Local Housing Allowance Rates
Lord Whitty Excerpts(1 year, 8 months ago)
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Viscount Younger of Leckie (Con)
Yes, indeed, and this plays into what we spend a lot of time doing in our department, which is looking at universal credit and the benefit cap, including the need for housing. We therefore recognise the importance of safeguarding the welfare of claimants, particularly those who, I am afraid, have got into debt. Looking at how they are able to afford housing is a key part of that.
Lord Whitty (Lab)
My Lords, in the light of the rise in rents in the private sector, the likely rise in local authority rents and other social housing and the inadequacy of the local housing allowance to make good that, what is the Government’s estimate of the number of evictions that are likely to take place in both the public and private sector—that is in both social and private sector housing?
Viscount Younger of Leckie (Con)
I certainly do not have an estimate of what the evictions will be, but we are very aware of the pressures around and we focus on the homelessness prevention grant, which is given out. That is to ensure that people are not evicted from their homes. It is very important that we do whatever we can to support people with their houses, particularly in areas where there is the greatest pressure, and the homelessness prevention grant will help as an extra comfort blanket for that.
Covid-19: Child Poverty
Lord Whitty Excerpts(4 years, 5 months ago)
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Baroness Stedman-Scott [V]
I have already mentioned the unprecedented fiscal package we have at our disposal to deal with this, but I would also like to talk about the Reducing Parental Conflict programme, which has a key role in supporting families during this challenging time. We are working with local delivery partners to ensure that the programme continues to be delivered during social distancing restrictions and being flexible and innovative in the ways we can reach families that require support to minimise the negative impacts of conflict on outcomes for children.
Lord Whitty (Lab) [V]
My Lords, others have referred to the troubling consequence of child poverty on children’s diets. The Minister says nothing more can be done, but the free school meal vouchers system ends in July, whereas the prolonged lockdown is now turning into the prolonged holiday. We need provision of free school meals and support for access to food, such as brunch clubs and breakfast clubs, all the way through to September. Why cannot the Government do what has been done in Wales and provide more such facilities for children in deprived areas here in England?
Baroness Stedman-Scott [V]
We are aware that the free school meal vouchers scheme is working for thousands of schools. I am pleased to say it has been reported that more than £120 million-worth of vouchers have been used. Under the benefits-related criteria, 1.3 million of the most disadvantaged children are eligible for and claiming free school meals. It is a matter for the DfE, so I will get my noble friend Lady Berridge to respond to that important point.
Poverty
Lord Whitty Excerpts(8 years, 4 months ago)
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Lord Whitty (Lab)
My Lords, I apologise to the noble Lord, Lord Bird, and the House because I had to dash to get here from chairing a Select Committee upstairs and I left my notes upstairs. I am by no means as good an extemporary speaker as the noble Lord, who did have a bit of paper in his hand though it was clear that he was speaking from his heart and his head rather than what was written on the page. I will attempt to emulate him, but if my articulation is not as great as his I hope the House will forgive me.
The noble Lord, Lord Bird, termed this debate “the causes of poverty”. Clearly we are concerned about the causes of poverty—the statistics and the incidence of policy, on which we have some useful briefing—but he is really concerned about getting people out of poverty and, therefore, the amelioration or, indeed, the cure of poverty. In the great debate that we have been having over the past few weeks, the United Kingdom was constantly proclaimed as the fifth-largest economy and one of the richest countries in the world. It is therefore an indictment of this nation that it still has a level of poverty—in both relative and absolute terms—which has not changed much over the years. While relative poverty is the usual measure that Governments use to target changes in poverty levels, the reality for millions of our citizens, including many of our young citizens, is that real poverty means lack of a proper home, lack of a job, lack of support, and a desperate lifestyle on our streets and in inadequate accommodation around our cities and towns. That is an indictment of the fifth-largest economy and one of the richest countries in the world and we need to do something about it. I know that the noble Lord, Lord Bird, has spent a large part of his life attempting to do that, and I hope that Members of this House will emulate him.
We know, in a sense, about the cause of many people’s individual poverty. It is because they have had a life of insecurity. They may have missed out on education, have had a terrible family life, suffer from mental and physical illness, have been through bouts of, if not constant, addiction to drink, drugs, gambling or whatever. So we know quite a lot about the individuals.
However, poverty is not just an individual situation. Both the state and the charitable sector attempt to help people in poverty but they do not always help them out of poverty, as the noble Lord has said. One of the causes of continuing levels of poverty in this country is that we have a number of serious dysfunctions in large parts of our economy and society. Some noble Lords will have heard me rant at various stages about the total dysfunction of our housing market. Inadequate affordable housing, particularly for single people and young people in our cities, is a major cause of them falling into poverty. If they manage to find accommodation, the rents they have to pay eat into what little income they have and keep them in poverty.
Only the other day I was talking about the hugely dysfunctional bottom end of our labour market. At the worst end, as we discussed on Friday, there are instances of what can be classified as modern slavery. It goes through inadequate working conditions, zero-hours contracts, uncertain work and extremely uncertain levels of wages.
Historically, much of our system of taxation and social security was built on people being in a job or not in a job, whereas a large proportion of people who fall into poverty at any given time, and some who are in persistent poverty, are actually not in a constant-income situation or anything like it. Some may move from one to the other. The sudden move from working for 30 years in a factory to being redundant is dramatic and, of course, many of those we find on our streets, for example, are actually people who have ended service for this country in the Armed Forces and have been unable to cope with the sudden change into civilian life.
Those are the individual and specific cases, but they reflect a dysfunction for which this House and this and all previous Governments have been in part responsible. The changes we have made in the social security system have not addressed this problem. None of the changes we have attempted to make in the housing market has addressed this problem, and we have allowed the labour market to seriously exacerbate the issue of people falling into poverty because they are not in anything like permanent, full-time or well-rewarded jobs.
However, it is not all a problem for the state alone. I am probably a greater supporter of the big state than the noble Lord and many other noble Lords on the Benches opposite—I think that the big state has a serious role to play here—but I throw my mind back to when this country first became concerned about poverty in early Victorian times. In those days there was the friendly society movement, organisations which turned into trade unions, insurance companies, co-ops and building societies. They were all collective self-help organisations on the ground upwards which actually ensured that a significant proportion of our working class got out of poverty because of collective action at that level. When the previous Prime Minister talked about the big society I thought that he had got a germ of an idea of going back to that. Regrettably, that became a cover for outsourcing and privatisation and has actually disappeared from the lexicon of the Government’s rhetoric. It needs to come back, and we need not only a big state but a big society where local help can be given to the poor, and to help people avoid falling into poverty or to help them out of it.
Pensions Bill
Lord Whitty Excerpts(10 years, 8 months ago)
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Lord Whitty
“( ) The power conferred by subsection (2) on employers to amend occupational pension schemes does not override the powers and duties of Trustees of such schemes nor any duty to consult members of such schemes and their representatives in accordance with the terms of such schemes.”
Lord Whitty (Lab)
My Lords, with Clause 24 and Schedule 14 we deal with the impact of the ending of contracting out on existing occupational, or work-based, pension schemes. The impact is pretty severe, being up to 5% of the income of those schemes. The Government have provided some measures in Schedule 14 and Clause 24 that allow employers effectively either to increase the contributions of employees but not of employers or to cut back on the benefits of those schemes. I do not approve of that way of dealing with the situation for either the public or the private sectors. Of course, ending contracting out impacts on both sectors. Although Clause 24 is primarily about the private sector, there are a couple of related questions on the public sector that I should like to put to the Minister.
I declare an interest as a vice-president of the Local Government Association and as a long-term member of the GMB. I am therefore particularly concerned about the local government scheme but other public sector schemes are also affected. In Committee the Minister indicated that he was prepared to have discussions with the LGA—and, presumably, parallel discussions with other public sector employers—to consider how the loss to its funds could be made up.
