Public Service Pensions Bill

Debate between Lord Whitty and Lord Eatwell

Tuesday 12th February 2013 Lords Chamber

[Lord Whitty]

My Lords, this amendment relates to revaluation. Clause 9 appears to allow the Treasury to change yet again the basis of revaluation, this time away from the CPI to something else. We discussed this in Committee and various assurances were given in that respect, although they are not as yet reflected in the Bill. However, no reassurances were given—indeed, the Minister was less than his usual emollient self—in relation to the provision in the Bill that in effect allows for negative revaluation in the light of changes in the CPI. That means that the Treasury can on the one hand amend the index and on the other impose a decrease in the accrued pension without any consultation with those affected, and in a way that, in the case of the LGPS, seriously undermines not only long-established practice but the recent agreement between the LGA and the trade unions.

I have looked at the history of the LGPS over the past 30 years, although it has actually run for a longer period than that, and there was only one point at which the relative index, at that point the RPI, actually fell at the point at which it was evaluated, and that was from September 2009 to the 2010 increase.

There were no precedents at that time. We had to refer back to the Pensions (Increase) Act 1971, which allows for increases but does not allow for decreases. The interpretation at that time was that that Act did not permit a decrease, so the 2010 adjustment was, in effect, zero. That is one aspect.

The other aspect of having the potential for a negative adjustment in revaluation is that it is inconsistent between those who are already receiving pensions or who are entitled to deferred benefits and are therefore governed by the Pensions (Increase) Act 1971, in which case their benefits would not be reduced, and active members who are still contributing to the scheme and who would, at precisely the same time when a negative revaluation could be made under this clause, see their benefits go down. We would therefore be treating active members disfavourably compared with members who have left the scheme or are already drawing their pension.

I am grateful for the assurances on the continuation of the CPI, but the fact is that the sudden and unexpected replacement of long-established RPI by the CPI has left a legacy of distrust in the schemes. Part of that is that if the CPI, as is expected, performs, if that is the word, less substantially than the RPI, there is a greater likelihood or possibility of a negative figure. The recent agreement between the LGA and the trade unions made it clear that past practice would continue to operate, and that if there were a negative change in the index there would be a nil adjustment. The implication of this clause is that it is attempting to override that commitment and agreement, which I think the Minister, and certainly some of his predecessors, would accept got the Government out of a very difficult position on pension reform in general and the LGPS in particular. Therefore, unravelling that aspect of the agreement—there are other amendments I will come to with a similar effect—is not helpful.

Amendment 15 would stipulate precisely what is already past practice and in the agreement: namely, that if there is a negative movement in the index, there will be a nil adjustment. I think the Government should accept the amendment. I appreciate the strong words of the Minister last time that the Government are not prepared so to do, despite the anomalies and distrust it would create. There are alternative amendments on this in this group in the name of my noble friend Lord Eatwell. Perhaps the Government could at least show their good will by accepting that if there were a negative increase, it would have to be subject to the affirmative procedure as provided for in my noble friend’s amendment, which no doubt he will speak to more ably than me shortly.

If the Government do not move at all, we are in some serious difficulty. It is causing considerable upset among employers, among those who have to engage in the new cost-management process within the Local Government Pension Scheme, among the unions and among the members of that scheme. The Minister could assuage those anxieties easily tonight by accepting my amendment or, in default of that, my noble friend’s amendment. It would be wrong for the Government to reject both. We would be on some sort of collusion course, whereas in general the LGPS and the arrangements for it from 2014 are done and dusted in a way that frankly was probably beyond the Government’s dreams only a year or so ago. I think that would be most unfortunate not only for the members of and employers in the scheme but for the Government and for future relations. I genuinely hope that the Government can move on this issue tonight. I beg to move.

[Lord Eatwell]

My Lords, I fully support the arguments put forward by my noble friend Lord Whitty, particularly on the complications that would arise with respect to the Local Government Pension Scheme. The amendment in my name and that of my noble and learned friend Lord Davidson refers to the general proposition in Clause 9(3) that,

“the Treasury may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate”.

