Provisional Local Government Finance Settlement

Debate between Lord McKenzie of Luton and Lord Bourne of Aberystwyth

Thursday 13th December 2018 Lords Chamber

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend and he is right to say that on occasion, my heart is in my mouth when he gets up to speak, but I always recognise the fairness with which he addresses the issues. I also understand that he speaks from the front line. I recognise, as we all do, the pressures that are on local government. As I say, we really commend the work being done by councillors up and down the country. I think he is being fair when he says that this is a good settlement. I also think he is being fair when he says that we have had some challenges in the past. Perhaps this has to be set against the background of what will be a significant year, because of the business rate retention scheme coming on line, fair funding being looked at and the spending review—outside of what the Chancellor has said is the end of austerity. Given that, we should expect things to ease.

It would be absolutely right to accede to the request of the noble Lord. It is beyond my pay grade to speak to Secretaries of State on an equal basis, but I will certainly pass on to my right honourable friend the Secretary of State his view that other spending departments should be encouraged to look at what they can do because of the demands being made on local government.

The noble Lord, Lord Porter, said that the challenges are due to increased demand rather than inefficiencies. I accept that, which is why the digital declaration in the Statement is particularly important, as is the announced £7.5 million local digital innovation fund, which provides transformation funding for the town planning system in Southwark—the area of birth of the noble Lord, Lord Kennedy. Other similar announcements were made in Birmingham, to look at the way in which Amazon’s Alexa or Apple’s Siri can help with the delivery of some services. We have to think outside the box in innovative ways to make the most of digital services. That point was made in relation to the earlier Statement on police funding.

[Lord McKenzie of Luton (Lab)]

My Lords, despite the Minister’s warm words, is it not the case that by 2020, there will have been a reduction in core funding for local authorities of some £16 billion over the previous decade? Is it not the case that local authorities currently house 79,000 people in temporary accommodation, including 120,000—perhaps even 130,000—children, that they deal with almost 5,000 social requests every day and that 8,000 are being affected by the withdrawal or closure of care homes? Is this not austerity writ large? How would the Minister describe the life chances of young people caught up in this?

[Lord Bourne of Aberystwyth]

My Lords, the noble Lord paints a gloomy picture that does not take account of the current year which, as I said, is a good settlement. I am sure that the noble Lord would acknowledge that. I spoke about the tough decisions and challenges of the past decade, which have coincided almost entirely with the period of austerity that followed the deficit we inherited. We can debate who was responsible for that, but in fairness the noble Lord must acknowledge that massive challenges had to be faced. At last we are coming out of that.

I know that there are housing challenges; in the department, we are seeking to meet them with some imaginative proposals on affordable and social housing, certainly in relation to rough sleeping. Social care is a challenge, which is why we committed the £650 million referenced in the Statement. I recognise that we have to do more for the life chances of people up and down the country who deserve a good start in life. That is why local authorities are to be commended on their massive job throughout what has been a difficult period. However, the period has come to an end and we are coming out of it with today’s Statement.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, first, my role as Minister for Faith has been mostly pastoral—just to see what attendances at the cathedral and at churches in Salisbury have been like. There was quite a dip after the second Novichok incident, if I can call it that, and there has been some recovery from that. I do not have details of the precise financial assistance in front of me but I will cover those details in the letter that I will send to noble Lords.

[Lord McKenzie of Luton]

Can the Minister help me on a specific point not touched upon to date, which has to do with the introduction of universal credit and the managed migration? As proposed, the timing of that looks likely to mean that people will stay on legacy benefits, including housing benefit, for longer than would otherwise have been the case. To what extent, if at all, was that reflected in the Statement?

[Lord Bourne of Aberystwyth]

My Lords, I confess that I did not come steeped in the issues of universal credit, but the noble Lord is right about legacy benefits and the delay in some of this, including housing benefit still being relevant. If I may, I will write to him with full details of that, because I do not have it to hand.

Pension Schemes Bill

Debate between Lord McKenzie of Luton and Lord Bourne of Aberystwyth

Monday 12th January 2015 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Balfe, for giving us an opportunity to air this issue this evening and for organising a meeting with the Minister. I thank the Minister and his officials for participating in that meeting. No one can be comfortable with the position of employees in this situation, who approach retirement with a likely pension significantly below the expectation which is derived from an employer promise which can no longer be met. This is not diminished by the fact that, while the pension expectations would be well above average levels, they are commensurate with remuneration levels which reflect the skill of pilots and the responsible jobs they undertake. As we have heard, some 67 Monarch pilots will lose, in aggregate, some £900,000 a year in lost pension because of the operation of the PPF cap and other pilots are in a similar position.