I understand that a meeting took place on 14 January and that the noble Lord, Lord German, was present at that meeting and may be able to elucidate. However, from the note of the meeting that I have seen, I am not clear as to the Government’s position on follow-up to that meeting in relation to the Local Government Pension Scheme. Of course, the Local Government Pension Scheme affects a large number of employers, not only local authorities but others in the public, private and third sectors. It is therefore important that some understanding of the stability of those schemes in future public expenditure allocations is established. It would be useful to hear of any progress on that or parallel fronts, so can the Minister update us on progress?
As to some of the schemes which are now in the private sector, Amendment 14 goes some way to meeting the concerns expressed on behalf of the post-privatisation schemes where guarantees were given that there would not be any diminution in the benefits from such schemes at the point of privatisation. So anyone who was in a scheme before that point should have been covered. I welcome that. However, I have a concern about the definition of “protected person”. The amendment refers to it being defined in regulations, whereas the schemes to which the Government have referred in their statements on electricity, railways, nuclear decommissioning and coal do not cover all the people who were given guarantees post-privatisation. For example, the guarantees for gas workers were written into the deeds of the scheme but were nevertheless promises backed by the Government. I should therefore like to know how far into the area of protected persons the regulations are likely to go. If the noble Lord wishes to write to me on that front I would be grateful but, in any case, out of equity, it ought to be addressed in the same way for every group of workers affected during that period of major privatisation of the utilities and other nationalised industries.
Of course, the Government have provided in Clause 24 and Schedule 14 a way out for others who are in private sector schemes. The way out is hugely detrimental to the members of those schemes in that it gives the right of override to employers—not to the scheme—to alter the terms of that scheme in order to make up the effects of the ending of contracting out, which can be up to a 5% deficit in such schemes. As the Bill stands, that ability to override is without reference to trustees, without invoking any consultation with members and without negotiations with trade unions or other worker representatives. Amendment 11 seeks to ensure that the rights of trustees are protected and that their legal responsibilities are recognised; that the trustees will be involved in any alteration of the scheme; and that consultation will be conducted in accordance with the terms of the scheme. Amendment 13, tabled by my noble friend Lady Turner, goes further and requires a ballot of members of such schemes. Unless we do that, we are seriously undermining the whole system of trusteeship of private sector occupational schemes.
I hope that the Minister will be able to tell me that Amendment 12 is unnecessary because it is in the existing law. I hope that is the case but the terms of Clause 24 and Schedule 14 which allow for override and alteration are extremely wide. It should have been the law and it was generally accepted that it was the law post the Maxwell scandal and the reforms that led to the requirement that schemes could not at any point retrospectively change the accrued benefit of members up to that point. In other words, the scheme could be altered subsequently but anything accrued up to the point of change could not be retrospectively downgraded. Amendment 12 seeks to ensure clearly that this is the case.
We need clarity from the Government on this and we need their vision for the future of occupational work-based schemes because there is a contradiction in the Government’s position. On the one hand, we are engaged in a system of auto-enrolment to increase the coverage for workers who hitherto have been outside occupational schemes, and in principle we welcome all that. On the other hand, the effects of the Bill, without mitigation of the kind I am suggesting in Amendments 11 and 12, will undermine and even destroy the viability of many existing schemes. It is not just the final salary schemes that we are talking about here, or career average schemes or simply defined benefit schemes. It will also apply to or have implications for all occupational pension schemes, partly because of the financial effect but also because the viability of pension schemes depends not only on the funding arrangements and the rigour with which those schemes are managed, but on the mutuality between the members, the employers and the funders under which those schemes are set up. That is reflected in the trustee arrangements; expectations are based on that mutuality continuing and on that trustee protection. If that goes, then members’ and potential members’ trust in such schemes goes too. We need to hear clearly from the Government what their intentions are for this sector.
If trust goes, then the level of opt-out from such schemes will increase. Pension schemes will be seen as non-viable. Some pension schemes will fail and the workers and the employers who have hitherto seen their pension contributions as part of deferred pay may no longer regard them in that light. Therefore, pressure might grow for them to be paid immediately. Pension schemes are the most effective form of savings but they will not appear that way if trust in such schemes disappears. That is bad for future pensioners but it is also bad for the economy if that element of relatively automatic saving is undermined. To maintain the trust, the role of trustees is vital. I would therefore like the Government to accept Amendment 11 and to indicate that the role of trustees, and therefore the trust in such schemes, would be maintained. That is not to say that alterations could not be made, but they would be made through the way in which the role of the trustees and the consultation is laid down in such schemes.
At a minimum, I hope that the Government can accept Amendment 11, confirm my understanding that Amendment 12 is indeed the law as it stands and clarify the situation of protected persons in the post-privatisation schemes. I would also like them at least to consider accepting the amendment tabled by my noble friend Lady Turner, which would delete Schedule 14 entirely, because the idea behind this whole way of overriding long-standing schemes is pernicious. Amendment 11 gives a way of doing it in effect, but doing it by consent, which is far preferable and will preserve a very significant part of the remuneration package and savings structure of the country. I beg to move.
Lord Freud
My noble friend is probably way ahead of everyone in this Chamber at this moment on this matter, but I think I can simply answer yes to his understanding. As he says, whereas final decisions tend to get taken at a relatively late moment, if the processes are well organised, that matters less and they can be effectively activated.
The ending of contracting out is an inevitable consequence of the state pension reforms. We want to manage this as smoothly as possible and to minimise impacts on employers, schemes and individuals. I have set out why the override is necessary and why the amendments tabled by the noble Baroness and the noble Lord would make the override unworkable. Amendment 11 would in many cases allow trustees to block changes to the scheme and would increase the risk that employers would simply close their schemes. That is why I urge the noble Lord to withdraw his amendment.
Lord Whitty
My Lords, I thank the Minister for that. There is quite a lot in there which has cheered me up slightly—not everything, but bits of it. I am grateful for this update on the LGA position. We will watch this space. I am interested to see that there are other sectors that could be involved in that. I welcome the Minister’s statement in relation to the consultation of members of the scheme. I think I am quoting him correctly that the override does not affect the duty to consult, that the Government support the continuation of DB schemes and that the rules of such schemes on consultation are not affected by the override.
That deals with the consultation with members of the scheme, but it does not effectively deal with the trustee position, and the role of the trustees is very important in the future of the schemes and in future faith in them. The Minister said that trustees are bound to consult; yes, they are possibly bound to consult. The override clearly applies in his mind, and I presume the intention of the override is that in those schemes that require trustee consent, the employer, using Clause 24 and Schedule 14, can override the need for that consent. That seems a pretty fundamental alternation in the role of trustees. I hope that, even at this late stage, the Government would reconsider that position.
I am grateful for the Minister’s view on accrued rights and the fact that Amendment 12 is not, therefore, needed. I am less grateful for his indication that “protected workers” will not apply to those who are protected on the word of the Government of the day but not actually embedded in statute. This applies principally to the gas workers and I suspect I will be in correspondence with him about that.
The central point of this group of amendments is that, in this clause, the Government have, effectively, overridden the governance structure of work-based occupational schemes by attacking the very fundamentals of trusteeship. That is a mistake. Over the years, many changes have been made at the behest of employers and with the agreement of trustees. Some of these were detrimental to future members because of the financial position of the scheme or legislative changes. Trustees are unlikely to be unable to recognise the need for such changes, but to override and delete trustee consent is a very serious step which the Government should be much more hesitant about taking. However, for the moment, I beg leave to withdraw the amendment and thank the Minister for some of his other remarks.
Pensions Bill
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Lord Whitty
Lord Whitty (Lab)
My Lords, in a Bill of extreme complexity, with a large number of amendments that are equally complex, this must be the simplest amendment on the Marshalled List before the Committee. Therefore, I assume it is one which the Government could easily accept or, alternatively, make a slightly different proposition in respect of. Most of my interventions in Committee have been on behalf of the interests of beneficiaries of pension schemes, which I think is right, but this amendment is on behalf of a subset of employers; namely charities, although it would extend more broadly to the non-commercial private sector.
