Pension Schemes Bill

Lord Moynihan of Chelsea Excerpts

Report stage
Monday 23rd March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, I support Amendment 164 in the name of the noble Lord, Lord Palmer. I agree that there seems to be something of an injustice in relation to survivor pensions for the police. For policemen who pass away, pensions for their spouse are suspended if the spouse remarries or even moves in with a partner. Do the same provisions apply in the Armed Forces, NHS and Civil Service pension schemes, or does the deceased member’s partner not lose their pension in those schemes if they remarry or cohabit, unlike for the police?

[Lord Moynihan of Chelsea (Con)]

My Lords, I revert to the amendment from my noble friend Lady Neville-Rolfe. I thank her for this important contribution and welcome the contributions from various noble friends, the news from the noble Lord, Lord Palmer, that he would be minded to support this amendment, and even the super news from the noble Lord, Lord Davies of Brixton, that he too might support some form of inquiry.

I have been struggling for some weeks now to think how I could persuade the House that my noble friend Lady Neville-Rolfe’s amendment was crucial and urgent, and how we have got ourselves into a really dangerous situation with public sector pensions. We discussed this in Committee. The noble Viscount, Lord Thurso, gave a speech in which he seemed to believe that these pensions were necessary because pay was—I think this is the number that was given—30% below that of the private sector. As I think we know, studies show that public sector workers get about 6% more for the same job as the private sector worker before these generous pensions. Yes, a commitment was made for these pensions, but so was it made to the civil servants of Greece and of Ireland—suddenly there was no money and those commitments were reneged on. We do not want to get to that situation.

The mood of the House is always to say, “Look, these people are working hard. They need a good a retirement. There is a wonderful security in being promised a salary increasing with inflation that is about two-thirds of what they were getting before until they die. All that is wonderful, we should be generous, and it would be an injustice to take it away”, but the fact is that this House is also for scrutiny and looks at the finances of this country, not just at where we can give more money to people. I listened earlier this afternoon to people arguing for more money to be laid out. It is what we tend to be quite good at, but the fact of the matter is that we now know that there is no money, when we cannot afford to spend enough on defence and when, as my noble friend, Lord Elliott of Mickle Fell, said, we are paying out more in benefits than we are receiving in income tax. In area after area, there are calls for money that is not available, and the Government, quite rightly, reject those calls for more money to be spent. There is no more money.

--- Later in debate ---

[Viscount Thurso (LD)]

Might I ask the noble Lord what the notional employer’s contribution is that he is putting into his calculation?

[Lord Moynihan of Chelsea (Con)]

I am putting the same contribution in that is made by employers—by the Government—right now. If you carry on doing it, you have a bunch of obligations for past promises. In the future everybody has a defined contribution scheme but you have the defined benefit scheme up to now. By 2060, as my noble friend Lady Neville-Rolfe told us, those obligations will result in £130 billion of annual payments, even if we stop now. If the economy grows by a considerable amount more than it has been growing in the past few years, those will amount to 3% of GDP being paid to pensioners of the public sector.

If you think that a £58 billion black hole is bad enough, fancy that £130 billion black hole that you have left to future generations because we failed to act—and because we refused even the reasonable request of the noble Baroness to have an inquiry. If we go beyond that and keep on with these schemes each year, that £130 billion will be dwarfed by a far larger amount. We are paying civil servants more, we have more civil servants and they are living longer, so the payments each year will rack up until at some point it will be like Greece or Ireland.

Right now, the bond markets are not at all impressed with us. Both the 10-year rate and the 30-year rate are well above those rates that noble Lords opposite claimed were evidence that Liz Truss crashed the economy. If she did, then goodness, they have crashed it much more. The bond markets are saying, “We’ve got you on watch and, if this goes on and you keep on with the deficits that you’ve got, you’re going to get into considerable trouble”.

We have the opportunity to think about this and, at least, to look at it. I hope that noble Lords will agree to this amendment. I also hope, by the way, that, if there is an inquiry, it is headed by somebody who is not in receipt of such a pension. In the private sector, we have a rule. If you have a great employee and they come to you and start talking gibberish, strangely, you think, “Oh, it’s going to be about their remuneration”. When it comes to their own remuneration, people find it very difficult to be realistic, logical and fair. So I hope not only that the Government will accept this amendment for an inquiry but that they will put somebody in charge of it who is not a captive of that public sector pensions system.