The Treasury has a completely free hand to determine the change in prices or earnings to be applied to the structure of the pension scheme. It seems to us on this side that this is really a step too far, so we have proposed that it should be subject not to a negative Commons procedure but to the affirmative procedure so that there can be a truly substantive debate on any particular proposal that might be unreasonable.

In Committee the Minister said:

“Any attempt to exercise this discretion in such a way that did not produce accurate and appropriate estimates”—

I must say as an economist that there is no such thing; there are estimates, but “accurate and appropriate” is something different—

“with reference to a reasonable index of prices or earnings”—

there is no such thing as that either—

“could be challenged by scheme members. Any decision which is not reasonable”—

that is fine—

“even without this amendment … could be challenged by judicial review and struck down by the High Court”.—[Official Report, 15/1/13; col. 608.]

What a cumbersome procedure. The affirmative procedure may be seen as taking somewhat more time and requiring more effort than the negative procedure, but how much better than saying, “Well, if this goes wrong, you’ve got to take it to the High Court”? That really is truly unsatisfactory.

Introducing this very minor amendment will provide an environment for the discussion of changes in the chosen index that can be deemed to be reasonable and to have the confidence of members of the schemes. I feel that this approach, perhaps allied with that suggested by my noble friend, would provide the confidence in the process of revaluation that from time to time can be enormously important in maintaining standards of living, particularly of more elderly pensioners.

[Lord Newby]

My Lords, as we are debating a group that started with an amendment moved by the noble Lord, Lord Whitty, I shall take this opportunity to answer the question he asked me earlier about whether the administering authority or the employing authority would determine whether an effect is significant. I am extremely pleased that I did not try to reply at the time because the answer is neither. It will be the “responsible authority”, because that is the authority that will be making the scheme regulations. In the local authority scheme, it would be not the employer but the Secretary of State. I hope that answers that question.

We have debated the amendments in this group before, so I shall try to be relatively brief in explaining why I do not believe it would be fair to restrict the revaluation of accruals from directly tracking growth, including when it is negative. Even though negative changes in prices or earnings are exceptionally rare, the Government firmly believe that if there is no revaluation ceiling, it would be unfair to have a revaluation floor to the benefit of members.

This is the sort of unbalanced risk-sharing between members and the taxpayer that the measures in this Bill seek to remove. The report by the noble Lord, Lord Hutton, specifically criticised this “asymmetric sharing of risk”. In addition, such a revaluation floor could lead to the cost cap being breached, to the detriment of future members who simply end up paying for past members’ accruals growing faster than the scheme revaluation rate. For those reasons, I will not be able to support the amendment of the noble Lord, Lord Whitty.

I am also unable to support the amendment of the noble Lord, Lord Eatwell, which would make the annual Treasury revaluation order affirmative rather than negative. As we have said before, this would not be an efficient use of parliamentary time and would be counter to the long-standing convention with other public service pension indexation. The order will be a run of the mill piece of legislation, and it would be incongruous for it to be subject to the affirmative procedure in each and every year.

However, I hope that I can go some way to meeting noble Lords’ concerns. In the years when the values in the order are negative, there will be a strong expectation that the Government of the day should ensure that there is a full parliamentary debate on the changes, not least because they would be so rare. Perhaps we can go further than that general statement and look at whether to require the affirmative procedure when, as unlikely as these events will be, the order sets out a negative figure. It seems that this would strike the appropriate balance between parliamentary scrutiny and sensible regulation-making.