Charities are providers of occupational pensions—in fact, the top 50 charities have pensions liabilities of more than £5 billion. Clause 45 provides some degree of protection for all employers engaged with the Pensions Regulator in restoring the affordability of pension schemes, long-term deficit reduction plans and related matters. It requires the Pensions Regulator to take into account the effect on the employer’s “sustainable growth”. That is obviously a very important issue for commercial private sector employers, but the aim of charities, and of certain other organisations that provide pensions, is not growth. The aim is to work on the object of the charity and, in some cases—for example, with the alleviation of poverty or the eradication of disease—the charity’s aim is to reduce that object and therefore to run down its actual activities in the long run.
“Sustainable growth” is not the appropriate term to give the equivalent protection to private sector employers and to charities and other bodies for which growth is not the objective. I am therefore suggesting that the broader term of “sustainability” should be substituted for “sustainable growth”. Alternatively, if the Government are not prepared to go along with that entirely, I suggest “sustained growth or sustainability”. Otherwise, charities which face equal and, in some ways, greater financial pressures than private sector commercial employers, because of the legal and trustee-type restrictions on how they can use their own money, will have difficulty running pension schemes in many respects. They need this protection, but appealing to this clause, which amends the Pensions Act, would not automatically give them that protection.
I hope that the Government can consider this amendment and accept it, or at least make it clear, in an amendment of their own, that the broader objectives of organisations are also covered by this otherwise very valuable clause. I beg to move.
Baroness Sherlock
My Lords, as my noble friend Lord Whitty has explained, the purpose of this amendment is to ensure that the objectives of the Pensions Regulator, as set out in the Pensions Act 2004 and as to be amended by Clause 45 of this Bill, can be applied appropriately to charities.
We on these Benches are sympathetic to the aims of Clause 45 and recognise that there is a balance to be struck between the requirement on the Pensions Regulator to ensure that there is enough money in pension funds to meet their liabilities and the need to ensure that burdens are not placed on employers, with requirements so tough that they are effectively forced out of business and thus rendered unable to make any future contributions to said pension funds. However, as my noble friend pointed out, there are real concerns among those responsible for managing the finances of charities and other non-profit organisations over whether the clause, as drafted, is fit for purpose.
Charities have charitable objects that effectively circumscribe their purpose and activities. I declare an interest as the chair of some charities now and having been formerly chief executive of three different charities. I also remind noble Lords of the interest I declared previously as a non-executive director of the Financial Ombudsman Service.
As my noble friend has pointed out, charities do not necessarily aspire to grow as companies do. They may happen to grow, if demand is there and money is available to fund their activities. They may aspire to grow, to increase the number of people that they work with in line with their charitable objectives. However, they may not. In my time, I have presided over charities that grew but I have also taken decisions that effectively reduced charities by refocusing them on core objectives and ensuring that they were sustainable. While charities generally do grow, they also need to be sustainable, and that is what my noble friend is addressing here.
This is not a negligible issue. Registered charities employ around 850,000 people. The voluntary sector, according to the Charity Finance Group, contributes £11.6 billion to UK gross value added, compared, for example, to the contribution made by agriculture, which is just £8.3 billion. As my noble friend pointed out, there is a significant issue with charity pension funds. The Charity Finance Group estimates that the top 50 charities are carrying almost £5 billion in liabilities. I am advised that those liabilities, and the actions that have been required to flow from them, are driving a significant number of charity mergers. This is having an effect on the architecture of the sector, not just on the individual charities and their employees. Those charities are understandably nervous about any shift in direction or emphasis that is not appropriate to their circumstances.
I have personal experience of the fact that charities have often suffered at the hands of legislation or public policy that was based on the assumption that most organisations were either public or private and did not take into account the often quite different structure and funding arrangements of charities. The noble Lord has had significant involvement with charities and will understand that point.
If the Government are not minded to accept this amendment, can the Minister tell the Committee how the Government envisage “sustainable growth” being applied by the regulator to charities? What reassurance can he give to worried finance directors of charities? Can the Minister remind the Committee of what relationship, if any, there is between his department and the regulator when it comes to deciding how best to interpret their objectives as set out in statute?
Lord Whitty
My Lords, I am grateful to the Minister, at least for his quote from the consultation of the Pensions Regulator, which recognises that growth may well not be considered in the same way by certain non-profit organisations, including charities. However, I find the Minister’s conclusion from that to be slightly illogical. If he is correct and pension fund administrators in the not-for-profit sectors look at this apparent protection and do not interpret growth or have it as an aspiration in the same way that commercially driven organisations do—the strength of not-for-profit organisations will relate to their objectives, not to a growth objective—I do not really see a problem for the Government in extending the phrase in the Bill, thereby ensuring that the position of not-for-profit organisations is covered.
The somewhat convoluted way in which the Pensions Regulator’s consultation is spelt out does not convey that. I ask the Minister to take this issue away and consider whether it would not be easier to make this minor amendment rather than to have a convoluted explanation that belied the text of the Act, or perhaps retain both “sustainability” and “sustainable growth”. It is a fairly simple point but it would make clearer the position of a lot of charities and other not-for-profit organisations. However, I will leave that with the Minister and, in the mean time, beg leave to withdraw the amendment.
Pensions Bill
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, before I speak directly to the subject of the amendment tabled in my name, I would like to address some of the points raised in debate last Wednesday while we were still considering amendments to Clause 24 and Schedule 14. I will start by acknowledging the points made in Wednesday’s debate about the need to ensure that statutory mechanisms to amend schemes are used with care. We have not chosen to apply an override lightly and we recognise the need to ensure that the extent is tightly defined.
The primary legislation sets out the key limits on the scope of the changes under the override, but much of the detail that deals with this, including how the extent of the changes is limited, will be set out in the technical regulations that we have been working on with trustees, scheme managers, the actuary profession and pension lawyers. We intend the regulations to set out a methodology and the assumptions that will apply to the calculation of the lost rebate.
We also intend to set out in the same way how the impact of changes to scheme rules are to be valued so that the actuary can certify that the employer is not recovering more than the lost national insurance rebate. We will of course conduct a full public consultation before these regulations are laid. As I said in my letter to Peers, if it would be helpful I would be happy to offer a separate briefing meeting with officials before Report. This will allow us to go through our thinking in detail in a way that is not possible in debate or correspondence.
I also want to make clear that we do not see use of the override as a default position for employers. We expect the override to be used by employers only as a fall-back position where they need to offset the costs resulting from the end of contracting out and have no options available other than closing the scheme. As several Lords pointed out, there are long-standing and established ways in which employers work with trustees to make changes to schemes when required. The noble Lord, Lord Browne, when paraphrasing the Pensions Minister, said:
“The strong incentive, therefore, is … to have a mature conversation with the trustees in order to reach an agreement”.—[Official Report, 8/1/14; col. GC 427.]
The Government have every expectation that, in the majority of cases, employers will do that and trustees will fully engage.
However, employers have told us that without the override, some of them will have few or no options available to them because such agreement cannot be reached or because scheme rules will not allow it. They tell us that this will force them to close their schemes. Some trustees have told us that without the override, they will find it difficult to agree changes. We therefore believe that the override is necessary to avoid schemes being closed, even though we believe that in most cases employers and trustees will be able to explore other options. As employers and trustees can be expected to discuss scheme changes as a matter of routine, and as it is in their interests to do so, we do not believe that those discussions would be facilitated by overlaying legislative requirements concerning the content and time limits of consultation. That is why we have not provided for that.
The noble Lord, Lord Browne, also asked whether the changes had been discussed with employers and, especially, small businesses concerning the impact of the increases to national insurance that they and employees will have to pay on the ending of contracting out. In particular, what would be the impact of large numbers of employees leaving schemes because of the increases in contributions? During the development of our policy we have engaged with a large range of employers, including the British Chambers of Commerce and the Federation of Small Businesses. Small businesses expressed no particular concern on the ending of contracting out. When we consult on our regulations, we will of course ensure that we gather views from employers of all sizes.
I turn now to scheme members. Notwithstanding the potential for increased contributions, members of defined benefit schemes will continue to get good-quality pension provision. Our expectation is that members, as demonstrated by the low opt-out rates with automatic enrolment, will choose to remain in their schemes. Our communications strategy will seek to ensure that both employers and employees are properly supported through this change and that both parties understand why the changes are taking place and what options and outcomes are available to them.
