approval of the Scottish Government. I am well aware that local government pensions are a reserved power under the Scotland Act. In the past, as the noble Lord said, Scottish Ministers have had executive responsibility for making regulations for public service schemes, but they require Treasury approval. But these have typically concerned minor matters. There has not been any big issue which has been likely to bring about a significant difference of opinion between the Scottish Parliament and the Treasury.
However, this Bill completely transforms the situation. It is a framework Bill that will be followed by regulations that are very substantial indeed. Moreover, the local government workers’ schemes in Scotland, like those in England, are funded schemes. It is important, given the extensive powers of interference conferred on the Treasury by this Bill, that the Scottish authorities have appropriate responsibility for decision-making on those funded schemes.
Since, as I understand it, the UK Government have not used their reserve power on Scottish local pensions in the past—in other words there has not been any disagreement in the past, although I am quite willing to stand corrected as it is quite difficult to research these things—it is surely inappropriate to do so now. It is surely right that the Scottish authorities should be responsible if we are going to go for this devolved structure of pensions and give up on the idea of my noble friend Lord Hutton’s proposal for a common UK scheme.
Far from being technical, this huge swathe of amendments raises major questions over the scope of this Bill and introduces complexity where there was once consistency. If the devolved Administrations are to have entirely separate schemes, so be it, but make it clear, rather than this hotchpotch of amendments and qualifications. If we are to have a Public Service Pensions Bill, not a “some people in the public service and some others not” pensions Bill, the Government must reach agreement with the devolved Administrations. They must bring back to this House a proper, comprehensive structure so that we can understand the relationship between those schemes that will obviously be national, such as the schemes for the Armed Forces, who are of course servants of the Crown, and those schemes which are to be devolved. If we are to have a common scheme, let us get on with the negotiations and bring the common scheme to this House. Last-minute changes as far-reaching as these are entirely unacceptable.
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.
Lord Eatwell
In using the word “power” there, is the Minister aware that it will still require Treasury approval?
Lord Newby
I shall come to that in dealing with the noble Lord’s Amendment 28A. I did not fail to refer to it in any slight meant to the noble Lord. I thought that it was more courteous for me to allow him to make his case and then for me to reply to it.
Amendment 28A would change the current devolution settlement. I know how much importance many noble Lords across all sides of the House attach to devolution matters, but a Bill on the reserved matter of public service pensions is not, in the Government’s view, an appropriate vehicle for reworking the devolution settlement put in place by the Scotland Act 1998 or for rewriting the long-standing Sewel convention. I hope that I can explain what I mean by this.
Part II of Schedule 5 to the 1998 Act makes it clear that, with minor exceptions, this Parliament has exclusive competence to legislate for public service pensions in Scotland. This includes the local government pension scheme in Scotland. Requiring the approval of the Scottish Government in relation to reserved matters would run counter to the principles of the Sewel convention. In constitutional terms, approval of the Scottish Parliament in relation to primary legislation on Scottish local government pensions is not needed under the convention. Furthermore, as the Scottish Finance Minister told the Scottish Parliament on 28 November, the Bill does not contain any provisions,
“over pensions for local government, the national health service, teachers or police and fire staff—that would trigger the Sewel convention”.—[Official Report, Scottish Parliament, 28/11/12; col. 14014.]
I can reassure noble Lords that, although the Bill sets a legislative framework setting the parameters for pension scheme designs, Scottish Ministers have the freedom to decide on many of the details of scheme regulations relating to Scottish local government workers. This includes how generous the scheme is. The Treasury has not set a cost ceiling for any of the Scottish schemes. The cost of Scottish schemes will have to be met from the Scottish block grant. Furthermore, Clause 3 explicitly states that Treasury consent is not needed for Scottish local government scheme regulations. When pension regulations are made for the Scottish local government sector, the Scottish Government will design the terms of those pensions under the framework of the Bill, and will put them before the Scottish Parliament. That is how legislation on this topic falls to be dealt with under the devolution settlement. It would be a novel and unhelpful step to make the application to Scotland of legislation that is reserved to Westminster, subject to the prior approval of the Scottish Government in the way suggested by this amendment.
I hope that goes some way to explaining to the noble Baroness, Lady Donaghy, what the situation is in Scotland and why it is not for the Westminster Government to set out or agree the details of the schemes. It is for us to set out the framework and then, under the devolution settlement, for the Scottish Government to have negotiations that will lead to detailed scheme provisions.
Lord Eatwell
“(d) the Defence Fire and Rescue Service”
Lord Eatwell
My Lords, I shall speak also to Amendment 15. These amendments concern the position within the pensions system of Ministry of Defence firefighters and police. Clause 9 provides that the normal pension age of a person under the scheme must be the higher of the person’s state pension age or the age of 65, but three categories of workers are exempted from this provision—fire and rescue workers who are firefighters, members of the police force and members of the Armed Forces. Paragraph 6 of Schedule 1 defines fire and rescue workers as being persons employed by,
“a fire and rescue authority in England and Wales … the Scottish Fire and Rescue Service, or … the Northern Ireland Fire and Rescue Service Board”.
However, none of this includes firefighters who work for the Ministry of Defence. This issue seems not to have been noticed in another place when the Bill was considered there. Amendment 13 would rectify this omission by including the Defence Fire and Rescue Service in the definition of fire and rescue workers. Amendment 15 does the same job with respect to Ministry of Defence police.
We should make it clear that we are not seeking to extend the exemptions provided under Clause 9 but merely to rectify what appears to us to be an oversight and to ensure consistency of treatment across the same profession. In my years in this House, it has always puzzled me that when very obvious oversights appear in the middle of the discussion of a Bill, somehow Governments of whatever party think it necessary to defend their original position as if it was an ultimate truth and not admit that occasional oversights are made.
Let us turn to the fire and rescue service. There are two aspects to the job of defence fire and rescue service firefighter. They work at home on domestic military bases and other MoD premises and they work abroad when they are deployed in war zones. In the UK, defence fire and rescue firefighters deal with fires, accidents and floods, and firefighters deployed to war zones deal both with fires and the general catastrophic aftermaths of conflicts. The nature of the work they do—I am sure that the House will appreciate its physicality—is very similar to, if not beyond, that to be expected of a domestic firefighter.
The oversight became evident when the Government were contacted by an MoD firefighter in relation to this issue. In their reply, the Government justified—I was going to say invented—their decision to exclude MoD firefighters from the exemptions in the Bill as follows. First, they said that firefighters are covered by the Principal Civil Service Pension Scheme, and so the benefit structure and contribution rates which apply to MoD firefighters are those of that scheme and not those of the Firefighters’ Pension Scheme. The Civil Service unions accepted an increase in the normal pension age to 65 for all staff joining since 2007 for that general Civil Service scheme. On that basis the Government claimed that MoD firefighters are already subject to the normal pension age of 60 or 65 and so the recommendation of the noble Lord, Lord Hutton, to adopt the new pension age does not apply. The final proposed agreement issued by the Government to the unions on 9 March 2012 includes transitional protection for PCSPS members so that any member who is within 10 years of normal pension age on 1 April will see no change when they retire. However, beyond that there is the proposed tapering arrangement. Although there are many similarities between local authority and MoD firefighters, the Government claimed that the terms of employment, as well as the roles performed, are not identical. Here the Government are correct—the roles performed are more arduous in the MoD than they typically are for domestic firefighters.
During the Second Reading debate, which I had the chance to read, the Minister said:
“The noble Lord, Lord Davies, asked about MoD firefighters. MoD firefighters are in the Civil Service Pension Scheme at the moment. They will have their pension age linked to the state pension age to ensure consistency within the scheme. The Bill does not move any groups from their current schemes. Indeed, these MoD firefighters have always had different terms and conditions from other firefighters. This already includes a pension age of 65 for new joiners as a result of changes implemented by the previous Administration”.—[Official Report, 19/12/12; col. 1585.]
I will make a number of points about the Minister’s statement. First, I am afraid that he misspoke. It is not true that the Bill does not move any groups from their current schemes—it does. Clause 28 closes public body schemes listed in Schedule 10, and the Government have the power to move people from those schemes to schemes established under Clause 1 or to create new public body schemes for them. It is not true that people are not moved from one pension scheme to another in this Bill.