I would therefore be willing, if the noble Lords were able not to press their amendments, to take this away to consider it further, with a view to returning to the matter at Third Reading with an amendment that would require any annual order to come before the House for affirmative procedure if the CPI index slipped into negative territory. I therefore hope that the noble Lord, Lord Whitty, will feel able to withdraw his amendment.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Eatwell

Tuesday 15th January 2013 Lords Chamber

[Lord Eatwell]

My Lords, this also refers to administrative matters concerning particular pension schemes. The amendment would implement my noble friend Lord Hutton’s recommendation that pension policy groups should be established for each scheme at national level. To quote my noble friend’s report, he said that,

“even if all schemes have a pension board in future, there will still be a need for separate pension policy groups to consider at national level major changes to scheme rules”.

Many schemes already have such groups or bodies at national level, such as the National Health Service and Civil Service pension scheme governance groups, the teachers’ pensions committee, the Police Negotiating Board, the Firefighters’ Pension Committee and so forth. Part of the role of these groups would, as my noble friend recommended, be to ensure that information about key proposals for change and related costs are publicly available. It is very important to maintain confidence in these proposals to ensure good relations with scheme members and the smooth implementation of any changes.

My noble friend’s report also notes that these existing bodies were often established as part of the consultation and negotiation machinery for handling pensions as an element of a remuneration package, and have member and employer representation as appropriate. The appropriateness of member representation would, we hope, be taken into account if this amendment is accepted and pension groups established.

When this issue was considered in another place, the Minister replied to my honourable friend Mr Chris Leslie, who put forward a similar amendment. Mr Sajid Javid said:

“We will give further consideration as to whether it would be necessary or appropriate for the Bill to provide for a scheme-level group for the local government scheme in England and Wales”.—[Official Report, Commons, Public Service Pensions Bill Committee, 22/11/12; col. 453.]

It was on the basis of that commitment by the Minister in the other place that my honourable friend withdrew his amendment.

I would like to hear from the Minister this afternoon the nature of the consideration given by the Government, which the Minister in another place committed the Government to, and why they have not brought forward their own amendment to place the position of pension policy groups in the Bill. After all, if the advisory measures that we have just passed are administrative measures and are in the Bill, these are also essentially administrative measures, as Mr Javid pointed out, and surely they should be in the Bill as well. I beg to move.

[Lord Whitty]

I fully support the amendment put down by the Front Bench. However, with regard to the arrangements for the Local Government Pension Scheme, would it not have been better if the Government had set out in one place the totality of the arrangements that were intended for the local government scheme, rather than attempt yet again to generalise the provisions to cover most of the public sector schemes? It is probably too late for the Government to do that; in which case, I hope that they will support my noble friend’s amendment.

--- Later in debate ---

[Lord Whitty]

My Lords, I beg to move Amendment 48 and I support Amendments 49 and 50, which are in this group.

I appreciate that the Minister is a bit pained about this, but the need for this amendment is exactly the area to which my noble friend has just referred. There is distrust out there. In respect of this amendment, the distrust was blown out of all proportion by the sudden decision to replace RPI with CPI. I know that for those who run schemes it is quite a useful change as it has put funding on an easier basis, but for millions of pensioners it has reduced their pension expectations and caused considerable distress. What I am addressing here is the continued anxiety that the Government may once again change the terms on which it is based.

This amendment relates to the agreement to which my noble friend referred within the local government scheme between the local government unions and the LGA, which the DCLG and, by implication, the Treasury greatly welcomed. At the moment, the provision in this amendment is the understanding carried forward from the previous scheme in that agreement, which is not reflected in the Bill. Without the amendment, Clause 8 appears to allow the Treasury to change the revaluation again, more generally, from the CPI to another index that may in future be created by the Treasury. That would significantly alter the scheme costs and funding and the likely benefits for pensioners and future pensioners. The scheme design proposal in the agreement between the LGA and the trade unions clearly specifies that the revaluation of pensions shall use the CPI. In setting this revaluation, careful consideration was also given to the value of the accrual rate to be used and to the overall scheme design. In other words, it was a balanced package. The overall cost of the scheme contained that balance and should it change again, clearly those arrangements fall.