[Viscount Thurso (LD)]

My Lords, very briefly, I will support our Front Bench and the noble Baroness, Lady Neville-Rolfe, because it is quite a wise thing to have an inquiry. I wholly reject the argument the noble Lord, Lord Moynihan, just made: his maths is suspect and his conclusions are wrong. I have a son who is a special constable—until very recently he was a constable—a daughter-in-law who is a constable and another son who is a primary school teacher. As I said to him then, I say now: tell it to them that their pensions are not part of their remuneration, and I say you will be looking for teachers, policemen and nurses until kingdom come.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to all noble Lords for introducing their varied amendments calling for a series of reviews. I have been trying to keep track and I think we are now up to 23 reviews called for in Committee and up to 14 amendments on Report calling for reviews. I know that the party opposite would like to have fewer civil servants; if noble Lords pursue all the amendments, half the civil servants left will be doing reviews.

I will at least try to work through what we have here. Amendment 157 from the noble Baroness, Lady Neville-Rolfe, proposes a review of public service pension schemes. As we discussed in Committee, a major review took place through the Independent Public Service Pensions Commission of the noble Lord, Lord Hutton. That happened under the coalition Government and the reformed schemes were introduced from April 2015. I will just remind the House of the changes that were made then to make the schemes more affordable.

The scheme design changed from final salary to career average. Pension ages were increased to state pension age for most schemes and to 60 for the police, firefighters and Armed Forces. Member contribution rates were increased across the scheme, except the non-contributory Armed Forces Pension Scheme, and other aspects of scheme design were modernised: for example, supporting more flexible retirement. At the time, it was estimated that these reforms would save £400 billion over 50 years.

The noble Baroness, Lady Neville-Rolfe, asked about the 25-year guarantee. This does not mean of course that pensions cannot be changed in any way until 2040, nor was a guarantee written in to individual members. But the central elements of the reforms introduced in the PSPA 2013 were designed to last for at least 25 years, and a high barrier was set out in that Act for any proposed changes to the key design elements, including a requirement for consultation with scheme members or their representatives, with a view to reaching agreement to help deliver that stability.

I will look at some of the specifics that have been raised. First, those reforms have been fully bedding in only from April 2022, and their full effects will be seen over the coming years. Following reforms introduced by the noble Baroness’s party, schemes now meet the benchmarks set by the Hutton commission and public service pensions continue to form an important part of overall public sector remuneration, which is taken account in pay setting. That was a key point made by the noble Viscount, Lord Thurso: a pension is part of a pay package and is taken account of by the review bodies in making those judgments on pay.

Much of the information that is called for in this review is already published on a regular basis. The OBR publishes a forecast of in-year balancing payments between the Exchequer and the unfunded public service pension schemes—and projections of long-term spending as a share of GDP—in its fiscal risks and sustainability reports. As I indicated in Committee, these projections show spending falling over the long term from around 1.9% to 1.4% of GDP, indicating that the schemes are expected to become more affordable, not less, for future generations. In addition, valuation reports and the whole of government accounts set out the different accounting treatment of scheme liabilities and how to interpret the headline figures.

[Lord Moynihan of Chelsea (Con)]

Does the Minister acknowledge that in 2012 the Hutton report said that the cost would fall, in an uncanny replication of what she just said, to 1.2%, but that it did not? It remained at around 2%. It says now that it will fall to 1.2% but, as I said, these are people with skin in the game. I hope she will agree that their record in forecasting is not strong.

Pension Schemes Bill

Lord Moynihan of Chelsea Excerpts

Committee stage
Monday 23rd February 2026 Grand Committee

Is the Minister prepared to look at this proposal constructively? Even the markets would be pleased, given the fiscal crisis we face if nothing is done to tackle this problem. I beg to move.

[Lord Moynihan of Chelsea (Con)]

My Lords, defined benefit schemes have been described as an immoral bet upon an uncertain future. Long service in the public sector can mean getting, as my noble friend stated, a pension of two-thirds of lifetime salary. That is inflation adjusted, and for as long as ye shall live. Some noble Lords in this Room will be beneficiaries of these or similar schemes, and I therefore hope that my remarks will not be received ungenerously and will not be taken amiss, because we cannot afford these schemes. The cost of them will inevitably, and soon, spiral out of control.