Secondly, there is no reason why the Civil Service scheme rules cannot provide for a different retirement age for MoD firefighters as well as for police. Why can that not simply be put into the Civil Service pension scheme rules?
Thirdly, the fact that MoD firefighters have always had different terms and conditions from other firefighters does not mean that their retirement age should not be aligned with that of local authority firefighters in the light of the recommendation of the noble Lord, Lord Hutton, that uniformed services should have a normal pension age of 60. To quote the noble Lord:
“The exception is in the case of the uniformed services where the Normal Pension Age should be set to reflect the unique characteristics of the work involved. The Government should therefore consider setting a new Normal Pension Age of 60 across the uniformed services”.
MoD firefighters are uniformed, as are the MoD police.
Fourthly, as it stands, the MoD firefighters who have joined since 2007 come under the new rules established then and have a normal pension age of 65, while the rest have a normal pension age of 60. It is true that we on this side of the House, when in Government, introduced the change in 2007, but that was well before the report of the noble Lord, Lord Hutton. In the light of his recommendations, which we accept, all firefighters, including MoD firefighters, should have a pension age of 60.
Finally, in his interim report, the noble Lord, Lord Hutton, said:
“The current public service pensions structure was not designed for modern working patterns and has been unable to respond flexibly to changes in this area and to demographic change over the past few decades. This has led to … unequal treatment of members within the same profession”.
That is what the noble Lord, Lord Hutton, sought to correct. The position of the MoD firefighters is a prime example of the growth of unequal treatment which we now have the opportunity to correct.
It is unfair for firefighters who serve our Armed Forces to have to work for up to seven years longer than other firefighters, remembering that they can—and do—serve in war zones. I hope that the Minister will listen to these concerns, recognise that the physical demands on these firefighters are equivalent to or indeed greater than those on other firefighters, and accept this amendment.
Turning to Amendment 15, I will not repeat all the issues that apply to the MoD police. However, I remind the House that MoD police officers are required to carry weapons and wear body armour in many of the areas in which they serve. The physical demands on them are significantly greater than the demands made on most of our police officers. It is true that some of our normal police officers also carry weapons and wear body armour, although it should be noted that the MoD police often carry heavy machine guns. It seems to me that there has simply been an oversight. Will the Government not own up, say that there has been a slip or oversight here, and accept that MoD firefighters and police, as a uniformed service, should have a pension age equivalent to that of other uniformed services? I beg to move.
Lord Newby
My Lords, these amendments seek to add members of the Ministry of Defence Fire and Rescue Service and the Ministry of Defence Police to the categories of “fire and rescue workers” and “members of a police force” set out in the Bill.
I would like to begin by setting out the current situation before responding to the proposals for change. First, as the noble Lord, Lord Eatwell, pointed out, members of these forces are civil servants who currently, and historically, have access to the Civil Service pension scheme. This scheme currently has a pension age of 65. The principle of working beyond 60 for the MoD fire and police services is already established and has existed for a number of years, while the retirement age for the police and fire services has been well below 60.
Secondly, we should remember that the Civil Service scheme is an extremely good pension scheme with benefits which are far beyond the aspirations of many in the private sector. The scheme has provisions in place to ensure that any individuals who face ill health can be provided with their pension early. Alongside this there is, of course, the option for individuals to retire before their retirement age on an actuarially reduced pension. The value of the Civil Service pension scheme is shown in the fact that DFRS and MDP staffing levels remain good and that individuals in this force have already taken employment on the basis of the package of terms and conditions currently in force. The Government do not believe that there are significant recruitment and retention issues associated with the continued use of the Civil Service pension scheme.
Thirdly, it is worth remembering that the employment status of those working in the Defence Fire and Rescue Service and the MoD Police is very different from those working for fire or police authorities. Members of the DFRS and the MDP are direct employees of the Secretary of State for Defence and their remuneration package is managed in a different way. The kind of changes that are suggested by the amendments would make most sense only as part of a fundamental restructuring of not only the terms and conditions of these forces but their roles and responsibilities and they way in which they are managed. They are currently part of a single scheme that is administered at a national level. There would be significant logistical and administrative difficulties in moving them to be part of a locally administered scheme. The Government do not believe that such a restructuring is a way forward.
Having said that, I should point out that, within the new Civil Service scheme, the flexibility will exist for the impact of the later retirement age to be mitigated for certain groups, should this be felt to be justified. This could, for example, be through fully funded early retirement or more generous early retirement factors.
As the noble Lord, Lord Eatwell, pointed out, these issues were not discussed substantively in another place and the amendments have gone down only in very recent days. However, I can give an assurance that the Government will give these matters extremely careful consideration between now and Report. We are very happy to meet members of the Ministry of Defence Police and the Defence Fire and Rescue Service if they would like to do that. I will be in a position to give a more considered response to movers of the amendments and to the House as a whole on or before Report. I therefore urge noble Lords to withdraw their amendment today.
Lord Eatwell
My Lords, I am grateful to the noble Baroness, Lady Harris, for her remarks. I rather pre-empted her discussion of Amendment 15 and I apologise for that. It was, after all, her sensible, balanced and valuable amendment to which we added our names rather than the other way around. I must, of course, accept the Minister’s offer of further consideration. In looking at further consideration, I urge him to put aside the canard of logistical and administrative difficulties. The phrase “logistical and administrative difficulties” is a wonderful excuse for doing nothing on all occasions. As an academic, I recognise that very clearly. It is the doctrine of unripe time: the time is not ripe and therefore we must not do anything. Logistical and administrative difficulties fall into the same pattern.
Nor is the recruitment argument a terribly good one. In this country, where we have 2.8 million people unemployed, it is not hard to recruit people in many professions. The idea that a lack of recruitment difficulties is somehow a justification for maintaining something that is manifestly unfair is not very good. I am delighted that the Government will take this away and consider it. I look forward very much—as, I am sure, does the noble Baroness, Lady Harris—to the Government taking a fair and balanced approach to this issue, which will result in amendments to the Bill that are akin, if not identical, to those we have put down. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
Lord Eatwell
My Lords, we now turn to Clause 3, which I believe to be the most unfortunate part of the Bill as drafted. Everything else, broadly, can be dealt with reasonably straightforwardly but this, I am afraid, goes a bit further. The clause undermines everything that was achieved by my noble friend Lord Hutton in building understanding and trust. It would give any Government of the day unprecedented powers over individuals’ property rights—powers which no ministerial assurances or blandishments can dilute.
The damage is all done in subsection (3) of Clause 3. In Clause 3(3)(b), scheme regulations may,
“make provision by amending any legislation (whenever passed or made)”.
It is no wonder that the Delegated Powers Committee of your Lordships’ House objected so strongly. It made the perfectly balanced and reasonable suggestion that Clause 3(3)(b) be limited,
“so far as it confers power to amend primary legislation, to amendments of Acts passed before the end of this session … and to making only consequential provision or provision that is necessary to ensure consistency”.
Our Amendment 26 is designed to do just this by eliminating the offending Clause 3(3)(b) and allowing Clause 3(2)(b) to take the strain of,
“consequential, supplementary, incidental or transitional provision”.
If the Minister has an alternative way of implementing the proposals of the Delegated Powers Committee, we on this side will be happy to support it. However, as the matter stands, the Henry VIII powers in Clause 3(3)(b) really cannot stand.
Of even greater moment is Clause 3(3)(c), which states that scheme regulations may “make retrospective provision”. Just like that: unqualified, unlimited, they may make any retrospective provision, including the withdrawal of previously accrued rights. A central tenet of pension provision is that benefits that have already accrued are deferred earnings and cannot be reduced. To do so would be akin to taking back a proportion of an employee’s wages that has already been paid.
Indeed, it may well be that Clause 3(3)(c) is actually contrary to the European Convention on Human Rights. The Government acknowledge this in the Explanatory Notes, where they say:
“Clause 3: Scheme regulations. This allows for scheme regulations to contain provisions with retrospective effect. Such retrospective changes … may constitute an interference with property within the meaning of Article 1 Protocol 1”.
