Public Service Pensions and Judicial Offices Bill [Lords]

Debate between Tulip Siddiq and Simon Clarke

Report stage
Tuesday 22nd February 2022 Commons Chamber

[Mr Clarke]

It is a pleasure to open this debate. I wish briefly to remind Members why this is such an important piece of legislation that we must ensure we get right. Our public servants provide vital services on which we all rely and their unwavering commitment has been particularly vital during the covid pandemic. We have an obligation to continue to provide guaranteed pension benefits to reward those workers for their dedicated service, and must do so on a fairer basis and in a way that ensures that pensions are affordable and sustainable in future.

Let me turn to the amendments that I have tabled, which are largely technical ones to ensure the Bill works smoothly. New clause 7 makes it possible for the judicial pension scheme 2022 regulations to be subject to the made affirmative procedure rather than the draft affirmative procedure, which is the usual process for judicial scheme regulations. The Bill closes all current judicial pension schemes to future accrual on 31 March this year, so the change is necessary to ensure that the new pension scheme is in place for all judges on 1 April. There will therefore be no gap in judicial pension arrangements.

The provision in the new clause is an exceptional use of the made affirmative procedure in respect of judges’ pensions. It is limited to scheme regulations for the judiciary that are made within 28 days of Royal Assent, so it will be used only to make the judicial pension scheme 2022 regulations. It will not apply to any other public service pension schemes, which are generally made under the negative procedure, nor will it apply to any future amendments to judicial pension schemes.

The remainder of the amendments that I have tabled are minor and technical, with the aim of ensuring that the Bill is applied effectively and consistently. Amendment 19 relates to the commencement provision and simply ensures that different provisions in the Bill can come into force at the appropriate time.

Amendments 1 to 14 simply clarify the wording in various clauses in chapter 1. Together, the amendments give schemes the flexibility to implement the prospective and retrospective remedy in the way that is most efficient for their members.

Amendment 16 ensures that the remedy applies correctly to local government scheme members who were formerly members of other public service pension schemes. In particular, it makes sure that former members of other schemes are not disadvantaged because they previously participated in a scheme with a lower normal pension age.

Amendment 17 provides that the power under clause 81 for local government new scheme regulations to make provision regarding special cases must be exercised in accordance with Treasury directions issued by either Her Majesty’s Treasury or the Department of Finance in Northern Ireland.

On judicial offices, amendment 18 changes the extent of schedule 3 to ensure that if Welsh Ministers or the Department of Justice in Northern Ireland make subsequent changes to the list of devolved offices in schedule 3 using the power conferred on them by clause 125(1), incorrect text will not remain in statute in other parts of the United Kingdom.

Amendments 20 and 21 change a reference to the Special Educational Needs Tribunal for Wales to its new title, the Education Tribunal for Wales, thereby ensuring that a relevant sitting in retirement office is created in the Education Tribunal for Wales.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

The pandemic has underlined the contribution made by the public sector workforce to this country. Public sector workers do so much to keep us all safe. Our brave doctors and nurses and those in the police, fire service and other public service professions deserve security and a high standard of living in retirement, so it is so important that the Government provide decent pensions on a fair and equal basis.

As the Minister knows, we welcome the Bill’s main provisions, and particularly the attempt to bring in a remedy in respect of the discrimination against younger members of the new pension schemes established by the coalition Government between 2014 and 2016. We also strongly support the introduction of reformed scheme-only design, which will mean that the cost of the legacy schemes will no longer be included in the cost control mechanism, along with the Government’s proposal to widen the margin of the cost corridor from 2% to 3% of pensionable pay. Those changes will provide greater certainty for members and for the taxpayer.

However, the Minister will not be surprised to hear that we have a number of concerns about the Bill. It is wide ranging and several Members have tabled amendments. I have a limited amount of time, so I will focus on the Opposition Front-Bench team’s primary concerns about the Bill and speak to the amendments that I have tabled on the Opposition’s behalf to address them.

First, I wish to highlight the concerns of public sector employees and trade unions about the lack of clarity on how the remedy, which I remind the House is estimated to cost around £17 billion, will impact the future value of members’ pension schemes. In the Committee debate on 27 January, the Minister stated that

“no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations.”––[Official Report, Public Service Pensions and Judicial Offices Public Bill Committee, 27 January 2022; c. 10.]

That commitment is welcome but, as the TUC and others have said, it does not address the question of whether the remedy will be included in future valuations of the cost control mechanism.

Were the cost to be included at a later date, members could see their benefits cut and their contribution rates increase. I remind the House that the Public Accounts Committee warned that such an outcome would be fundamentally unjust as some of the cost of the Treasury’s £17 billion mistake would be passed on to members. Will the Minister please clarify whether the estimated £17 billion cost of the remedy will be included in the valuations of pension schemes under the cost control mechanism at some later date?

Secondly, I wish to discuss the Government’s proposal to introduce a so-called symmetrical economic check to the cost control mechanism. As the Minister will be aware, many public sector workers and their representative organisations believe that the proposals break the Treasury’s 25-year guarantee that no further fundamental reforms would be made to public service pensions following the 2011 settlement with trade unions. The Minister told us in Committee that

“the Government do not believe that the reforms breach that guarantee.”––[Official Report, Public Service Pensions and Judicial Offices Public Bill Committee, 27 January 2022; c. 36.]