These designs were put forward to the employers and were agreed with the unions. There was a vote of union members and a whip around local government employers and, in the circumstances, there was overwhelming support for that agreement. The apparent ability, if we do not adopt this clause, of the Treasury to introduce changes in those arrangements and, in specific terms, to impose a decrease, in certain circumstances, in the accrued pension without consultation or agreement with those affected would seriously undermine the basis of that agreement. One of the benefits—undeserved, in one sense—of the Government’s approach to public service pensions in general was that it forced local government employers and unions to work out what they wanted for the long term. They have done so, and the Government endorsed that agreement. Part of that agreement is that there should be no such reduction and no change away from the CPI. Without provisions similar to those which my noble friend has moved and which are also included in very specific terms in this amendment, the issue of distrust will continue.

This is a relatively simple amendment, but I suspect from the puzzled look on the Minister’s face that he did not even think that the Bill, as it stood, would have allowed a negative adjustment, but it does; while the agreement between the unions and the LGA does not. I therefore hope, for clarification and for some reduction in the degree of distrust out there, that the Minister will be prepared to accept this amendment. I beg to move.

[Lord Eatwell]

My Lords, my noble friend Lord Whitty has reinforced the issue that I raised in the discussion of the previous amendment. The Government seem to be content to make a deal and then put only their gains in the Bill and cover everything else by declaration of intent. Revaluation is absolutely central to the maintenance particularly of a career averaging scheme. A career averaging scheme requires a structure of revaluation whereby past earnings are revalued to take account of inflation, and earnings related to earlier years of pensionable service will be subject to revaluation year on year—over a very considerable timeframe now that we are looking at a career average as opposed to a final salary scheme, where revaluation is a rather simpler process.

As it stands, the Bill makes this extraordinary statement with respect to revaluation:

“For the purposes of making such an order the Treasury may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate”.

In other words: any way they like. It does not refer particularly to RPI or CPI; it can just be any way they think appropriate.

The amendment tabled in my name and that of my noble and learned friend Lord Davidson would simply require the Treasury to act reasonably in determining the system of revaluation or the particular index structure that it identifies. This imports into the Bill the objective test of acting fairly. If the Treasury plans to be unreasonable and unfair, I would be grateful if the Minister would tell us. It seems to me that the very least we can ask is that the Government—not just this Government but future Administrations—should act reasonably in their selection of a particular index or revaluation scheme. That is the purpose of Amendment 49, which is grouped with the amendment moved by my noble friend Lord Whitty.

Amendment 50 is, if you like, a belt-and-braces amendment. If the Minister were to accept that the Treasury will act reasonably, we would be quite happy to withdraw this amendment. If there is an arbitrary and unreasonable change in the methods of revaluation, the House has to approve such a change by an affirmative resolution. That is the sort of belt and braces standing behind this notion of reasonableness. However, if the Minister is content to say that the Treasury will act reasonably—which also imports, I am advised, the notion of acting fairly—we will be content to withdraw Amendment 50, which is there in case the Treasury is going to be unreasonable and unfair.

--- Later in debate ---

[Lord Eatwell]

My Lords, my noble friend Lady Donaghy has identified a considerable problem with cost control as expressed in Clause 10—the valuations section of the cost control part of the Bill. My noble friend’s amendment is very direct and clear with respect to the Treasury directions that she would like to see. My Amendment 63 takes a somewhat more ameliorative and subdued approach to dealing with this problem. However, it would ensure that Treasury directions are tailored to each local government fund and would therefore be much more accurate, rather than the possibility of a single set of directions being expected to apply to 89 local government funds which have significantly different characteristics. After all, each local government fund has its own assets and investment strategy. Different employers are involved and, crucially, most of the funds have different demographics. This means that each valuation needs to take into account the individual characteristics of those funds.