The noble Lord, Lord Newby, signed the Bill as being not in contravention of the European Convention. It is striking that the Explanatory Notes devote several pages to discussion of this particular issue. Pages 44, 45 and 46 of the Explanatory Notes give detailed legal arguments and case citations on the issue of property rights as protected by the European Convention. Ministers have asserted consistently, both in another place and at Second Reading, that they have no intention of removing accrued rights and that this notion of retrospective legislation will never be used to reduce accrued rights. If that is so, why is there all this stuff in the Explanatory Notes about accrued rights? Why do we have all this material here if it is not relevant because Ministers have no intention? If they have no intention, why is that provision in the Bill?
Lord Lester of Herne Hill
I was not expecting to be on my feet at all, but the answer to the noble Lord, Lord Eatwell, is that the Joint Committee on Human Rights, to which I belong, has for many years persuaded successive Governments to be as full as possible in explaining compatibility statements to enable us to scrutinise whether or not those statements are, in our view, accurate. That is why we welcome the fact that any Explanatory Notes are as full as possible in explaining the Government’s view as to whether or not a Bill is compatible with convention rights. I hope that that is a helpful explanation.
Lord Eatwell
I am grateful to the noble Lord because he has reinforced my point in a very satisfactory way. My point is that the issue referred to here is the compatibility of the threat to accrued rights. That is what the full statement is about, and that is why I am so interested that the Explanatory Notes deal fully with the question of accrued rights. The noble Lord is quite right to say that the Explanatory Notes are full and comprehensive, but why are they there if accrued rights are not in any way under threat?
I return to the discussion of this issue. As the Bill proceeded in the Commons, the Chief Secretary to the Treasury asserted very clearly that the Government would not reduce accrued benefits, having previously said, in a speech on 20 June:
“I also want to make it absolutely clear that we are fully committed to protecting the pension that has been earned to date”.
That is great, but it is inconsistent with Clause 3(3)(c). When he was asked about the retrospective provisions in Clause 3 by Mark Durkan MP, the Chief Secretary replied:
“The hon. Gentleman will know that the provisions in the clause to which he refers mirror directly those in the Superannuation Act 1972, which this Bill in many cases replaces. It was passed in the year I was born”—
he is younger than me—
“and it has been used by a number of Governments to make adjustments to public service pensions … The provisions to which the hon. Gentleman refers are in fact more limited than those in the 1972 Act”.—[Official Report, Commons, 29/10/12; col. 60.]
However, I am afraid that Mr Alexander misspoke. Section 2(3) of the Superannuation Act provides that accrued benefits can be reduced but only with the consent of affected members. However, the Bill as it stands allows for the reduction of accrued benefits without member consent. As such, it does not mirror the Superannuation Act, as the Chief Secretary said.
Amendment 28 gives effect to the Government’s intention for the Bill to mirror the Superannuation Act 1972 by providing exactly the same protection for members that Section 2(3) of the Act provides. As such, it is difficult to see how the Government could object to this amendment.
I move from the discussion in another place to the debate here at Second Reading. The noble Lord, Lord Newby, said:
“There is a lot of suspicion about this that is misconceived. Pensions legislation has historically contained such powers”—
actually, it has not—
“which have been seen to be necessary for the lawful and efficient operation of the scheme. They are generally used for minor and technical changes, for rectifying errors and making changes for the benefit of members. The intent of the Bill is simply to allow for these minor changes. There is no sinister intent”.—[Official Report, 19/12/12; col. 1584.]
If there is no sinister intent, why is Clause 3(3)(c) maintained in this wide form? Why is there no qualification? If this is indeed the way that pensions legislation has historically contained such powers—and I presume that the noble Lord, Lord Newby, was referring to the 1972 Act—why are there not the same protections for members as those contained in that Act?
It is also worth noting that the noble Lord, Lord Hutton, said:
“In relation to retrospectivity, the Government have a serious problem. We have to be mindful if there are to be DB schemes in the public sector. We know that there are fewer in the private sector, but those 2.6 million people in the private sector who still have access to a defined benefit scheme know for certain, because of the current law that their accrued rights cannot be changed”.
Accrued rights in the private sector cannot be changed unless members give their consent to a change, perhaps to deal with minor technicalities or deficiencies, which would ultimately improve the quality of their scheme. The noble Lord continued:
“The same rules should apply in the public sector. I do not believe that we can have a different set of rules in relation to accrued rights for people in public sector schemes”.—[Official Report, 19/12/12; col. 1582.]
Therefore, the scope of Clause 3(3)(c) is unreasonable, unethical and directly undermines the trust that is essential to the effective implementation of the Bill. Amendment 28 achieves what the Government claim they wish to achieve. If the Minister has another suggestion for better achieving the same goal, we will be happy to support it. However, I ask him: why is Clause 3(3)(c) written in these unqualified, global terms? Why do we have a clause in the Bill that states:
“Scheme regulations may … make retrospective provision”?
That is unqualified. Why is that provision there? Why is it not qualified in the way that it has been in previous legislation? I beg to move.
Lord Whitty
My Lords, I have several amendments in the group that all relate to the same issue of retrospection and the way in which there should be consultation and negotiation on any such change.
Like my noble friend Lord Eatwell, I was not here at Second Reading, for which I apologise, but I thought I should make absolutely clear my overall view of the Bill and my approach to it in my amendments. It can be summarised simply: I do not like the Bill. I do not like the campaign that the Government and their media allies have conducted against the public sector workers who serve them, and against their pension entitlements. In many ways it has been a despicable campaign. In more technical terms, I do not like the way in which the Government have interpreted my noble friend Lord Hutton’s recommendations in terms of attempting to achieve a commonality of approach across all public sector schemes—an ambition in which, as it happens, they have singularly failed because we have ended up with a complete hotchpotch of schemes. The history of all these schemes is different. They relate to different sectors, different industries, different patterns of negotiation and different kinds of jobs. It was therefore difficult to get to commonality. Nevertheless, the Government have attempted to reach that commonality and have made a hash of it.
I have sympathy with all public servants who are detrimentally affected, prospectively and currently, by aspects of the Bill. I have sympathy with firefighters, teachers, civil servants, health service workers and so on. I even have some slight sympathy with the judiciary. However, I am going to focus all my subsequent remarks on the local government scheme. One of the differences between the schemes that exist currently in the public sector is that the local government scheme, unlike the vast majority of other schemes, is a fully funded scheme and always has been. It is therefore on a different basis and the Treasury should approach it differently from the way in which it is attempting to approach the other schemes. Ideally, I would like to exclude the local government scheme entirely from the Bill. I recognise we are not at that point, but it would be the more logical outcome.
Lord Newby
I am very relieved to have that qualification. However, I briefly repeat what I said at Second Reading. The schemes that are now going forward, covered by the legislative framework of this Bill, are, in our view, extremely sensible and generous provisions that reflect the importance that the Government attribute to the work undertaken by all the public servants covered by the schemes.
Having got that out of the way, we quite like the amendment of the noble Lord, Lord Whitty. It has the advantage of simplicity and would allow schemes to make minor and technical changes in the interests of efficiency but restrict changes that were materially detrimental to members. The wording that he has used in the amendment and the sentiments contained in it will certainly form part of our consideration of what we ourselves table on Report.
Amendment 28 deals with member consent locks. I should be clear, as my colleague the Economic Secretary was in the other place, that the Government have significant concerns about the consent locks contained in the amendment. We do not believe that this is the right way forward. I have previously mentioned that there are a number of options in terms of how to facilitate retrospective powers, and in our view consent locks are very much at the extreme end of this spectrum. We do not think that it is appropriate to give members, employers or anyone else the power unreasonably to hold each other or the Government to ransom and to inhibit changes for the greater good. There have been some damaging examples of this in the past. Therefore, the application of universal consent locks is not an avenue that we intend to investigate as we develop our amendment on this subject for Report.
Lord Eatwell
My Lords, perhaps it will assist the Minister if I point out that this is not a universal consent lock; it refers purely to accrued rights and indeed, as I said, it reflects the Superannuation Act 1972.