As long ago as 2010, the very reasonable and thoughtful noble Lord, Lord Hutton, was brought in to address this major problem. His inquiry had nine advisers; seven of them, I think, were in receipt of these public sector schemes. There was no representative of the taxpayer who pays for these schemes. The expert Neil Record was asked to be an adviser but was then disinvited. I put in two 20-plus page submissions to the Hutton commission but received zero acknowledgement. The outcome of the exercise was a few valuable tweaks but, allegedly by pre-agreement, no change in the overall money expected to be paid out.

The Hutton review’s conclusion that these schemes were a good thing was not entirely surprising. The report admitted that these schemes were costing us 1.9% of GDP but asserted that the cost would settle at 1.2%. Did it? It did not. In 2024, current costs were still 1.9% of GDP, but the OBR now says they will decline to 1.4%. Again, will it? It will not. Anyway, even 1.9% of GDP is outrageous. This is an extra pension for life, enjoyed by a privileged 20% of the population that they have awarded to themselves, and that the remaining 80% of the population who actually pay the taxes that fund this 1.9% of GDP scheme do not and will not get.

One Hutton report conclusion is that the Government must honour these promises in full, yet countries around the world have already reneged on public sector pension obligations. It is important to understand why they are having to do this and why we might have to. In the UK, current outgoings from these schemes are, as my noble friend said, £57 billion a year. Where does that money come from? There is no pot of funds accumulated to pay it. It comes from the money being paid in from currently employed public servants, assertedly to fund their future benefits. Just now, entirely coincidentally, the money paid in is also more or less £57 billion. That is right; there are two entirely separate £57 billion amounts—money paid in by one group and paid immediately out to another.

Let public servants currently employed beware that the money they are paying in, that most of them believe is to fund their future pensions, instead goes straight out to others. It does not have to fund a penny of their future pension. It is a Ponzi scheme just like Bernie Madoff, no different. While the flows currently appear to be in balance, that is just a momentary coincidence. Soon, as more public servants retire, outgoings will start getting increasingly larger than incomings. The £57 billion paid in each year will stay much the same or even decline if the number of public servants employed declines.

By 2060, as my noble friend Lady Neville-Rolfe said, the amount paid out will have risen to over £130 billion a year, which is a £37 billion gap. The £130 billion paid out in 2060 would be as low as that only if we were to stop all these schemes right now. If we do not, future money paid out will rise exponentially with the gap widening even further. That is what happens with a Ponzi scheme: it becomes unsustainable eventually. The present value of commitments to date is somewhere between £1.5 trillion and £2 trillion—not much smaller than our entire GDP. If we keep the schemes going, who knows what that number will rise to over time? It could be £4 trillion or more, a colossal sum.

What happens when people start to live even longer? When these schemes were set up, the average retiree lived just three or four years beyond retirement. Now people live to over 80—15, 20 or more years beyond retirement. That is why these schemes are now entirely unaffordable. When we start to live even longer than we do now, as we will, the cost will become astronomical. But the commitments to keep paying as long as ye shall live are being made right now, at a time when we have no idea what medical advances will be made and nor, therefore, what we will end up having to pay. That is what makes these schemes so reckless: a risky, unknowable future with undercooked analysis that passes an enormous, concealed cost to future taxpayers.

What would a moral, future-proof scheme look like? Much like what I proposed to the Hutton commission all those years ago in 2010. First, we must all be in it together, with no one law for the public sector elite and another for the rest. Secondly, therefore, the only defined benefit scheme should be for state pensions. Thirdly, accordingly, all public sector schemes should be moved instanter to defined contribution. Fourthly, all obligations—funded and unfunded—should be owned up to, not hidden as now, and published as part of the reported national debt. Fifthly, steps should be taken to fully fund existing commitments and not take them out of other pensioners’ contributions. If things get worse, perhaps let us say there should be a 75% tax rate on all public sector pensions above £30,000 a year.