We should acknowledge that the Pension Protection Fund introduced by the previous Government, but on a cross-party basis, protects millions of people throughout the UK, as we have heard, who belong to defined benefit pension schemes. According to the Purple Book, which monitors the risk of DB schemes, there are some 6,057 mostly private sector DB schemes covering more than 11 million scheme members with more than £1 trillion of assets. In broad terms, as we have heard, the fund takes over the responsibility of pension obligations in the event of employer insolvency, but it does not seek to replicate, in every respect, the employer promise. There is, in particular, a cap on levels of payment for those below normal retirement age when the scheme enters the PPF. This is a source of the problem we are discussing tonight.

We know that the PPF is a highly professional organisation dealing with a complex market situation with great skill. On recent data, some 745 schemes have been transferred, covering 217,000 members. Compensation paid to date amounts to £1.53 billion, but the average yearly payout is, as we have heard, some £3,500 only. Tens of thousands of people now receive compensation from the fund and hundreds of thousands will in the future, potentially making the difference between retirement in poverty and retirement in a degree of comfort. This may not be the occasion to discuss how the PPF will operate in shared risk schemes, but that is doubtless a matter we will return to at some stage.

The thrust of the amendment in the name of the noble Lord, Lord Balfe, is generally to improve the position of those whose compensation is limited by the cap. The position of those with significant pensionable service with one employer has already been improved under the Pensions Act 2014, but this does not cover pilots, who tend not to have pensionable service substantially in excess of 20 years. Of course, the origin of the cap was to address issues of moral hazard, as we have heard, but also to be some restraint on the overall costs of the arrangements—it is not just a moral hazard issue. It is accepted that the moral hazard is not present in the case of pilots and the amendments would not lead to 100% compensation. However, the amendments would not apply just to Monarch; we simply do not know who might be entering the scheme at some future date and therefore the costs associated with that. As an aside, I ask the Minister: if the levels of compensation were raised, what if anything would that mean for the arrangements entered into with Monarch that allow for continued trading? Would that arrangement have to be recast?

The bottom line is that amending the rules in the way suggested would lead to higher payouts from the PPF. That raises the question, as my noble friend Lady Warwick has made clear, of where the funding is going to come from. The answer, of course, is the levy, which ultimately feeds back to individual schemes and sponsoring employers. Although the amounts related to pilots may be relatively small in the context of the overall PPF scheme, we simply do not know how many more might be affected and what the overall costs would be. As I have just said, there was an attempt in the 2014 Act to ameliorate the effects of the cap for individuals whose pension entitlement was derived mainly from one source for at least 20 years, although this does not particularly help the matter in hand unless there were to be some recasting of the spread in coverage to affect it in a different way. However, presumably this would involve losers as well as gainers.

It seems that any improvement in the lot of the pilots who might find themselves in a similar position, now and in the future, would involve more resources for the PPF. So, while having great sympathy for those whose legitimate pension expectations have been significantly impaired, I do not think we have been presented with a compelling argument to make the specific changes that the amendments suggest. However, the Government may take the opportunity to reflect on and review how the cap is generally affecting entitlements, bearing in mind the need to ensure the sustainability of the PPF in the current, and future, DB environment.

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend Lord Balfe for so eloquently moving this amendment, and other noble Lords who have participated in this debate—the noble Lords, Lord Monks and Lord McKenzie, and the noble Baroness, Lady Warwick. I found the meeting very useful, and I assure the noble Lord, Lord Monks, that, as a former trade union member, I was certainly taking everything very seriously when he put forward the points that he made.

The amendment relates to the position of certain members of pension schemes that have entered the Pension Protection Fund. I am sure that we all have a great deal of sympathy with the situation that these people find themselves in. This amendment, which offers two alternative methods of changing the cap, very helpfully allows me to talk to the Committee briefly about the level of the PPF compensation cap. I understand that my noble friend’s principle is that he would like an increase in that cap to provide higher compensation to those who had accrued a relatively large pension, but who, because they had relatively short service in their scheme, will not be affected by the long-service cap amendments. I will therefore deal initially with that principle rather than concentrating on the actual effect of this amendment.