I am the chairman of a private sector pension fund; I did not declare an interest because, as this is about public sector pensions, there is no particular interest for me to declare. With regard to the extreme end of the spectrum, we have used consent locks in the private sector while negotiating various reforms of rights and have always found that negotiations with members are fruitful and produce generally positive results. I therefore do not think that so-called consent locks should be seen as extreme; they are simply the fruitful basis of consensual reform of a pension scheme.
Lord Newby
I hear what the noble Lord says and I hope that our amendments can satisfy him in this area; I suspect they will do so without having consent locks. However, it will be a good outcome if he is happy at the end.
On Amendment 30, discussed by the noble Lord, Lord Witty, as part of the debate about retrospective powers, our view is that it simply does not do that. Clause 3(5) deals with the generality of Treasury powers and this amendment would loosen up the area that the Treasury would have to consider. The Treasury would not then look at changes to schemes that were revenue-neutral. Our view is that in order to meet the requirement by the noble Lord, Lord Hutton, that we need a greater degree of consistency across the schemes, it would be sensible for the Treasury to look at changes, whether or not they have a financial implication, to try to ensure that we maintain consistency to the maximum possible extent.
Moving to Amendments 116 and 119, which deal with consultation, this takes us back to a debate in the other place about the appropriate statutory consultation requirements for changes in scheme regulations for the new schemes. In the other place the Government set out the reasons why it is not appropriate that primary legislation should require that all consultation on such changes be carried out with a view to agreement. As made clear in the Government’s consultation principles, consultation can have a number of purposes, including garnering views and preferences, understanding possible unintended consequences of a policy or getting views on implementation. The Bill already goes further than those consultation principles, not to mention the arrangements in place for a number of the existing public service pension schemes, in requiring that all changes to scheme regulations would undergo statutory consultation. However, such consultation must be proportionate; it would not be right for us to establish today that all consultation must seek to reach agreement, as that will not always be possible, or indeed the aim of the exercise.
Amendment 119 goes even further, requiring that all changes to scheme regulations should undergo not only consultation with a view to reaching agreement but also a parliamentary reporting process. In the case of changes to the protected elements set out in new subsection (6), scheme regulations could be changed only by agreement. We believe that this is an impractical measure. Changes are required to scheme regulations for the most minor of reasons. Surely it cannot be right or sensible that such an exhaustive consultation procedure be put in place for every such minor instance. Instead, the Government have established a balance in their consultation requirements. Clause 19 puts in place a statutory requirement for consultation. Clause 20 goes further than this and puts in place more onerous requirements for those situations where a future Government may seek to amend the core elements of the new schemes. This already goes further than some feel is appropriate in binding the hands of future Administrations. However, the Government are determined that this protection should remain in order to give confidence to members of those schemes that the Government are committed to the scheme designs that have been negotiated.
Amendment 119 also makes changes to the protected elements set out in Clause 20. These are the core elements of the schemes protected by the extra consultation requirements in the clause. The Government have included the career-average nature of the schemes, member contribution rates and benefit accrual rates in these protected elements, and are convinced that including these elements strikes the right balance between giving reassurance to members and ensuring that schemes are flexible enough to operate in the real world. Finally, Amendment 119 also seeks to require agreement through consultation to any change to the protected elements before such a change could be made.
The Government are committed to the reforms to pensions set out in the Bill and in the separate documents that describe the details of the new schemes that have been negotiated with member representatives. We have put a great amount of time and resource into developing these schemes and have come to what we believe are the right outcomes in the designs that have been established. However, it would be irresponsible and frankly unrealistic for this Government to seek to bind the hands of all future Governments within the next 25 years, as this part of the amendment would seek to do. Instead we have sought to put in place a more onerous process that would cause any future Governments seeking to fundamentally change these pensions to properly consider the impact of their actions and to justify the need for such changes to those affected and to Parliament.
Amendment 120 is intended to be consequential on some of these other changes and would amend the provision in Clause 21 to specify that scheme regulations will be subject to the negative procedure unless otherwise specified. However, the amendments in question do not propose any change to the procedure around scheme regulations, and therefore we believe that the amendment is unnecessary. I hope that in view of the assurance I have been able to give about amendments coming forward on Report, noble Lords will feel able to withdraw their amendments.
Lord Eatwell
My Lords, I am grateful for the support from around the House for the propositions that I advanced with respect to Amendment 26. I am grateful to my noble friend Lord Whitty, who had his own very sensible amendments, to the noble Baroness, Lady Hollins, to my noble friend Baroness Donaghy and to the noble Lord, Lord Newby. Those sympathetic noises and/or general support are most encouraging. I was also delighted to hear sympathy from the noble Lord, Lord Newby, for Amendment 27 and especially Amendment 28. As currently drafted, Clause 33(a) and (c) disfigure this Bill and we look forward with great interest to hearing the Government’s proposals. It would be enormously helpful if there could be a degree of consultation with those Members who have spoken from these Benches as well as, if she wishes, the noble Baroness, Lady Hollins, prior to those amendments finally being tabled. I hope that the Minister will be able to give the commitment that, whether or not there is consultation, the amendments revising these important clauses will be put down at least one week before Report to allow Members to consider what may be quite complex amendments with some care and be able therefore to respond effectively and appropriately on Report.
I am delighted these remarks have received a sympathetic response, and on that basis I beg leave to withdraw the amendment.
Economy: Effect of US “Fiscal Cliff” Solution
Lord Eatwell Excerpts(11 years, 9 months ago)
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Lord Newby
My Lords, I completely agree with the noble Baroness. That is why the Prime Minister has set promoting a US/EU trade agreement as one of his top priorities for the G8, as well as moving forward on other trade agreements, such as that with Canada, which are already a long way down the pipeline.
Lord Eatwell
My Lords, will the noble Lord consider answering the Question asked by my noble friend Lord Barnett? He asked what the assessment was of the impact of the fiscal cliff solution on the UK economy. As the noble Lord said, this had led to a 1.7% increase in the fiscal burden on GDP, and the debt ceiling debates in seven weeks’ time referred to by the noble Baroness, Lady Kramer, may add further burdens to the US economy. Is this good or bad for Britain?
Lord Newby
Whether it is good or bad for Britain, it is what is happening in the US. What I said in my original Answer was that the estimates, which were published by the ONS at the time of the Autumn Statement, were based on an assessment of what was likely to happen, which is exactly what has happened. The Bill passed last week is having an impact of 1.7% on US GDP. The ONS assumed that the Bill passed last week would have an impact of about 1.7% on US GDP. We factored that into our calculations and the growth forecast produced for this year will be unchanged because what has actually happened is what we thought was going to happen.
Banks: Money-laundering
Lord Eatwell Excerpts(11 years, 10 months ago)
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Lord Sassoon
My Lords, on the first of my noble friend’s points, I certainly agree that the banks need to get much more intelligent about this matter. I have met in the Treasury senior bankers on the retail or wealth management side of these banks to make precisely my noble friend’s point: namely, that they need to be intelligent about this matter. This must not be a box-ticking exercise. I have made the same point to the chairman of the FSA. My noble friend raises a very important point.
Lord Eatwell
My Lords, I believe that this is the last time the noble Lord will appear at the Dispatch Box in his current position. I am sure that the whole House wishes him well in his future endeavours.
Turning to the Question, the FSA rulebook states that the chief executive function is the function of,
“having the responsibility … for the conduct of the whole of the business”.
Indeed, the notion of chief executive responsibility is at the heart of the FSA’s regulatory philosophy. While I understand the concept of the independence of the FSA, given that it has been established that HSBC has committed very serious money-laundering offences, would the noble Lord expect the FSA to implement its own rulebook and would he therefore expect it to take enforcement action against the relevant chief executive of HSBC?
Lord Sassoon
My Lords, I am grateful to the noble Lord, Lord Eatwell, for his kind words, but I regret to say that the House may have me at the Dispatch Box again for the Topical Question tomorrow, unless I can persuade a colleague to take it from me. As for HSBC, the FSA will do what it should as the independent regulator in this area. However, it is important that the FSA has agreed a series of additional measures with the HSBC board, including establishing a committee of the main board of the bank with a mandate to oversee matters relating to anti-money-laundering, reviewing relevant group policies, appointing a group level money-laundering reporting officer and having an independent monitor in place to look at the bank’s compliance across the group with UK anti-money-laundering regimes. The FSA has agreed a tough series of measures with HSBC right across the group.