As to whether the override regulations should follow the negative procedure, I recognise the desire of the Committee to ensure proper scrutiny of the regulations. There is just over two years until the end of contracting out. To ensure that employers have adequate time to consult with actuaries, trustees and members about any potential changes, regulations need to be finalised as soon as possible. We are working hard to complete the regulations. However, these are complex provisions that require us to have extensive discussions with employers and trustees during and after a consultation period before we can get them right. Based on previous experience, we do not expect a final version to be ready to present to Parliament until May or June.
Our concern is that, with the affirmative procedure, we would not be able to secure time for a debate in both Houses before the Summer Recess. This would potentially delay the point at which employers can start to plan with confidence until October this year, just 18 months before contracting out ends. So, while recognising that the negative procedure does not allow Parliament the same level of scrutiny, it will mean that employers and schemes have longer to consider and consult on any changes. We believe that, on balance, this is the right approach.
The noble Lord, Lord Browne, specifically referred to the power in Clause 24(8) to extend the five-year window in which the employer override can be used. I will make clear that we think it important that there is a strict time limit on when the override can be used, which is why the Bill repeals the relevant provisions of Schedule 14 after five years. We fully expect those employers who wish to employ the override to have done so by 2021. However, we recognise that, in limited circumstances and given the complexity of some schemes, some employers may find it difficult to meet that time limit; for example, if several diverse employers have to agree on changes to a multi-employer scheme.
We therefore think it is vital that the time limit can be extended if absolutely necessary, but we also think that the extension of an existing time-limit period should not require the affirmative procedure when using the power would only allow employers otherwise prevented from using the override to do so. The power does not allow us to alter the way the override works or to extend its scope—only to extend the window in which employers can use it. As such, I do not believe the affirmative procedure would be appropriate. I apologise for the length of my contribution to the debate, but I hope that I have helped to reassure noble Lords on the issues that were raised last time we met.
I turn to Amendment 44 to Schedule 13. As I said when we last met, the abolition of contracting out is a natural consequence of the implementation of the single tier. With the ending of the additional state pension, there will no longer be anything to contract out of. Employers who contract out of the additional state pension must provide their scheme members with pension benefits that are broadly equal to, or better than, the benefits they would have received had they remained contracted in. To do so, they must satisfy the statutory standard set under Section 12A of the Pension Schemes Act 1993.
This is a consequential amendment to existing legislation to remove the reference to this statutory standard, as the standard will no longer exist once contracting out has ended. The amendment is to the provision for pension protection when someone transfers employment under TUPE regulations. For future transfers, and those who have already transferred, the intention is that regulations will ensure that employees will receive or continue to receive the same protection of their pension rights as they currently enjoy. I beg to move.
Lord Whitty (Lab)
My Lords, I am grateful to the Minister for giving in his opening remarks a reply wider than the amendment before us merits. I have no particular objection to the amendment, in so far as I understand it, but a few issues were raised in the debate last week that I do not think the Government have yet fully answered, even given the Minister’s speech today.
We have a difficult situation here. Everyone understands that contracting out has to cease in this respect, but the way in which it is done is vital. The Minister referred to the measures for private sector occupational schemes being tightly constrained by technical regulations. They definitely need to be tightly constrained because the Bill provides the ability to override trustees in all circumstances, to avoid any form of negotiation, and to place the full cost of any replacement of the contracting-out benefit on the employees. The cost of contracting out will jeopardise the solvency and therefore the future of many of these schemes. As we discussed at some length, and as was pointed out by my noble friend Lord Browne in particular, there is also the question of statutory protection in some circumstances in certain fairly significant schemes.
The Minister continues to justify doing all this on the basis of a negative resolution procedure. This is quite a revolution that will be imposed by this statute on private sector occupational pension schemes. There is not even, for example, a provision that states that there should be no retrospection. The whole principle of pension scheme regulation is that at any given point, benefits accumulated by an individual until that point will be frozen, even if changes are made by the trustees, by statute or whatever. That is not written into Schedule 14, as far as I can see. We need some reassurance on that.
The wider point is the one I raised last week. Where do the Government think we are going on private sector occupational pension schemes? The Minister said—perhaps not with relish; I would not put it quite like that—that it was a matter of inevitability that the decline in the number of people covered by defined benefit schemes had already reduced from more than 2 million to 1.6 million, and that the figure was expected to be roughly 0.9 million in a couple of years’ time. The Government seemed to regard that with some complacency. Of course changes will have to be made to those schemes, but it is not right to say that this imposition will have an effect only on defined benefit schemes, because the lack of trust in the future for any form of scheme is affected by the way that the Government can change solvency rules and the prospects of this scheme so drastically.
I am grateful to the Minister for offering us a meeting between now and Report. We will probably wish to take up that offer, and some schemes may wish to write to the Minister, but my point is that it is extraordinary that the Government seem to be relaxed about the prospect of the whole occupational pension scheme sector being undermined without any serious guarantees to beneficiaries or a clear strategy as to where we are going on the pensions scene.
The proposal is even odder coming from a Conservative-led Government, because these private sector schemes allow individuals to provide savings for the whole of their working lives. They are a way of providing security in retirement. They are a form of collaboration between employees and the employer in providing that. They defer pay in a way that, because it is in the pension pot and not in the pay packet, reduces inflationary pressures. Of course, they also create funds that will be the long-term investors in our business and industrial performance.
Lord Whitty
My Lords, that was a real tour de force by my noble friend. She has laid out the problems of simplistic answers to the setting of the pension age. I would have preferred it if the strategy embodied in the Bill had been preceded by the kind of review referred to by my noble friend. The reality is as she spelt out. There has been due consideration and serious assessment of the statistics, certainly, but a simple and mechanistic relationship has been made between increased average longevity on the one hand and a Treasury-led assessment of what the nation can afford in the medium term on the other, on a fairly spurious basis.
I have two amendments in this group that move in much the same way as my noble friend’s amendments. She has made the case for looking much more widely when we come to review the pension age next time and ensuring that we do that by including it in the Bill. The central problem was also referred to by my noble friend Lady Turner in the previous amendment: the range of longevity and life experience is still enormously wide. One of the problems in this House, frankly, is that most of us have spent most of our lives in relatively comfortable positions and healthy and salubrious surroundings. In so far as we have been under pressure, it has probably stimulated our brains to function for slightly longer than many of our fellow citizens. None of that will go on forever for any of us but, nevertheless, we are in a fairly privileged group in that regard.
At the other end of the scale, there are people whose whole life has been in physical and intellectual distress and who have come in their 60s—let alone 67—and sometimes in their 50s to a position where they cannot sensibly work any longer. This is a minority group, but it is quite a large minority. It tends to be defined by occupational background, geographical area and income. All of those factors need to be taken into account in a much more sophisticated way in any future review. My noble friend referred to two wards in Norwich having that differential. We have long said in London that life expectancy declined if you went from South Kensington across to Mile End roughly by one year per stop on the District line. This is not an equal society, and we should not be imposing an equal retirement age on everybody, however they got there.
All these amendments ask is that we recognise that change is necessary. We recognise that there will be another review but at least let us ensure that our successors, in undertaking that review, look at these wider elements. The extra bit in my Amendment 57 is that we should look specifically at the lowest end of the longevity increase or achievement, if that is the word, to see whether we need to make special provision for them in so far as we can define them. That is an exercise in the future, but this Bill could ensure that it is effective and undertakes a much wider review of life experience than a direct correlation between average longevity and the state pension age. I am very pleased to support my noble friend in her amendment.
Pensions Bill
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Baroness Turner of Camden
This, again, concerns a somewhat difficult point. Currently, paragraph 6(2) of Schedule 1 provides that amounts of pre-commencement pension up to the level of the full single pension will increase in line with “the full rate” of the single state pension, while any amount in excess of that will rise only in line with CPI inflation. In other words, the rate of revaluation is on the basis of prices rather than, as in the past, in relation to earnings. This takes us into the whole area of revaluation. We have already heard that, apparently, government policy is in future going to support the triple lock, which I personally have always supported. If the triple lock were accepted, and if our amendment were accepted, that would certainly bring the whole thing into line with the triple lock, because it would increase this section of the pension in line with earnings.