Most private sector companies closed their defined benefit schemes in the 1990s and 2000s. Had they not, their companies would have gone bankrupt. The public sector has long been in precisely the same situation. As I say, a possible impediment to change is that almost all MPs, and indeed some Members of this House, are beneficiaries of similar schemes. Just one MP, Jacob Rees-Mogg, always turned the benefit down, as a matter of principle. We need both our elected and unelected legislators to show that same magnanimity of spirit in rectifying this situation.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

I am glad that we are having this debate now, but only as a taster for a proper debate at a proper time—I am quite surprised that the clerks accepted this amendment as being within the scope of the Bill. I have no objection to a debate on public service pensions; I encourage one. I feel totally comfortable with having a debate on public service pensions, because I think they are eminently defendable. I accept very little of what the noble Lord has said, and the doom and the gloom that has been expressed, and a proper opportunity to have that debate would be very welcome, but I shall focus on the need for a review.

Of course, as we have been told, my noble friend Lord Hutton of Furness undertook an independent review of public service pensions in 2010-11. That review was established by the coalition Government; they set it up, they accepted its recommendations and they gave a guarantee. In a Written Statement on 20 December 2011 about Civil Service pension arrangements, the noble Lord, Lord Maude of Horsham, who was then an MP and Minister for the Cabinet Office, gave

“a guarantee, outside of the scheme designs parameters”—

that is what the benefits were—

“of no further reform for the next 25 years”

I do not know what people think a guarantee means, but to me it means no more changes for 25 years. Of course, the Statement was repeated in your Lordships’ House and the noble Lord, Lord Wallace of Saltaire, repeating the Statement, also gave a guarantee for the next 25 years. I mentioned to both noble Lords that I would be quoting their words in this debate, and it would be worth asking them what they think the word “guarantee” means. A guarantee was given to public service workers as part of their terms and conditions of employment. It was not just a policy objective; it was part of their terms and conditions of employment. I think that to make changes without breaking the guarantee would be an extremely bad approach to the settlement.

I agree with very little of what was said criticising public service pensions, but I think there is a need specifically to understand the arrangements. First, retirement age will increase in line with state pension age. That is an adjustment mechanism. The more important adjustment mechanism is that there is a cap on employer costs, and it is members who stand the risk of having their benefits cut if the cost escalates. None of that was reflected in the remarks made so far. That cap, as has been explained, is calculated using a discount rate, and that discount rate is determined in a way that adjusts for economic changes. As mentioned, a higher discount rate reduces the cost of future benefits. At the same time, a lower discount rate increases the cost of benefits. If the cost of benefits increases, as part of the settlement that was reached, members’ benefits have to be cut or their contributions increased. That is the nature of the settlement that was reached in 2011. I think it is totally wrong to mislead the Committee about the nature of the deal that was done. Am I allowed to say “mislead”?

[Lord Moynihan of Chelsea (Con)]

I hope the noble Lord will withdraw that word. I do not recognise what he is saying. My noble friend was talking about the NHS. Was it NHS workers who were required to put in that extra money?

[Lord Davies of Brixton (Lab)]

It is interesting. I thank the noble Lord for his intervention. Okay, I withdraw the word “mislead” and I apologise for using it, but the full picture was not given to members of the Committee about the nature of the public service pension arrangements. Member contributions are adjusted and have been adjusted because of increasing costs. In fact, at the valuation before last, because of the way the economic indicators work, the cost actually fell, and the last Government had to push through urgent legislation in order to stop members’ benefits being increased. I will not use the word “fiddle”, but the terms were adjusted to protect the employer rather than giving additional benefits to members, so if anyone has a complaint about the way this system has worked, it is the members, even before we get to the problem of the 10-year guarantee that arose.

As I said, I would welcome the opportunity of a proper debate defending the way in which public service pensions are provided in accordance with the Hutton report as agreed by the coalition between the Conservatives and the Liberal Democrats. The one thing on which I agree with the noble Lord is that we need pension arrangements in which we are all together. I agree totally. Given that the underlying question is what sort of incomes we want people to have in retirement and whether we want them to be adequate, I think the objective should be to offer people in the private sector the opportunity to accrue pensions on the same terms as those provided to people in public service. I will be setting that all out in my submission to the Pensions Commission.