Autumn Statement
Lord Eatwell Excerpts(11 years, 11 months ago)
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Lord Eatwell
My Lords, I thank the noble Lord, Lord Sassoon, for formally introducing the Statement. In a way, it is a pity that our new convention does not involve repetition of the Statement for there is no doubt that the Chancellor is to be congratulated on the positive morsels that he managed to identify in a very frugal, even miserly, meal.
Three central facts are revealed in this Autumn Statement and the accompanying OBR report. First, the OBR assesses growth this year to be at minus 0.1%. It had expected plus 0.8%, so it is a reduction of about one percentage point. For next year, 2013, it has downgraded its growth forecast from 2% to 1.2%. I fear that next March the ever overly optimistic OBR will be downgrading its forecast once again. Therefore, the growth outlook is rather bleak.
I wish to refer for a moment to paragraph 1.14 of the Autumn Statement, dealing with the sectoral composition of growth in the UK economy. It argues that, if we leave out the financial sector and the North Sea oil and gas sector, the rest of the economy has done comparatively rather well. That is rather like saying that, if we leave out the bowlers, the batting average of the team tends to go up. This is a disreputable piece of analysis and I hope that we will never see its like again.
The second fact revealed in the Autumn Statement is that, compared with the forecast made just last March, the deficit is up in every year of the forecast. Noble Lords may be rather surprised by that assertion because, if they listened to the Chancellor’s Statement, they will know that he seemed to claim the opposite. How can I claim that the deficit is up? I can quote the OBR, which says that,
“policy decisions by the Government and reclassifications have reduced [public sector net borrowing] this year by £16 billion, more than offsetting forecast changes which overall have pushed borrowing up £4 billion”.
I repeat: policy decisions and reclassifications—in other words, fiddling the figures.
What does this fiddle consist of? The main component in padding the numbers is the asset purchase facility transfer of £11.5 billion from the Bank of England to the Treasury. In principle, this seems okay—after all, we are told that the Japanese and the Americans do it too—but what is striking is that no allowance has been made for the requirement expressed in the letter from the governor agreeing to this transfer that, if and when interest differentials change, the Treasury must pay the money back. Will the noble Lord tell us what contingency has been made by the Treasury for transfers back to the Bank in the next five years and what impact this contingency might have on the deficit?
The third fact that is clear in this Autumn Statement is that the end of austerity has been postponed for another year. The noble Lord, Lord Sassoon, has referred us before to his belief that the deficit programme is a five-year rolling programme. So every year the end of austerity is always five years ahead. Like middle age, it retreats before you. Now it has been extended from 2017 to 2018. Under this rolling programme which always extends, austerity will always be with us and it is clear why. We are travelling in the wrong direction, away from growth and away from debt reduction. Surely now is the time to ask why. Why are the British people being subjected to this unending economic misery that is not only cutting living standards now, but as the OBR points out, will cut living standards in the future as productive potential is undermined by low investment and the corrosive impact of unemployment?
In the realms of economic policy there are two entirely different approaches to cutting public indebtedness. The Government’s approach is based on the belief that eliminating the deficit is necessary to produce growth: austerity is the necessary precursor to recovery. Noble Lords will remember that there was even a new expression coined for this approach, “expansionary fiscal consolidation”—a term that seems to have been dropped from government usage in the past year or so. The idea was that cutting the deficit, aligned with a supportive monetary policy—that is, low interest rates—would restore business and consumer confidence, stimulate spending and set the economy on the road to recovery. For the past two and a half years, the UK economy has been the guinea pig on which this theory has been tested. The result: interest rates in a no-growth economy are predictably roughly zero in real terms, but ever looser monetary policy is producing ever less discernible results. Indeed, there is now no discernible result.
Has business confidence returned? The OBR says:
“Lack of confidence regarding the outlook for global and domestic demand is leading firms to postpone investment decisions”.
Has household confidence returned? The OBR states:
“Our forecast for real household disposable income growth is weaker than in March”
It adds that this,
“is expected to constrain household spending”.
So if households are not spending and businesses have no confidence and are not spending, where is the recovery to come from? Net trade has a negative impact on the economy as markets overseas stagnate and the Government are cutting net spending, so making things yet worse. The experiment has failed and the British people are paying the price of the failure. The plans to spend something on infrastructure are welcome after the savage cuts of the past two years, but notice that government investment was down 20% last year and another 9% cut is forecast for this year. The infrastructure plans are a drop in the ocean. Even their impact on demand is offset by the fact that they are to be funded by cuts elsewhere.
On top of all this, the Funding for Lending scheme is not working and the Work Programme is not working. No wonder that in summing up the whole impact on growth of the policy measures in this Autumn Statement, the OBR says they have,
“a limited impact on our economic forecast”.
All the Chancellor’s rhetoric about growth signifies nothing. The Chancellor indicated in the Statement that he intends to make significant cuts in benefits for those out of work, on top of cuts to welfare expenditure announced earlier this year in the Budget. Unfortunately the data supplied in the Autumn Statement do not include the analysis of the distributional impact of policy measures as do Budget documents. Could the noble Lord tell us what is the net impact of the measures announced today on the lowest decile of income recipients?
The most extraordinary aspect of this Autumn Statement is that the Chancellor has implicitly recognised that his policy has failed but is continuing with it none the less. If the policy was working, if expansionary fiscal consolidation had a shred of credibility left, instead of extending austerity to 2018 he would be doing more of it now—let us get on with it, get it done and put us on the road to recovery—but he has lost the courage of his convictions and not found the courage to admit the failure of his policy. There is another way, another approach to cutting the deficit, and that is by stimulating growth that cuts the deficit, not cutting the deficit and hoping that growth appears.
However, growth depends on confidence in growing demand. It requires a substantial infrastructure programme; investment in education and research; substantial reform of the banking industry to deal with the difficulties identified the other day by the governor; and a British investment bank to lead the way in funding the investment that demand would stimulate.
The dreadful growth figures and the slowness of the recovery comprise the worst economic performance of our economy in attempting to come out of recession for more than 100 years. We cannot go on like this. The Government must recognise that their core policy has failed and have the courage to face that fact.
Financial Services Bill
Lord Eatwell Excerpts(11 years, 11 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, in most cases the legislation places duties, powers and obligations on the Bank as an institution. The Court of Directors is responsible for managing the Bank’s affairs. In practice, the Court of Directors, in a similar way to other governing bodies, delegates the vast majority of the Bank’s day-to-day decisions to the executive, with the court itself taking only the most important strategic decisions. There are, however, some instances in the legislation where the duties, powers and obligations are placed directly on the court. For example, the court is responsible for determining the Bank’s strategy, including its financial stability strategy, and it also has the power to delegate additional functions to the FPC.
On Report, the noble Lord, Lord Eatwell, and I discussed whether the court would take the decision whether or not to withhold from publication a report of the oversight committee. I stated clearly that I would expect a decision of this importance to be taken by the court rather than to be delegated to the executive. However, in the light of that debate, I asked my officials to look right through the Bill again to see whether there were other key decisions for which responsibility should lie unequivocally with the court. This group of amendments is the result.
Amendments 4, 5, 6 and 7 confirm that the court will decide whether oversight committee reviews should be withheld from publication in order to protect the public interest.
Amendments 1, 12 and 26 to 31 make the same change to confer a number of other responsibilities directly on the court. These are the power to delegate additional functions to the oversight committee, responsibility for being consulted on the PRA’s strategy, and the power to appoint non-executive members to the PRA board.
Amendment 25 puts beyond all doubt that the court may not delegate any functions that are explicitly given to it in legislation. I should make it clear that this does not mean that all functions that the legislation confers on the Bank will automatically be undertaken by the executive. The court will of course retain discretion either to delegate these roles to the executive or to reserve those decisions for itself. However, I believe that these amendments provide important clarity by identifying those roles within the legislation that will be the responsibility of the court in all cases. I beg to move.