Considerable concern has been expressed about Clause 10 by well informed persons who are much better informed than me. For example, Alison Hamilton, the chair of the local government committee of the Association of Consulting Actuaries, said:

“Clause 10 certainly gives me cause for concern. … It is very important that the valuation takes account of the local demographics, and the local investment of the assets backing those pension funds. I attended a meeting where the Bill team tried to give some sort of reassurance that the valuation would be carried out as a one-size-fits-all under Treasury directions. That was not intended for the local government pension scheme. I would like the Committee to explore that and get something drafted”.—[Official Report, Commons, Public Service Pensions Bill Committee, 6/11/12; col. 169.]

Similar concerns have been expressed by the National Association of Pension Funds. I will not repeat what it said as it echoes what was said by Ms Hamilton.

When faced with this argument in the other place, the Government acknowledged that there was merit in it and stated that the Treasury would,

“take into account the individual nuances and features of the various … schemes”,—[Official Report, Commons, Public Service Pensions Bill Committee, 13/11/12; col. 347.]

when setting directions. They felt that the clause already allows enough flexibility for directions to take account of the differences between schemes. However, our amendment simply states what the Government’s intention apparently is—that the Treasury directions should not be based on, or be rigidly bound by, but should take into account,

“the individual nature of each of the different funded schemes”.

That is in accord not only with what is obviously sensible practice, according to the views of experts, but with what Ministers claimed in another place was their intention.

[Lord Whitty]

My Lords, I strongly support Amendment 62 and the other amendments that have been spoken to. I have a simple amendment in this group—Amendment 64. Clause 10(4) states:

“Treasury directions … variations and revocations … may only be made after the Treasury has consulted the Government Actuary”.

My amendment probably reflects my general suspicion of the Treasury, which is deplorable, as the Minister is indicating. Nevertheless it is shared by many in the pensions industry and beyond. I would have thought that it should be agreed with the Government Actuary’s Department that the Treasury or that department should come to an accommodation on what the basis for the variations, revocations and directions should be.

I accepted the Government’s argument that in relation to other sorts of consultation—for example, consultation with stakeholders—regrettably, agreement, or certainly consensus, is not usually the outcome. However, as regards an issue relating to the basis of valuation between the Treasury and the Government’s own actuary, surely the Bill should state that those provisions are agreed rather than that the Treasury may act after what may be quite a superficial consultation with the GAD. I hope that that was the Government’s intention anyway but I wish to make the position clear through my amendment. I hope that the Government will agree to it.

Public Service Pensions Bill

Debate between Lord Whitty and Lord Eatwell

Wednesday 9th January 2013 Lords Chamber

[Lord Eatwell]

I am grateful to the noble Lord because he has reinforced my point in a very satisfactory way. My point is that the issue referred to here is the compatibility of the threat to accrued rights. That is what the full statement is about, and that is why I am so interested that the Explanatory Notes deal fully with the question of accrued rights. The noble Lord is quite right to say that the Explanatory Notes are full and comprehensive, but why are they there if accrued rights are not in any way under threat?

I return to the discussion of this issue. As the Bill proceeded in the Commons, the Chief Secretary to the Treasury asserted very clearly that the Government would not reduce accrued benefits, having previously said, in a speech on 20 June:

“I also want to make it absolutely clear that we are fully committed to protecting the pension that has been earned to date”.

That is great, but it is inconsistent with Clause 3(3)(c). When he was asked about the retrospective provisions in Clause 3 by Mark Durkan MP, the Chief Secretary replied:

“The hon. Gentleman will know that the provisions in the clause to which he refers mirror directly those in the Superannuation Act 1972, which this Bill in many cases replaces. It was passed in the year I was born”—

he is younger than me—

“and it has been used by a number of Governments to make adjustments to public service pensions … The provisions to which the hon. Gentleman refers are in fact more limited than those in the 1972 Act”.—[Official Report, Commons, 29/10/12; col. 60.]

However, I am afraid that Mr Alexander misspoke. Section 2(3) of the Superannuation Act provides that accrued benefits can be reduced but only with the consent of affected members. However, the Bill as it stands allows for the reduction of accrued benefits without member consent. As such, it does not mirror the Superannuation Act, as the Chief Secretary said.