I am rather surprised that the Government continue to imagine that it is possible, in this particular section of the Bill, to have revaluation in line not with earnings, or indeed with the triple lock at all, but in line with prices. That is completely out of kilter with what will, hopefully, be in the rest of the Bill and with support for the triple lock. I therefore suggest that the Minister look again at the amendment and perhaps agree with what we are suggesting: that the amount to be revalued should be in accordance with the full rate of the state pension, which would of course bring you directly into the earnings section rather than looking at prices again. I do not think that we want to look at prices again in relation to any section of the Bill. If we are going to have the triple lock, which I hope we shall, that would of course not arise because the best of three would be payable in respect of all the pension payments referred to in the Bill. I beg to move.
Lord Whitty (Lab)
My Lords, I fully support what my noble friend has just said and have some amendments in this group which point in the same direction. The issue is fairness in relation to expectations. Under this part of the schedule, if your entitlement under the prior system is greater than the reference point, it is index-linked on a different basis from that on which it would be if it falls below the reference point.
The Minister may regard that as part of the overall approach, but in terms of the expectations of the people concerned there is in essence the same point as was in my noble friend’s previous amendment: somebody who is retiring in 15 years’ time may be able to provide other means of savings to make up for the loss of expectation. However, if they are retiring fairly close to the due date of the single tier, then their expectations cannot be made up in that time. A significant degree of unfairness applies there. The same applies in relation to the subject matter of these amendments if you happen to be one side or another, under the old system, of the proposed reference figure of £144 or whatever it turns out to be. There is no particular reason why one group of workers—who have, by and large, not had the most favourable pension schemes but have saved into the state second pension—should be treated differentially in this way, compared with their expectation.
It is an issue of fairness. The triple lock seems to have all-round support except in these clauses. It seems that the Government, at a relatively small cost, could make the adjustment here and save quite a lot of aggro and, I suspect, a significant postbag for most Members of Parliament.
Lord Browne of Ladyton
My Lords, I have no idea how many persons Clause 6 is expected to relate to, but it seems to be a discrete and relatively small group of pensioners. As I understand it, it deals with those who, after the start date, leave a contracted-out pension scheme where, under the rules of the scheme, they are not entitled to a pension and their transitional rate will be calculated as if they have never been contracted out before, and thereafter by reference to Schedule 1 which will set out the rules whereby that transitional rate will be calculated.
Amendments 25 to 29, as my noble friends have explained, all have similar intentions behind them. They refer particularly to the revaluation of the foundation amount and the protected accrued state pension amount above the single-tier amount for people with pre-commencement qualifying years of practicable pensionable age. As my noble friends have explained, the amendments are designed to ensure that for the revaluation of the foundation amount and the amount in excess of the full single-tier state pension, the protected payment would be in line with average annual increases in earnings as opposed to annual increases in general price levels. I hope that I have understood the effect of these complicated amendments. Currently, the Bill specifies that the valuation of the foundation amount up to the full rate of the state pension is to be revalued by earnings and any excess over that rate is to be revalued in line with the annual increase in the general level of prices.
For all those reasons articulated by my noble friends, which it would be otiose to repeat, I look forward to the Minister’s assessment of my noble friend’s amendment. I ask him to address these additional questions when he responds to the amendment. How will the public be informed of these changes to their pension entitlement in order to ensure that they are able to make adequate preparation for a secure retirement? In the words of my noble friends Lady Turner and Lord Whitty, will they be able to calibrate their expectations? Do the Government plan to review these arrangements at some time in the future? My noble friend Lord Whitty asked a very pertinent question: what are the cost implications of these amendments? In my estimation, they appear to relate to a comparatively small number of people. If the Minister is not able to tell us, will he come back to my noble friend before Report so that that information can inform the debate, if it takes place then?
Baroness Turner of Camden
My Lords, Subsections (2) to (5) of Clause 24 and Schedule 14 give employers powers to amend employee contributions and benefits in their occupational schemes to an extent supposed to be limited to the cost of the extra national insurance the employer will have to pay as a result of the end of contracting out. I am totally opposed to this clause and also to Schedule 14. The proposal potentially impacts on 1.6 million active members of private sector DB schemes. It would enable any existing protection for members’ benefits in legislation or scheme rules to be overridden. This includes specific statutory protection given to members in former nationalised industries when they were privatised and also measures of protection that employers in times past have agreed to write into their schemes.
The ending of contracting out and the associated increase in employer national insurance is, in principle, no different from any other risk employers with DB schemes might face and there is no sound justification for the Government to disturb the existing balance of power in relation to these schemes. The extra cost on employers is no greater than as might arise in the event of a small change in market interest rates. There was no suggestion of intervention to protect scheme members who lost out when the Government, not so long ago, amended the statutory basis of the pension increase from RPI to CPI. A number of us objected at the time. Governments should allow the problems arising for employers on this count to be dealt with through the established process whereby changes can be effected by negotiation and agreement. An overriding power based on being able to recover a set amount of cost could result in great unfairness as there may be no correspondence between the variable amounts members may gain from a single state pension and those they may lose if employers are allowed to determine unilaterally the form of contribution and benefit changes in occupational schemes.
I also recall, during my career as a trade union official a number of years ago, how keen we were to negotiate what we then called final salary schemes— DB schemes. As a result of the schemes that we negotiated then, there have been beneficial changes for many pensioners. As we know, though, after a certain number of years there was a bit of a campaign against DB schemes, as a result of which a number of employers decided that they would scale down their DB schemes. I have sensed that there remains not a hostility but a lack of concern and support on the part of the Government for DB schemes. These schemes excellently provided for generations of pensioners, who are very grateful for the fact that they are in existence.
What is proposed here is not in any way acceptable. I very much hope that the Government will take it away and rethink it. I am not the only person to feel this; the Minister will notice that there are a number of other amendments in this group, including my own Amendment 40, which are designed to protect employees who were covered by existing protections when they belonged to former nationalised industries that were denationalised. As a result of that, there was legislation that provided for protection. In fact, the protected persons were first introduced by an Act of Parliament in 1948 and reaffirmed by the Thatcher Government on the denationalisation of the electricity supply industry in 1990.
The Government now propose, in my view, to override the statutory provisions providing these pensions, in order to allow employers to claw back the additional NI contributions. This really is the thin end of the wedge and I do not think we should accept it. The Government should take it away and rethink it, because I regard it as quite unacceptable and so do many people, including individuals who are themselves beneficiaries of DB schemes and the unions that support them. I beg to move.
Lord Whitty
My Lords, I have amendments in this group that broadly support the line that my noble friend has been taking. She was right to try to prise open what the Government’s strategy actually is.
Everyone recognises that there are consequences of contracting out, but under this clause and schedule the Government are effectively giving carte blanche to employers to change established means of paying occupational pensions among private sector employees. Government Amendments 48 and 49 actually make that worse by making it pretty explicit that the full cost of that will, or at least can, fall on the employees so that not only are the employers given the right not only to avoid the consequences of that cost and place it on to the employees, which is likely to have the knock-on effect of people opting out of the schemes, but they are overriding the long-established system whereby such schemes are governed by trustees representing the employers, the contributing members and often the pensioners in those schemes. To override the whole system of pension trustees that we have had in place for the past 40 or so years with regard to private occupational pensions is a very serious step. There are particular consequences in the area where statutory protections are built in. Past Governments have given guarantees that can be overridden by this clause.
All this can lead us only to the conclusion that the Government have a strategy and are using the excuse of the other provisions of the Bill on state pensions to go further in destroying private occupational schemes. We discussed the knock-on effect in public sector schemes at our previous sitting but here we have, as my noble friend says, more than 1.5 million people still in defined benefit schemes who have benefited from them and have every expectation of continuing to benefit from them. On top of everything else, the Government are attempting to ensure that those schemes now fail.