Lord Eatwell
My Lords, I am very grateful to the noble Lord for having clarified some obscurities in the Bill that arose from the use of the generic term “the Bank” to refer sometimes to the court and sometimes to the executive. However, the noble Lord has just said something which has disturbed me. He said that, for clarification, when the term “Bank” is used, this does not necessarily mean the executive; it may mean the court. It seemed to me that he was acknowledging that an uncertainty remained. Perhaps I misheard. I should be very happy if I did, because the sort of clarification that he has set out is very welcome.
Lord Flight
My Lords, there is one area in this territory on which I would appreciate some clarity. The principle of returning the oversight of banks to the central Bank, which I think has been widely supported, has, to my mind, always been about the concept that the central Bank ought to be in regular contact with banks, that it ought to know what is going on and that it ought to be able to head off practices that are clearly potentially damaging to the banking system. However, I am not clear how the staff of the Bank and the staff of the PRA will interact. One would have thought that quite often it would be the staff of the Bank who were having regular dialogue with banks and learning what was going on and what might be going wrong, but it is the PRA—to some extent a sort of cuckoo plopped into the middle of the Bank of England—that essentially has the legal tasks. Therefore, we have clarification of the definitions of “Bank” and “court” but below what I call the executive level I am still not entirely clear where the staff of the Bank or the staff of the PRA will be carrying out supervisory activities.
Lord Eatwell
Just for clarity, the noble Lord said that it is the responsibility of the directors—that is, the court—to decide who takes the various decisions. I presume what he has said does not apply to the Monetary Policy Committee?
Lord Sassoon
Indeed. I should say that it is subject to what is laid down in statute about the Monetary Policy Committee and the Financial Policy Committee and so on. If they are decisions of the Monetary Policy Committee, then they are the decisions of the Monetary Policy Committee. If they are the decisions of the Bank, the court will decide how they are taken. As for the question from my noble friend Lord Flight, of course it will be the PRA staff who will supervise and lead on the direct relationships with the banks or insurance companies, for example, that are being supervised. Technically, the PRA staff will be seconded from the Bank. There will be a close working relationship, which is part of the benefit of bringing it all together under the one umbrella.
Lord Newby
My Lords, Amendment 11 responds directly to a request made by the noble Lord, Lord Eatwell, on Report. On hearing my noble friend Lord Sassoon’s explanation of the underlying purpose of the FPC’s reviews of its live actions—namely, to consider whether they are still necessary and whether they should be removed or revoked—the noble Lord, Lord Eatwell, responded,
“if that is what the new section meant, why did it not say so?”.—[Official Report, 6/11/12; col. 978.]
I believe that the purpose of the reviews could have been derived implicitly from the clause as it was originally drafted. However, I accept that this could be made more explicit in the clause, and Amendment 11 seeks to do exactly that. This is a straightforward amendment, which responds directly to concerns raised in this House about the clarity of the drafting. I hope that noble Lords can support it. I beg to move.
Lord Eatwell
My Lords, I am grateful to the Government for having taken on board the fact that there was some infelicity in the drafting at this point. I am delighted to support the amendment.
Lord Fraser of Carmyllie
My Lords, I declare an interest as a director of ICE Clear Europe, and I warmly welcome this extremely valuable amendment. It seems to go wider; noble Lords may think that it is a narrow amendment, but they have no idea what a sense of confidence it has given to the City at this time. I regard that as very important.
During the 1970s, we generally regarded the Foreign and Commonwealth Office as having the function of managing orderly retreat. Now we have absolute confidence that within the Treasury there is a very clear understanding that it will look after the best interests of the City of London and the pre-eminence of the City. It is a difficult task and I do not underestimate how important that is. The amendment is to be warmly welcomed. Noble Lords may think that it is minor, but it does a great deal more than simply to change the position of the clearing house and the direction.
I have one simple question, and I will not be worried in the least if the Minister slaps me down. Amendment 20 says,
“to accept a transfer of property, rights or liabilities of another clearing house”.
Does that refer only to a clearing house that still operates as a going concern? Frankly, I would regard that as unlikely. It is much more likely that the Bank of England would want to intervene at a point when it was in administration or in the process of liquidation. If I am told that that line encompasses all those particular circumstances, I will be more than happy to be told to shut up.
Lord Eatwell
My Lords, perhaps I may simply elaborate a little on the question posed by the noble Baroness, Lady Kramer. Given that there is not to be a transfer of obligations between platforms, and given that the collapse of a platform could impose significant systemic risk on the economy with a large number of unclear positions, are we to understand that the lender of last resort will be required to stand behind a collapsed platform?
Lord Myners
Perhaps I may also ask a question following that of the noble Baroness, Lady Kramer. The concept of interoperability is very important in the clearing of derivatives, so that corporates in particular can offset a position with one platform where they have a credit with another platform where they have a deficit. Will the Minister clarify that that involves a degree of mutualisation in the event of a failure of a platform because the failure of that platform will transfer to other platforms?
Lord Sassoon
My Lords, Amendments 33 and 34 concern the new power provided for by this Bill for the regulators to disclose the fact that a disciplinary warning notice has been issued. We have of course already discussed this new power and the safeguards to which it should be subject in quite some detail. I am speaking to these two amendments again only because, as a result of being erroneously assigned on the day’s Order Paper, they were not moved on Report on 26 November. I am grateful to the noble Baroness, Lady Hayter of Kentish Town, for being the first to spot this. So to be absolutely clear, these are simply Amendments 97ZA and 97ZB—as they were—retabled from the Report stage.
To remind your Lordships briefly, Amendment 33 brings the decision to disclose the fact that a disciplinary warning notice has been issued into the list of matters subject to the procedures set out in Section 395 of FiSMA. Amendment 34 sets out the criteria with which the process for deciding to disclose a warning notice must comply, noting that the decision must be taken either by a person other than the person by whom the decision was first proposed, or by two or more persons not including the person by whom the decision was first proposed.
The amendments secure the involvement of the Regulatory Decisions Committee, or an equivalent body for decisions, to disclose the fact that warning notices have been issued. It is a proposal that the House supported and endorsed when we debated it last week.
This group of amendments may be the penultimate time that I will speak on the Bill during its passage through this House. With this in mind, perhaps noble Lords will permit me to conclude this debate by reflecting a little on the past months since our lively Second Reading debate on 11 June. It was so long ago that the England football team was still in the European Championship and preparing to play France as we were kicking off our consideration of the Bill. Of one thing we can be certain: the performance of this House on this Bill was rather better, I regret to say, than the performance of the England football team.
I believe that the Bill that we are sending back to another place is greatly improved from the Bill that we debated at Second Reading in June. That is due to the very constructive contributions and engagement from noble Lords right across the House, not least from the Bishops’ Benches, and I pay tribute to all who have contributed to those debates. No other legislative house in the world could have brought to bear such expertise in financial services and their regulation as this House has on this Financial Services Bill.
As I need to keep my closing remarks brief, I can only apologise for not naming individually the many noble Lords who have made important contributions to our debates. However, I would like to thank the opposition Front Bench—too many of them to name—led so ably by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter of Kentish Town. They have shown real tenacity and skill in their contributions. We have not always agreed with the points that they have made, but I have always valued those points and would like to thank them for their constructive and thoughtful approach throughout.
I thank, too, my noble friends Lord Newby and Lord De Mauley for the support they have given me, not least in calming down the House when it seems to have got rather excited by some of my contributions. This has been a long Bill, and it would not have been possible to provide the level of response that the House has rightly demanded without the able assistance of my noble friends.
I should also mention and thank the Bill team, which has worked continuously to provide support to the House throughout the stages of this Bill. It has done an outstanding job, which has been widely and rightly acknowledged. The excellent work of the parliamentary counsel in drafting the Bill and the subsequent many amendments to it deserves special praise.
I believe that we have significantly improved this important Bill in key areas. We have enhanced the governance of the Bank of England; given economic growth a higher priority in the new regime, for the FPC, FCA and PRA; significantly improved the robustness of the UK financial system by bringing investment firms, recognised clearing houses and holding companies within the special resolution regime; responded to industry concerns, in particular over the new warning notice power; offered consumers better protection, particularly in relation to payday loans; and, in the LIBOR clauses, moved swiftly to tackle the shameful behaviour of some in the industry.