Amendment 28 gives effect to the Government’s intention for the Bill to mirror the Superannuation Act 1972 by providing exactly the same protection for members that Section 2(3) of the Act provides. As such, it is difficult to see how the Government could object to this amendment.

I move from the discussion in another place to the debate here at Second Reading. The noble Lord, Lord Newby, said:

“There is a lot of suspicion about this that is misconceived. Pensions legislation has historically contained such powers”—

actually, it has not—

“which have been seen to be necessary for the lawful and efficient operation of the scheme. They are generally used for minor and technical changes, for rectifying errors and making changes for the benefit of members. The intent of the Bill is simply to allow for these minor changes. There is no sinister intent”.—[Official Report, 19/12/12; col. 1584.]

If there is no sinister intent, why is Clause 3(3)(c) maintained in this wide form? Why is there no qualification? If this is indeed the way that pensions legislation has historically contained such powers—and I presume that the noble Lord, Lord Newby, was referring to the 1972 Act—why are there not the same protections for members as those contained in that Act?

It is also worth noting that the noble Lord, Lord Hutton, said:

“In relation to retrospectivity, the Government have a serious problem. We have to be mindful if there are to be DB schemes in the public sector. We know that there are fewer in the private sector, but those 2.6 million people in the private sector who still have access to a defined benefit scheme know for certain, because of the current law that their accrued rights cannot be changed”.

Accrued rights in the private sector cannot be changed unless members give their consent to a change, perhaps to deal with minor technicalities or deficiencies, which would ultimately improve the quality of their scheme. The noble Lord continued:

“The same rules should apply in the public sector. I do not believe that we can have a different set of rules in relation to accrued rights for people in public sector schemes”.—[Official Report, 19/12/12; col. 1582.]

Therefore, the scope of Clause 3(3)(c) is unreasonable, unethical and directly undermines the trust that is essential to the effective implementation of the Bill. Amendment 28 achieves what the Government claim they wish to achieve. If the Minister has another suggestion for better achieving the same goal, we will be happy to support it. However, I ask him: why is Clause 3(3)(c) written in these unqualified, global terms? Why do we have a clause in the Bill that states:

“Scheme regulations may … make retrospective provision”?

That is unqualified. Why is that provision there? Why is it not qualified in the way that it has been in previous legislation? I beg to move.

[Lord Whitty]

My Lords, I have several amendments in the group that all relate to the same issue of retrospection and the way in which there should be consultation and negotiation on any such change.

Like my noble friend Lord Eatwell, I was not here at Second Reading, for which I apologise, but I thought I should make absolutely clear my overall view of the Bill and my approach to it in my amendments. It can be summarised simply: I do not like the Bill. I do not like the campaign that the Government and their media allies have conducted against the public sector workers who serve them, and against their pension entitlements. In many ways it has been a despicable campaign. In more technical terms, I do not like the way in which the Government have interpreted my noble friend Lord Hutton’s recommendations in terms of attempting to achieve a commonality of approach across all public sector schemes—an ambition in which, as it happens, they have singularly failed because we have ended up with a complete hotchpotch of schemes. The history of all these schemes is different. They relate to different sectors, different industries, different patterns of negotiation and different kinds of jobs. It was therefore difficult to get to commonality. Nevertheless, the Government have attempted to reach that commonality and have made a hash of it.

I have sympathy with all public servants who are detrimentally affected, prospectively and currently, by aspects of the Bill. I have sympathy with firefighters, teachers, civil servants, health service workers and so on. I even have some slight sympathy with the judiciary. However, I am going to focus all my subsequent remarks on the local government scheme. One of the differences between the schemes that exist currently in the public sector is that the local government scheme, unlike the vast majority of other schemes, is a fully funded scheme and always has been. It is therefore on a different basis and the Treasury should approach it differently from the way in which it is attempting to approach the other schemes. Ideally, I would like to exclude the local government scheme entirely from the Bill. I recognise we are not at that point, but it would be the more logical outcome.