I start by making a small but perhaps important point: the loss of these pensions is not a consequence of the PPF cap. The fact is that the schemes were underfunded and could not meet the costs of the accrued pensions. Those pensions have already been lost. What we are discussing is the level of compensation that should be paid to the affected people.

The Pension Protection Fund does not replace lost benefits in full. That is not an uncommon approach; for example, deposits in banks are covered up to a limit of £85,000. The PPF pays compensation at the full rate of the pension in payment at the insolvency date to anyone over their normal pension age. Pilots as a group, with their relatively low pension age of 55, benefit from this, as more of them are likely to be over that threshold than if the scheme had a more usual pension age of 60 or 65. It is those below their normal pension age who have their compensation set at broadly 90% of the pension accrued at the insolvency date. Further, it is this group—those below their scheme’s normal pension age—who are affected by the compensation cap.

The current cap produces what many would think was rather a generous entitlement of £32,761 per year at the age of 65. The cap is of course reset for anyone who chooses to take their compensation at an age lower than 65, to reflect the longer period of payment. So a person with an unusual pension age of 55, such as pilots, would have a cap of £26,571 precisely. Noble Lords might also wish to be reminded that the Pensions Act 2014 contains provision for a long-service increase to the cap, which has been referred to during the debate, of 3% for each year of service above 20 years, although I accept this may not be relevant for many pilots because of the lower retirement age.

Pension Schemes Bill

Debate between Lord McKenzie of Luton and Lord Bourne of Aberystwyth

Wednesday 7th January 2015 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, can I probe the Minister on his response? It seemed that he was praying in aid the guidance service as an alternative to the proposition advanced in the amendment. We will obviously come on to discuss the guidance service more fully on Monday, but I understand that this is, effectively, an upfront and one-off sort of offer. With increased flexibility, are we not likely to be in an era where people will no longer necessarily make the cliff-edge decision on an annuity on day 1 of retirement but will wish to address that some time later during the course of their retirement? In those circumstances, if somebody was looking to purchase an annuity five years after retirement, and having had some income draw-down or other product in the interim, what would be in place to protect people in the annuity market at that point, as the Minister suggested, and not on day 1? Presumably, the guarantee will not be available to be provided on a free basis.

[Lord Bourne of Aberystwyth]

If I might first take the noble Lord up on one point, what is being proposed by the noble Lord, Lord Bradley, opposite is an alternative to the guidance service which is in the Bill. The guidance service will guide people and there will be a wake-up call via the literature provided before a member’s retirement telling them of the guidance service and with clear signposting to it of the options that face them on retirement and afterwards. It will not just be explained what you can do on day 1 but later on. We anticipate that many people will take that up. Some will not choose to do that, but it is clear that that sets out the pathways for the future. It is only guidance; any advice taken, whether immediately or later on, will of course be subject to the market. We believe that the choice being offered here—supported, as I understand it, by the Opposition—is important and that we can depend on a developing market with innovative products, in which members will be able to shop around not just on retirement but afterwards. All this will be set out in the wake-up call and the guidance that will follow once a member retires.

[Lord Bourne of Aberystwyth]

I take the point that the noble Baroness, Lady Drake, is making on this issue, but it is clear that the guidance will set out the options available on annuities and, where appropriate, signpost people to taking advice. If they want to compare the annuity product being offered by their own provider with that of somebody else, all that will be set out. Whether it is an adjunct to or a substitution for it is somewhat academic. There is a cost associated with this and we believe that the proposals in the Bill, setting out the opportunities for guidance which will come at no cost to the consumer, are the right way forward. They will set out the options available to the consumer on retirement.

[Lord McKenzie of Luton]

If I may come back on that point, setting out the options available on retirement is one thing, but what happens if someone does not wish to annuitise on day 1? Five years down the track, their life circumstances may have changed dramatically—they may have married, there may have been a death in the family and all sorts of things may have happened to their life—which might mean that the original guidance is not as relevant as it might have been. What is going to protect people, as my noble friend Lady Drake said, from the issues of how the provider is acting at year 5 in those sorts of circumstances?

[Lord Bourne of Aberystwyth]

Clearly, any form of guidance is not going to be appropriate for ever on specific issues. The guidance is not intended to address the specific situations of every consumer; that is the purpose of advice. The guidance is indicating to people what they should do in their particular circumstance, at that stage, to look at the future. It is for those consumers to decide whether to take that option or not; that is the purpose of the guidance. It is not specific in the way that the noble Lord, Lord McKenzie, is suggesting.