The Government have listened carefully to the views of noble Lords and the amended Bill reflects many of the concerns of this House. The Bill will be an important addition to the statute book, and one that has been greatly improved thanks to your Lordships’ expertise. I beg to move.
Lord Eatwell
My Lords, I rise not with respect to the amendment but to reflect on the latter comments of the noble Lord, Lord Sassoon. As he said, the Bill began its somewhat laborious journey with its First Reading back in May. The process has been extraordinarily laborious considering that it was a politically non-contentious Bill. We should perhaps learn some lessons from this. The main lesson is that, if there is pre-legislative scrutiny, a valuable process that we introduced, more notice should be taken of the conclusions of that scrutiny than is evident in the Bill before us. I refer particularly to the advice from the Treasury Select Committee that a new Bill be drafted rather than that we rely on the complex structure of amendments to prior legislation that we have had to wade through over the past several months.
Given the weighty nature of the work that we have had to deal with, it is appropriate to thank those who have been involved with the Bill. I add my thanks to those of the noble Lord, Lord Sassoon, to my noble friends Lady Hayter, Lord Davies, Lord Stevenson and Lord Tunnicliffe. I also thank Mr Whiting and the Bill team, who have been helpful and courteous throughout, and the noble Lord, Lord Sassoon, for dealing with often complex matters and, occasionally, defending the indefensible with his usual good humour. Finally, in thanking individuals, I must thank Miss Jessica Levy, our talented and all-knowing researcher.
Effective regulation at the macro and micro level of systemic risks and the risks associated with individual firms is in the interests of households and industry and is essential for the success of the UK financial services industry. Therefore, we on this side wish this Bill well. I hope that the measures over which we have laboured will prove a success.
Lord Barnett
My Lords, I cannot let the Bill pass without saying a few words. I described the Bill as “shambolic” and was told by an old friend—a normally good friend who happens to be a former Conservative Cabinet Minister—that he was surprised that I was so political in using that unusual expression. I apologise to the noble Lord, Lord Sassoon, and the House. I could not think of a better word to describe what was in the Bill and what had happened.
My main concern with the Bill is the very principle of giving such huge powers to the Bank of England—and they remain. It is the principle that worries me. We have given huge powers to the Bank of England. We have added to the Bank of England Act, as I mentioned earlier today. We have given the Bank powers over the OFT, FCA, FSA and PRA, and over changes in FiSMA—so many different initials that one forgets precisely what we did do. We amended a lot because there was a lot to amend, because unfortunately these days, under both Governments, the House of Commons guillotines so much that very little gets done properly. Legislation comes to this House for amendment and we amend it well, I am happy to say, as we did on this occasion.
My worry is that we started off with an unusually large Bill: two volumes of clauses and schedules. It was so big and it has become even bigger because we put in provisions dealing with the LIBOR scandal. This should have been a Bill on its own. We on this side of the House rightly agreed with the changes resulting from the Government’s acceptance of the Wheatley report. These provisions dealt with it properly and the Opposition accepted them, but they did not just come forward in a Bill; they came forward scattered in amendments throughout the Bill. I hope that it deals with the LIBOR scandal but it is difficult to tell if it really did, because on top of all this we are now told that there will be secondary legislation as well. I regret to say that we do not understand what we have passed here, because we still do not know what is going to happen.
I hope that we have done the right thing and that everything is going to work out, but the plain fact is that, with the LIBOR scandal, there were some in the Bank of England, the FSA and many other bodies whose main concern was primarily with interest rates. They knew nothing whatever about what the noble Lord, Lord Sassoon—I nearly said “my noble friend Lord Sassoon”; I feel he is that—was talking about. He described this LIBOR scandal as a global one, affecting some $300 trillion. It affected all that, but nobody in the Bank of England or the FSA or anybody else knew the slightest thing that was going on in the LIBOR scandal. Therefore, I would like to finish by asking the noble Lord, Lord Sassoon, a question.
Financial Services Bill
Lord Eatwell Excerpts(11 years, 11 months ago)
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Lord Eatwell
“( ) The first case requires the Bank of England, FPC, FCA or PRA to provide the Treasury or the Secretary of State with an early warning of the possibility that a notification of a material risk to public funds may be given, and full information about the circumstance.”
Lord Eatwell
My Lords, this set of amendments is inspired by the words of the noble Lord, Lord Sassoon, in Committee. He said:
“It is clear that the success of the new regulatory structure, which, rightly, we are spending so much time debating, relies heavily on the relationship between the Treasury and the Bank of England, and I believe that the Bill provides the necessary clarity of responsibilities. However, it also depends on the personal relationships at play here, particularly between the most senior leaders of the two bodies—the Chancellor of the Exchequer and the Governor of the Bank of England. One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level during the previous decade”.—[Official Report, 10/7/12; cols.1051-2.]
The noble Lord’s words are an important warning to us all, in considering this part of the Bill, on the relationship between the Treasury and the Bank of England at times of crisis. That relationship will depend not only on the personalities involved, but on the statutory responsibilities which the Bill places on those personalities. This group of amendments is intended, in some parts, to extend the statutory responsibilities of the Bank and the Treasury; but, most especially, to clarify those responsibilities, so that the failures which we saw under the previous arrangements, which were due to the principals in the tripartite structure not actually meeting for a decade, will not recur.
Amendment 107AA requires the Bank to give early warnings to the Treasury of a threat to public funds. At the moment, the Bill refers to the possibility of a threat to public funds, which must be immediately notified. However, I think that this notion of possibility is far too vague. Suppose that the Bank thinks there may be a catastrophic event, with a probability of 5%. Is that a possibility? But then, what if the probability is 1%—is that a possibility? What if the probability is only 0.5%—is that a possibility? In our view, a full, continuous exchange of information between the Bank and the Treasury, and the addition of a requirement of an early warning, does just what is needed. It ensures that the Bank is required to convey the information when it first has any indication of a threat—let alone any notion of possibility, whatever “possibility” might mean. If we incorporate the idea that the Bank must give early warning to the Treasury as soon as it knows what is going on, or has some inclination of a threat, without fussing about whether it is “possible” or not, then information will flow in an appropriate way.
Lord Newby
My Lords, this group of amendments was debated at length in Committee. I am sure that, like the noble Lord, Lord Eatwell, many of us were indeed inspired by the way that my noble friend Lord Sassoon sought to reject them. Amendments 107AA and 107AB, and Amendments 107AD and 107AE, attempt to create an early warning system for public funds notifications. I understand that this reflects a concern on the Benches opposite that the drafting of the Bill—specifically, the legal effect of the term “material risk”—does not require the Bank to notify the Treasury in enough cases, even those in which there is a very low probability of public funds interventions being required.
After our debate in Committee, my noble friend Lord Sassoon asked Treasury officials and legal advisers to look again at the material risk wording to make absolutely clear that it delivers the low bar that we are looking for: a possibility test rather than a probability test. Our officials have concluded that the legal effect of the existing wording is indeed to require the Bank to notify the Treasury where there is a realistic possibility of circumstances arising in the future in which public funds could be put at risk. I do not think it would be appropriate to lower the bar even further from “material risk”. The result of doing so would be to require the Bank to notify relatively trivial and implausible risks, which could mean the Treasury receiving a large number of notifications of far-fetched risks that require no action or engagement from the Treasury whatever. I am satisfied that the material risk terminology will give us the right result.
Let me reassure the House that I agree entirely that the Treasury must be informed well in advance of a risk to public funds crystallising in order fully to consider and evaluate different options for managing or mitigating the risk and, ultimately, with a view to avoiding entirely any recourse to public funds. As my noble friend Lord Sassoon said in Committee, no one would be keener than us to have an early notification mechanism in place if we believed it necessary to achieve this aim. However, I am confident that the existing trigger in Clause 57 already sets the very low bar that we need.
The other aspect of these amendments is to extend the duty to notify to the PRA, FCA and FPC. I feel strongly that diluting accountability in this way would be a mistake. As we saw with the failed tripartite system, the clear disadvantage of spreading responsibility across several different organisations is that each can blame the others when things go wrong and risks can fall between the gaps. I believe that the system set out in the Bill, which makes the Bank the single point of responsibility for financial stability and crisis management, is the correct approach to eliminate confusion and overlap and ensure that the Treasury is always informed of risks to public funds.