There are other reasons why some schemes have been curtailed and there are other reasons why the future of such schemes, in some cases, looks fragile. However, this is a deliberate attempt by the Government to make matters significantly worse. The Government must think very seriously about that. This is why my amendments and those of my noble friend would delete the bulk of Clause 24 and Schedule 14. We recognise that we have to face up to the consequence of that, but it would force the Government to rethink this and do it in the context of an overall strategy towards occupational pensions, their governance and their future, which is not there at the moment.
This clause provides the possibility of the Government reassuring us that they have a strategy but, frankly, we need to see the outlines of that strategy before we finish the proceedings on this Bill. Otherwise, I think that the message to those outside will be that, if you are in an occupational pension scheme in the private sector, we will make it cost you more and the benefits will be less and, if you are in the public sector, the Government will not compensate for the costs that they are imposing on well funded public sector schemes, as we discussed last time.
There is an occupational pension dimension to the whole pension issue. In principle we support many of the changes that the Government intend to make to the state pension, but the other part of the equation also needs to be faced up to. Frankly, I have seen no sign of a government strategy to do that. These clauses and much of this schedule will only make matters very significantly worse.
Baroness Drake
My Lords, I shall speak to Amendments 38ZA, 39, 45, 46, 47 and 50. The amendments in this group pose three propositions: the first is not to give the power to employers; the second is to give it only to employers with trustee consent; and then there is the amendment that I propose, which would give the power to employers only if it was subject to an explicit requirement to consult with the trustees.
Quite clearly, abolishing contracting out means abolishing DB schemes. The national insurance rebates to both employees and employers currently run at 1.4% and 3.4% on a band of earnings, so they are not insignificant amounts of money. The Bill will give this statutory override to the employers effectively to recoup that loss of their NI rebate by a choice of one of two options: increasing the employees’ contributions or reducing the value of the future benefits to be accrued. Not all employers need this statutory override to make that adjustment. It is quite clear that the closures and benefit changes of the past 10 years are evidence enough of that. However, there will be some schemes where employers cannot do that without trustee consent. The Government are clearly seeking to provide an override where that trustee consent is required so that employers can proceed without it.
If one looks at the impact assessment, it is quite clear that there is now a green light as a consequence of this clause for employers to recoup the loss of their NI rebates through an increase in employees’ contributions. The assumption made in the impact assessment is that all employees active in DB schemes, who are impacted by this, will bear the cost of increased employer’s national insurance contributions.
Pensions Bill
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Lord Whitty (Lab)
My Lords, as my noble friend said, I have an amendment which is very similar to hers. It is worded slightly differently and in my view, and with no disrespect to my noble friend, it is in a better place—in other words, it relates to Clause 3 rather than Clause 2. However, the central issue is that for a lot of people who have worked most of their working life and have paid into the earnings-related pension in its various guises over that period, a figure of £144 or thereabouts will be a significant drop compared with what they might otherwise have expected.
If we are to have a scheme that is going to achieve a reasonable degree of support and consensus across the workforce and among potential and future pensioners, we need to pitch it at a level where existing workers do not miss out. I think that most of us are reasonably convinced that a single-tier answer is the right one, but it has to be structured on the basis of people’s existing expectations. The exact formula that we have in these amendments may not be acceptable to the Government but it needs to be a lot closer to current expectations for this reform to receive the kind of support that the Government are hoping for. At the moment, I know that £144 is, in a sense, a guess—or, if I am being nice to the Government, an informed guess—but it has raised alarm bells, certainly among the trade unions and those who, on pension schemes, represent the workforce who have hoped for more from the earnings-related element of the state pension.
I do not expect the Government to accept these amendments but I hope that they take the issue seriously before we reach the final stages of the Bill, and certainly in the regulations that are coming forward to define the level of the new single-tier pension.
Baroness Donaghy (Lab)
I support my noble friends Lady Turner and Lord Whitty. The pension letter that I receive reads a bit like a history book. Having completed the 40 years, I have a bit of graduated pension, some SERPS and some S2P. Obviously it all adds up penny by penny but, as I said at Second Reading, one of my concerns is that simplicity is not of itself the best objective. If the amount is set too low, the middle earners will not buy in to the new system. Any system that does not have a buy-in from the middle earners will, in the future, give rise to enormous political pressure from those people for some form of opting out, which I do not believe anyone in this room wants.
When we looked at all the charts at the briefing, we found the crossover point—which I think was in about 2040—before people start losing out. The discussion that took place on Monday about net versus gross may well place that crossover point a lot earlier, and people will see that they are going to lose out much earlier. They will then make a judgment about whether this flat rate is any good and, again, either there will be pressure to opt out or there will be pressure—dare I say it?—for SERPS, graduated pensions or S2P in about 20 to 30 years’ time. Therefore, this gives rise to very important issues.
I know that we are going to have another discussion about net versus gross when we come to later amendments, but I want to make the point that this is not a straightforward issue. I realise that there is cross-party consent about the flat rate but I am slightly sceptical about its long-term holding, although the Minister has said very confidently that it will last for more than 10 years. I hope that he is right, because the last thing I want to see is Governments tinkering with this. As I said, I do not want my grandchildren to have a history lesson in 40 years’ time in which they are reading about the different names for the pension.
Baroness Sherlock
My Lords, I can understand why the Minister might be reluctant to commit his Government—or indeed a future Government, should one appear before too long—to a particular level of uprating of any benefit. However, the device of my noble friend Lord McKenzie is very interesting. I realise that the Government are finding themselves under increasing pressure to agree to the triple lock, but I suppose that to a degree they are caught in a trap of their own devising, in that the more they trumpet the importance of a triple lock, the more people will expect them to carry on being committed to it. As we discussed on Monday, all the assumptions in the impact assessment and the various illustrations with which we have been furnished are based on the single-tier pension being uprated by the triple lock.
Obviously, the Opposition are in no position to commit to what they might do in any future Government. They would have to make a judgment based on the state of the public finances when they arrived. In the mean time, my noble friend Lord McKenzie makes a very interesting suggestion—that the Government should, if they choose a route other than the triple lock, have to tell Parliament and the public what they have and have not done.
Earnings have been lagging behind prices in all but one of the months since David Cameron became Prime Minister, but we live in hope that that will not always be the case. At that point, the difference could be quite significant and that would have to be taken into account by any future Government. I look forward to hearing the Minister’s reply.
Lord Whitty
Before the Minister replies, the noble Baroness, Lady Greengross, who has an amendment in this group, has had to leave. She apologises.
Lord Freud
My Lords, the engagement of the guaranteed minimum 2.5% uplift in April this year saw the basic state pension reach a higher share of average earnings than at any time since 1992. Next year, in 2014-15, the basic state pension will be more than £8 a week higher than if it had been uprated by earnings alone in this Parliament.
This Government believe that, like the basic state pension, the single-tier pension should be uprated by at least earnings to ensure that it retains its value compared to wages, but there is flexibility in legislation for above-earnings increases. I therefore reassure the noble Lord, Lord McKenzie, that the triple lock could be used for the uprating of the single-tier pension, as it has been in this Parliament for the uprating of the basic state pension.
Clearly, the noble Lord would not—and the noble Baroness, Lady Sherlock, was generous enough not to—expect me to commit future Governments for the next 47 years. Looking back 47 years would take us back to 1966. That was a long time ago. Was it the summer of love? Perhaps that was 1967, but in any case it takes us back a long way. Therefore, I do not think that one could commit any Government to anything, and I am sure that there will be lots of different Governments over the next 47 years. However, when you look at the proportion of GDP taken up on the assumption of a triple lock, it is possible that Governments will want to stick to it. The Office for Budget Responsibility adjusts for the triple lock by applying a 0.3 of a percentage point premium to the annual uprating of the basic state pension over and above the earnings rate.
Clearly, the triple lock has insulated pensioners from periods when the inflation rate has been relatively high, and has been particularly important in the unusually uncertain economic climate that we have seen in recent years. The Government do not want to constrain future Administrations by placing a requirement to uprate by the triple lock in primary legislation. It must be up to future Governments to decide, based on their annual reviews, whether uprating above the minimum of earnings is applied.
