Public Service Pensions Bill

Lord Sharkey Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Sharkey]

My Lords, this is a necessary Bill which addresses fundamental problems left largely unaddressed by successive Governments. Unlike my noble friend Lady Noakes, I believe that it is broadly successful in achieving a practical balance between the interests of the taxpayer and of those in the public service.

In many ways, the Government had no choice but to act. The cost to the taxpayer of public service pensions has been increasing at a truly alarming rate. The taxpayer cost of public service pensions has increased by a third over the past 10 years and now stands at around £32 billion annually. Without reform, this amount would rise by a further £7 billion by 2016-17 to a total of £39 billion. That is a 22% increase. The current scheme has failed to respond to the rising life expectancy of the population. As the noble Lord, Lord Newby, said, as things now stand, highly paid workers get more for their contributions than those on much lower, steadier incomes. That is because final salary pension schemes benefit high fliers and those with big salary increases awarded near retirement. That is obviously unfair.

Overall, taxpayers have seen their contributions to public service pensions rise very significantly. For example, when the teachers’ pension scheme began, employees contributed 5% and so did the taxpayer. The figures now stand at around 6% and 14%. Although previous Governments have in fact made some attempt to sort out the situation, the fundamental problems still remain and these and the growing gap between private and public pension provision clearly make the current position unsustainable. Indeed, the noble Lord, Lord Hutton, said in his interim report of October 2010:

“It is my clear view that the figures in this report make it plain that the status quo is not tenable”.

I think the Government were right to take corrective action and have done very sensible things. It was eminently sensible to ask the noble Lord, Lord Hutton, to review and report on the situation and to make clear remedial recommendations. It was eminently sensible to agree to implement those recommendations and to set out to negotiate with the trade unions in an inclusive, detailed and non-adversarial way. My right honourable friend Danny Alexander and Mr Brendan Barber deserve a lot of credit for this even if they probably will not get much at all.

There are lots of good things in this Bill. The lowest paid public sector workers are protected. There will be no increase in contributions for those earning less than £15,000 and no more than 1.5 percentage points for those earning between £15,000 and £21,000. All pension rights already accrued will be protected and there will be transitional arrangements for those who are within 10 years of their normal pension age on 1 April 2012. The taxpayer is protected from unforeseen changes in scheme costs by the employer cost cap. Linking the normal pension age to the state pension age, with some exceptions to which I will return later, is also a vital change.

But having said all that, some aspects of the Bill may be a cause for concern and certainly call for detailed discussions in Committee. I have five areas in mind. The first is the retrospective power in Clause 3 that has been mentioned by other noble Lords. Clause 3(3)(c) states that scheme regulations may “make retrospective provision”. This clause generated much discussion as the Bill made its way through the Commons, with some claiming that the Bill allows for the reduction of accrued pension benefits. The Government have said that this will not be the case. The Chief Secretary to the Treasury said in a speech to the IPPR in June 2011:

“We will honour, in full, the benefits earned through years of service. No ifs, no buts”.

Despite this, the issue was still controversial at Report stage in the Commons. There the Minister, Sajid Javid, said on 4 December in response to these concerns:

“I can tell the House that the Government do not have a closed mind on this serious issue … I can only reiterate that we are listening and do not have a closed mind. I am sure that the issue will be discussed in the other place, and we shall listen carefully then as well”.—[Official Report, Commons, 4/12/12; col. 786.]

I think that this is the right approach and acknowledges that the issue is serious, that it is a cause of real and justified uneasiness and that it is unresolved.

The second area relates to the powers of the national boards, currently defined in Clause 5(1) as “assisting the scheme manager”. I know that many have argued that unless these boards have the power to recommend or even to direct, they have little real discernible purpose. I look forward to hearing the Government’s views on this in the debate at Committee stage.

Thirdly, there is the question of member representation on scheme boards. I think there is a strong case for having on the face of the Bill a requirement to have one or more member representatives. I was very glad to hear that the Government are reflecting seriously on this. Fourthly, there is the rather vexed question of whether the Bill is entirely in compliance with EU pensions regulations. I look forward to the debate, as I am sure does the Minister, on whether the LGPS is or is not in compliance with Articles 8 and 18 of the well known institutions for occupational retirement provision directive.

Fifthly, and finally, I have heard a very strong and compelling case for the inclusion of ambulance staff who are 999 responders, with firefighters, the police and the Armed Forces, among those who may retire at 60. I look forward to discussing that further in Committee.

I hope that the Minister will take these comments on board and reflect on them before Committee stage. If he does, I believe that it will help to make a good Bill even better.