In a similar vein, Amendments 107AC and 107AF seek to add references to risks to the objectives of the PRA and FCA into the notification duty. I can reassure the noble Lord that any risks that arise in the spheres of responsibility of the PRA and FCA that could potentially pose a threat to public funds must be notified to the Treasury by the Bank in the normal way. As was made clear in Committee, the duty to notify the Treasury of risks to public funds will require the Bank and its senior management to identify and evaluate risks emanating from all parts of the financial sector, working closely with the PRA and the FCA. The Bill itself places duties on the PRA and the FCA to co-ordinate with the Bank in this work. New Section 3P(1)(b) of FiSMA, as inserted by Clause 6 of the Bill, requires the regulators to take steps to co-operate with the Bank in connection with its duty to notify the Treasury of risks to public funds. We believe that that is an adequate provision.
Amendment 107AG would add “comprehensive” to the requirement that the crisis management MoU make provision regarding the obtaining and sharing of information. I do not quite see what “comprehensive” would add. Surely the most sensible approach here is for the Treasury and the Bank to agree between themselves what information the Treasury would find useful, including the format of the information and its frequency. That is exactly the approach taken in the MoU. Paragraph 18 makes it clear that the Treasury and the Bank will determine between themselves a suitable frequency for updates on each different risk, reflecting the severity and immediacy of the risk to public funds. Paragraph 21 states:
“The Bank will provide the Treasury with information needed on the options for managing the situation, including on options commissioned by the Treasury”.
I therefore do not think that Amendment 107AG is necessary.
Amendment 107AH attempts to turn the MoU into a piece of secondary legislation, subject to parliamentary approval via the affirmative process. I agree with the noble Lord that the MoU is a very important document, which sets out how the Bank and Treasury will interact in a crisis, to a level of detail and in a style that simply would not be possible in legislation, either primary or secondary. Having looked again at the MoU, I continue to believe that its content and style make it unsuitable for inclusion in secondary legislation. I would be loath to lose the level of nuance and detail that is currently included in the draft MoU but which is not legislative in nature. It would also make the MoU less flexible and make it more difficult for the Bank and Treasury to adapt or change the MoU to reflect changing circumstances. On the basis of these explanations, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Eatwell
Will the Minister explain why he always qualified the notion of “threat” as a threat to public funds and failed to accept the argument of serious threats to the financial system that do not necessarily pose a direct threat to public funds?
Lord Newby
The reference in the Bill to public funds goes to the heart of the Treasury’s responsibility vis-à-vis the regulators in managing the financial services sector, and we have been very clear that we want to do that. On the more general issues that the Bank may want to raise with the Treasury, which go beyond a risk to public funds, the Bank and the Treasury are in regular contact via non-statutory routes, as it were, which give ample opportunity for the two to discuss at great length and with great frequency any emerging issues that they feel the other should be aware of.
Lord Eatwell
My Lords, we have seen a display of remarkable complacency from the Minister, even in his final remark suggesting that the Bank and the Treasury can informally arrange regular contact. I remind him that the head of the FSA and the head of the Bank did not meet for a decade within the tripartite structure. Now we are going to have a structure of not just three regulators but five or six regulators and he is not even willing to contemplate ensuring a statutory requirement for them to provide a suitable exchange of information.
I am sure that the noble Lord’s officials assured him that the term “material risk” was satisfactory. It would not be surprising as they drafted the legislation. It would be nice to hear that some independent opinion had been taken. He said that our amendments would lead to the Bank notifying “trivial and implausible risks”. Yes, trivial and implausible risks, such as credit default swaps, might fail to transfer risk. Those were trivial and implausible. There was the trivial and implausible risk that an economy of just 2% of the eurozone—the Greek economy—would lead to stagnation in the whole zone. There is another trivial and implausible risk.
The extreme complacency being displayed by the Government over these arrangements really beggars belief. With respect to the amendment which would insert the word “comprehensive” before “sharing of information”, “Oh, it’s unnecessary. We know that they will exchange all the necessary information”—just like they did not do in the past. Why can we not create a proper statutory requirement when there has clearly been such a deficiency in these procedures in the past? That, after all, is what this Bill should be for.
Having said that, and I hope having established some matters for discussion at Third Reading, I beg leave to withdraw the amendment.
Lord Eatwell
Lord Eatwell
My Lords, Amendment 107AG is very simple. It seeks to insert the word “comprehensive” before “sharing of information”. The very least we can do to ensure that there is proper exchange of information between the Bank and the Treasury, particularly given the comments by the Treasury official that such information exchange does not take place, is to take this amendment seriously. I should like to test the opinion of the House.
Financial Services Bill
Lord Eatwell Excerpts(11 years, 11 months ago)
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Lord Eatwell
Lord Flight
I think that I was interrupted right the way through, as a matter of fact.
Lord Eatwell
My Lords, the government Front Bench should calm down and allow us to conduct this discussion broadly under Report mechanisms but in a way which takes us forward on what, as my noble friend has said, is an enormously complicated Bill.
I am afraid that I think the proposal of the noble Lord, Lord Flight, is unfortunate and I cannot support it. It is unreasonable to provide this sort of protection to financial advisers, who should take full and appropriate care in the advice that they give. If they have taken full and appropriate care, they will be able to defend themselves at a later stage against the problem that the noble Lord, Lord Phillips, raised a few minutes ago, but I think it inappropriate that they should not be sensitive to potential comeback for advice which is inappropriate and misconceived.
Lord Newby
My Lords, when we debated this issue in Committee, my noble friend Lord Sassoon made it clear that this was an important issue for the regulator to review. The FSA has now committed to consider whether to investigate the case for a longstop as part of its business planning for 2014-15.
The amendment deals with the Limitation Act. It is important to be clear about both the nature of the issue and why I do not think that requiring the regulators to apply the Limitation Act when making rules provides the solution.
First, it is important to be clear that time limits apply for consumers bringing complaints to the FOS. These are: six years from the event that the consumer is complaining about, or, if later, three years after the consumer became aware, or ought to have become reasonably aware, that they had cause for complaint. The question which we are now debating is whether there should be a further absolute or overriding limit, possibly of 15 years. This is an extremely important question for the regulator to review and it is clear that it needs to take into account the particular features of financial services and financial service products in doing so.
When the FSA considered the issue previously, it noted that the long-term nature of some financial services products means that it can take many years for consumers to be made aware that they may have suffered detriment. An example from recent years includes inappropriate pension advice to switch from one investment or one type of pension to another. Consumers did not necessarily realise that this advice was inappropriate until many years later and as they approached retirement. This kind of advice was the subject of the FSA’s pensions review covering the period 1988 to 1994, and concerns about advice given in this period came to light only some years later. Advice from this period is still the subject of consumer complaints now.
It is important to realise that many of the matters that the FCA or PRA, or indeed the FOS, which is also relevant here, will be dealing with will not be subject to the Limitation Act at all. The Act applies to certain causes of action in private law, such as actions for breach of contract or negligence, but the FOS is required to determine cases by reference to what is,
“fair and reasonable in all the circumstances of the case”.
In some cases, there will be no private law course of action and so nothing for the Limitation Act to apply to.
It is also worth remembering that the Limitation Act is very context-specific legislation. Time limits vary considerably according to the nature of the claim; for example, the time limit for libel is one year whereas for negligence it is six years. The time limit also varies on the facts of the case. For example, it is extended in certain cases involving fraud or where the claimant has a disability. Even the 15-year, longstop period that applies in cases of negligence has exceptions—for example, for claims involving personal injury. Therefore, it would be particularly inappropriate as a guide for the FCA in its rule-making powers. It would be next to impossible for the FCA to know how the Limitation Act would apply to all the cases that could be subject to any proposed rule. Far from bringing the financial services into line with other sectors, we would, in our view, be failing to acknowledge that in financial services, as in other sectors, there are many claims to which the Limitation Act does not apply.
Having said that, the regulator will look again at the case for a longstop. In view of my arguments and this commitment by the regulator, I hope that my noble friend will feel able to withdraw his amendment.