In response to the noble Lord’s question, the expenditure figures include the impact of the minimum qualifying period and deferrals, but the chart in chapter 3 of the impact assessment—there is a loser’s chart there —does not. No savings are assumed from passporting.
On the provisional outcomes on the basis of earnings upratings, the White Paper set out the assumption that the triple lock would be extended until 2060, but we have nevertheless demonstrated the impact on earnings upratings on expenditure in our impact assessment. That is in chart B2 in the impact assessment, which shows that the triple lock uprating has a progressively greater impact on expenditure, and therefore pensioners’ incomes, over time.
The annual uprating process for the state pension is transparent, based on a review made by the Secretary of State with reference to the general level of earnings and the overall economic situation. The indices for earnings and prices are published by the Office for National Statistics before the uprating decision is announced and are readily available. As a result, we see no advantage in committing in legislation to providing a relatively straightforward calculation. I therefore ask the noble Lord to withdraw his amendment.
Lord Whitty
Lord Whitty
I shall speak also to Amendments 20 and 21, 24, and 41 to 43. We are now moving to a different implication of the Bill. The strategic objective of the Bill to simplify the state pension system is broadly recognised, but, of course, the state pension is only part of the pension scheme. To some extent, the relatively low expenditure on state pensions in this country compared with some others is due to what was a very healthy occupational pension system covering a significant proportion of the population, although by no means everyone. Those occupational pension schemes will seriously be hit by the Bill.
That impact has not been highlighted in the Government’s public presentation of the Bill. You have to get to page 39 of the impact assessment before it is mentioned. Page 39 clearly states that the net impact on occupational pension schemes will be £5 billion a year.
I shall speak generally about public sector schemes, and most of these amendments relate primarily to them. I declare a non-pecuniary interest as a vice-president of the Local Government Association and a member of the GMB. I was also, until relatively recently, chair of one of the funds in the local government scheme, the Environment Agency scheme.
As I mentioned at Second Reading, I have a longer historic interest in this, but not quite as far back as 1966—I was at the cup final, by the way, and have not had such a high point since. In the early 1970s, I was instrumental in setting up an occupational pension service in my union, now the GMB, to establish in the private sector schemes which covered manual workers for the first time and to make improvements in public sector schemes to allow, in particular, part-time women workers into them for the first time. Those who were in their 30s and 40s at that time retired on a pretty decent pension. As has been in the headlines over the past few days, it is clear that those who retire in a few years’ time—those who are in their 40s and 50s now—will have less good pensions and a less good life in retirement than their parents.
There are many reasons for the withdrawal of occupational pensions, particularly defined benefit pensions in the private sector, and their dilution in the public sector, including the recession, the fall of asset values and, I would argue, the rather overrigorous way in which we judge the assets of pension schemes. They have also been affected by this Government’s activity, particularly the Public Service Pensions Act, which had a direct effect on public sector pensions, and the very significant indirect effect of this Bill.
This arises at various points in the Bill. Schedule 1 and Clause 4 deal with the ending of contracting out. Aspects of this are covered in Clause 24, Schedule 13 and Schedule 14. The net result is that, as a result of the withdrawal of the rebate arising from the ending of contracting out, employees in such schemes on between £109 and £770 a week—in other words, the vast majority—will have to increase their contribution as employees by 1.4% and employers will have to increase their contribution by 3.4%. In the case of the LGPS, this means an increase for employers of £700 million a year, plus £300 million for employees, or £25 per month for the average employee member of the scheme. Equivalent levels will arise in other public service schemes. It will be £0.9 million for employers in the National Health Service, for example.
It will have a very significant impact on the viability of these schemes. It is a logical effect of the Bill, and there is a real dichotomy at the heart of the Bill which by simplifying one part of the pension system is undermining the other. There is no obvious solution. These costs of £4.2 million in the public sector and £0.7 million per annum in the private sector will somehow have to be compensated for, either by the Treasury—I assume that, as of today, the Minister has no agreement to that, but one of my amendments addresses that situation—or by those who are in charge of the governance of such schemes. In the private sector, many such schemes have already been forced to reduce benefits, and to some degree that has applied to the public sector as well. In the public sector, it took a lot of negotiation between employers and the unions to ensure that we are now in the process of implementing the changes due to the Act earlier this year.
Lord Whitty
I thank the Minister and noble Lords who have intervened, largely in support of doing something about this situation. The Minister has kicked a ticking time bomb down the road, effectively saying that this threat to the future of occupational pension schemes, in the public as well as the private sector, will only be dealt with by the next Parliament and probably not then. Whoever is in power at that point is going to have a problem. We have long relied on occupational pension schemes to provide an assured income in retirement as part of the terms and conditions of working within that particular public sector or that particular company. If we are reneging on that—and it is a reneging—then the Government of the day will find themselves in some difficulty if we pass this Bill as it currently stands. The Government need to think again.
As I said, there may be other ways of dealing with this, or at least cushioning it. Yes, there will always be winners and losers in the short and long term, but it must surely be the Government’s intention, in the long term, that effective, well run and well funded private occupational pension schemes—a non-state occupational pension scheme—should continue to be part of our landscape and available on good terms to workers of all sorts.
This indirect effect of the Bill threatens that and is a very serious prospect for the future pensions landscape. I hope therefore that the Government will think again, preferably by Report. I welcome the round table, as long as Merlin is also present, because this will require some degree of ingenuity. I am not sure that the Minister has demonstrated that appropriately today but for the moment, I will withdraw my amendment.
Pensions Bill
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Lord Whitty (Lab)
My Lords, it gives me considerable pleasure to follow and welcome the maiden speech of the noble Lord, Lord Balfe, in this House. He has described the slightly circuitous political route that he has taken through his life, whereby he has ended up sitting on the government Benches. I have long and, by and large, fond memories of his activities when he was, perhaps, in a slightly different political place. When I was in south London, in the early 1970s, he was already a force in the London Co-operative and Labour movement. Eventually, he became my Member of the European Parliament. He probably does not mention it that much to his colleagues these days but, during my period as general secretary of the party and his time as an officer of the British Labour group, or the EPLP, as we now call it—for some reason, whoever was in control of the EPLP, whether it was the right or the left, pro-Europeans or anti-Europeans, Richard was always an officer—he was extremely helpful to me. I shall put it no more strongly than that. When I did a European job in Brussels and Strasbourg, he was extremely helpful to me, personally, and I am very grateful for that.
Obviously, the road to Damascus is dangerous, and the noble Lord has had a bit of a conversion, the full political and spiritual aspects of which I am not entirely clear on. I suspect that the noble Lord, Lord Plumb, is a bit unsure himself, given the past history. But it is clear that he has retained some of his early interests and commitments, particularly in relation to the trade union movement. I recognise the Prime Minister’s wisdom in giving him his remit. I have two regrets. On the one hand, not all leaders of trade unions were prepared to talk to him on the subject; on the other, it is clear that the leader of the Conservative Party has not entirely followed his wise advice. However, he maintains an unashamed interest in that field, I am very pleased to say.
In reference to this Bill, the noble Lord’s experience with the pension scheme of European Members of Parliament is instructive. If he can make improvements to this Bill that render similar conditions for the bulk of the population, I think that we will all be seriously grateful. I extend a very good welcome to him.
As regards the Bill, I share the general consensus of the overall direction and, in particular, the concept of a single-tier pension scheme, but I do have a number of concerns. My main concern is about the impact on employee members and employers who run occupational pension schemes, both private and public. I have concern for certain other groups, as well, which may well come up in Committee—for example, the cohort of women born in the early 1950s, who seem to miss out on both counts, as well as those who would have got a better pension under the old system than they will with this one. We can deal with those issues in Committee.
My main concern at the outset is about the cost that these provisions will impose on all existing occupational schemes. I spent an early part of my youth getting large swathes of manual workers and others into occupational pension schemes, and it is one of my great regrets in life that the security that that seemed to provide them with for the first time has disappeared in the private sector to a large extent and has been diluted even within the public sector.
As the noble Lord, Lord German, said, all occupational schemes will, as a result of this Bill, face increased costs of approximately 1.4% for employees and 3.4% for employers as a result of the national insurance implications. I have a special interest in the local government scheme, and I declare an interest as a vice-president of the LGA and a member of the GMB. In neither capacity do I receive any pecuniary benefit, but nevertheless I have taken an interest, until recently being a chair of one of the member schemes of the local government scheme.
As the noble Lord, Lord German, said, in the case of private sector occupational schemes, Clause 24 allows for the overriding of existing rules and benefits which had previously been negotiated or provided by the trustees of a scheme, in order to offset these costs. I think that that is quite a dangerous move and will cause difficulties in a whole range of private sector occupational schemes. I certainly do not propose that the Government should extend that to public sector schemes. However, there has to be some recognition of the size of the impact on public sector occupational schemes. I think that the local government scheme in particular is likely to suffer from this. Some public sector trade unions and scheme members have been given a bit of a nod and a wink and been told that departmental budgets will adjust to cover these schemes. I suspect that that assurance is not worth the paper on which it is not written, but they have been given some assurance in that regard.
However, no such assurance has been given in relation to the settlement with local government. The cost increase of the local government scheme for the average employee earning about £27,000 per annum will be £25 a month over a lifetime. The cost to the employers is an additional £700 million. For a small Welsh council, that would mean charging an extra £33 in council tax. For a typical northern metropolitan district council, it would mean withdrawing £2.5 million per annum from expenditure on public services. That is not an inconsiderable cost and the Government need to face up to it. The speed with which local authorities are expected to adjust their pension schemes is also an important factor. These provisions are to be brought in almost immediately. Local authority finance directors are already budgeting for 2016-17. To have such additional costs imposed on them, with the accompanying uncertainty, gives them a real problem.
Obviously, every local authority scheme and every local authority fund will suffer as a result of this measure, but it is not only local authorities: a very large number of private bodies—several hundred—are also admitted members to the local government scheme. They vary from outsourced companies as big as Serco, Mitie and Sodexo to relatively small charities such as the North London Hospice, the Norfolk Heritage Fleet Trust and various museums, and to bigger charities such as the Alzheimer’s Society, the Children’s Society and Barnardo’s. They include all sorts of bodies such as museums, the local citizens advice bureaux and parish councils with full-time employees and so forth. So this is a cost issue that hits many large and small private bodies and charities as well as local government itself. It is important that the Government, including the Minister’s department, CLG and the Treasury, face up to this cost.
There are other complications. For example, under the Bill, LGPS funds will suffer significantly from the fact that the payment of pensions increases in members’ guaranteed minimum pensions, which currently the Government pay, will be shifted on to the employers and the public sector pension schemes directly. So there are significant additional costs which fall on the Local Government Pension Scheme and all the participants therein.
I do not have a solution to this problem but the Government need to have one. We took the then Public Service Pensions Bill through this House with some difficulty. However, the employers and the trade unions very responsibly sat down and agreed on how it should be effectively implemented in the LGPS area. These new costs, as well as the possible knock-on effects on the level of contracting out, particularly for low-income employees but more generally as well, and the costs for the employer of running the scheme are likely to tear up that agreement very quickly. At the very minimum, we need more time to ensure that there is an effective answer to this.
Given the scale of the potential financial impact on public services and local government in particular, today I simply ask the Minister to commit with his colleagues to meeting the LGA at some point during the course of the Bill so that they can discuss this matter. A number of potential ameliorations, if not total solutions, need to be considered. The one thing that I therefore ask the Minister today is that he and his colleagues commit themselves to such a meeting.
Mesothelioma Bill [HL]
Lord Whitty Excerpts(11 years, 5 months ago)
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Lord Whitty
My Lords, like other noble Lords who have spoken, I welcome the Bill and will not seek to delay it. Having said that, the Bill is deficient. It needs to be strengthened, either in Committee in this House or through secondary legislation. I hope that that happens.
My basis for speaking is that I have been involved in this field for nearly 40 years. In the early 1970s, when I was a trade union health and safety officer, I sat on the first HSE drafting committee on the asbestos regulations. Of course, as the noble Lord, Lord Alton, has said, by that time the scientific knowledge was clear on blue asbestos and pretty clear on white and brown asbestos as well. However, it took a long time for the government machine to get in place. Of course, employers were still in denial. My union, the GMWU, had significant membership in Turner & Newall itself, and frankly some of them were in denial as much as the management. However, the reality was that they were dying.
We also had a group of workers who liked to call themselves thermal insulation engineers, or laggers, who stripped off asbestos from machinery in shipyards, steelworks and royal government dockyards. There were some fantastic leading figures among that group of workers, almost all of whom were dead in their 40s from asbestosis. Many of those who survived came to suffer from mesothelioma as well.
As my noble friend Lord Jones and others have said, this is an utterly horrendous disease. I am pleased that, belatedly—50 years on from the scientific knowledge being here—we are finally getting to grips with it. The previous Labour Government did a lot in relation to other asbestos-related diseases, and the noble Lord, Lord McKenzie, started the ball rolling on this one against considerable opposition from the insurance companies and, be it whispered, from the Treasury.
However, we still do not yet have a sufficiently effective Bill. Others have pointed to the deficiencies in relation to those it excludes because of the date. Frankly, many are excluded by that date, given the life-expectancy after diagnosis. Given the exclusion of other long-latency diseases and mesothelioma, which can generally be ascribed to asbestos, although the causal association may be slightly weaker, and to the whole structure of compensation, it is true that those who get through this system, or their dependents, will belatedly get a very significant sum. That is what, rightly, the civil courts have awarded in individual cases which have been through the court system. I find it pretty disgraceful that the average that comes out of that system will now be discounted by a whole 30%.
When one stands back it is not only that there are normally scanty records that employers have disappeared, and that individuals kept changing their employer in many of these sectors, but, as my noble friend Lord Browne of Ladyton just deftly hinted, there was some degree of destruction of records involved here as well. That is the responsibility of the insurance industry, and one they should face up to. His analogy with the motor insurance bureau is also apposite. After all, in the motor industry insurance is compulsory on motorists, as employer’s liability is compulsory on employers. Therefore, despite the greater difficulty of proof, the analogy holds. In that situation, rather than have a sifting body, possibly interpreted by a technical committee, and then the DWP looking at it, or whatever body the DWP eventually devolve this scheme to, effectively the insurance industry faces up to its responsibility and pays effectively the proven 100% of the claim. That is not a complete analogy, but compared with that 100%, a 70% figure seems very difficult to justify. There is a higher risk on the insurers and an increased administration cost on them. I think it was the noble Lord, Lord Avebury, who said that maybe 90% in other analogies is perhaps appropriate, but any person would regard 70% as excessive.
I commend the Minister on getting this Bill to this stage, and no doubt having the equivalent arguments with the Treasury to get it to this stage. However, on the negotiations, I dealt with the insurance industry on flood defence and with some of the Minister’s colleagues in Defra who are in the current Government. The insurance companies are tough negotiators. They live for negotiation, even more than trade unionists do, and at times are rather more successful than the trade unionists. We could afford to be a bit tougher in this respect, in particular in relation to the discount. We have a significant exclusion on the basis of the date, another on the basis of the non-mesothelioma diseases, and on top of that the insurance industry has somehow come out with a 30% discount. I suspect that they went home and thought that was a result. The Government could get a better result. I am not sure whether we will manage to get a better result in the course of this Bill. I hope that some of those anomalies can be addressed; for example, the Minister ought to be prepared to accept an amendment that allowed him or a future Secretary of State to add the other diseases to the Bill. I would have thought that that ought not to be a great difficulty for the Government. I hope that when we debate the regulations that might stipulate the 70% or something like it, a little bit of give in an upward direction would be forthcoming from the Government.
Having said all of that, I welcome the Bill. We need to make sure that, for the reasons the Minister spelt out at the beginning, it gets a speedy result within this House and gets on to the statute book. At the end of the day, the people we are helping have gone through horrendous difficulties, and their nearest and dearest have watched them do that. We have a responsibility to ensure that at least the majority of those people get adequate compensation as rapidly as possible.