However, I found a press statement issued by the Treasury on 20 December 2011 that makes it clear that the guarantee covered significant reform to the cost control mechanism, and the Paymaster General in the Conservative Government at the time said that it represented a “settlement for a generation”.

Does the Minister recognise that his Government’s proposal for an economic check risks undermining the Bill’s purported aim of restoring public service workers’ faith in their pension schemes? The National Education Union, the TUC and PRS have all warned that the proposals unfairly penalise pension scheme members for public sector pay constraint and lower-than-expected life expectancy. In practice, this will likely mean that any downwards breach of the cap will trigger the economic check. It seems the economic check is unfair, so will the Minister now accept that the Government must go back to the drawing board and rethink their proposals? I will be grateful if he addresses that issue.

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[Mr Clarke]

I thank my hon. Friend for what he has said, and I can confirm that we will be accepting the new clause. It will have the Government’s support this afternoon.

The hon. Member for Edinburgh West (Christine Jardine) raised a number of important points, but I will deal first with her new clause 4, which relates to fairness for members of public service pension schemes. This is also relevant to the point raised by the hon. Member for Hampstead and Kilburn.

Let me begin by reassuring the hon. Member for Edinburgh West that equal treatment and fairness for all members, including those with protected characteristics, remains a central tenet of the Bill. The Government have conducted a full equalities impact assessment of the Bill, which was published when it was introduced. In addition, when making the necessary changes in the scheme rules to deliver remedy, bodies will carry out any appropriate equalities analysis for their specific schemes, in compliance with the Equality Act 2010. Indeed, many schemes are currently concluding public consultations on the changes in scheme regulations to implement the prospective remedy. The Government intend that a similar exercise will take place when it comes to schemes making further changes in their scheme regulations to implement the retrospective remedy, prior to 1 October 2023.

The Bill also provides that, from 1 April 2022, all public service workers who remain in service will do so as members of the reformed schemes, which provide career average, or CARE, benefits. CARE schemes offer fairer outcomes to those who experience lower salary progression over the course of their careers. A number of women and those with other protected characteristics are likely to be better off under CARE schemes, on average. Moving on to guidance for members, I wholly agree that clear, accessible and accurate guidance—

[Tulip Siddiq]

I am grateful that the Minister is answering all the questions that I posed in my speech, but I want to go back to the question that my right hon. Friend the Member for Hayes and Harlington (John McDonnell) asked. The Minister has said that he will write to us. Can he write both to me and to my right hon. Friend, and can he be explicit that this will be not a member cost but an employer cost? Can he confirm that he will be explicit when he writes to us on that particular point?

[Mr Clarke]

The cost sits with both members and employers, but the liability rests with the Exchequer in relation to the £17 billion cost of remedy. That is how this sits. I will indeed commit to writing to clarify all these points, and I will write to the hon. Lady and the right hon. Gentleman.

Judicial diversity and recruitment were the next issues raised by the hon. Member for Edinburgh West. I emphasise that this is an important measure for ensuring that we deal with the covid backlog in our courts, which is why we need to look at raising the mandatory retirement age. We are conscious of the need to consider the wider issues around judicial diversity and to ensure that we have a judiciary that is truly representative of the public that it serves. The Ministry of Justice publishes annual official statistics on this issue that provide a detailed annual picture.

I would like to assure members that the potential impact of what is being done is small. Compared with retaining the current mandatory retirement age of 70, a higher retirement age is projected to result in a 1% to 3% decrease in diversity growth in the medium to long term. I emphasise the word “growth” there. Overall, judicial diversity is still forecast to improve, and this measure would not reduce diversity overall. There would be only a slight reduction in the trend growth, which is going in a positive direction. We remain committed to increasing judicial diversity, and we have just launched an ambitious new magistrates recruitment plan to bring in younger and more diverse candidates. The MOJ plans to recruit 1,000 judges a year over the next few years, and 4,000 magistrates over that period. There will be a lot of change to the make-up of the judiciary.

The so-called pensions trap—the losses incurred by public service pension scheme members due to the closure of the legacy schemes—has been discussed at length throughout the passage of the Bill. The new clauses tabled by the hon. Member for Hampstead and Kilburn (Tulip Siddiq) and the right hon. Member for Hayes and Harlington appear to be intended to require the Chancellor to devise a way to compensate scheme members with remediable service for any reduction in future pension benefits resulting from the prospective McCloud remedy legislated for in clause 80. As I have noted, it is important to stress that the Government must not take action that would be contrary to the intention of the Bill to remove the discrimination identified by the courts and to ensure that all members are treated equally from 1 April this year by accruing service regardless of their age.

The Government must also safeguard the purpose of the reforms proposed by Lord Hutton and ensure that public service pension schemes are put on a sustainable fiscal footing. The Independent Public Service Pensions Commission stated that

“allowing current members to continue to accrue further benefits in the present schemes for many decades would be unfair and inequitable to the new members coming behind them.”

Compensating or carving out members with remediable service for the difference in pension age between their legacy and reformed schemes would effectively leave a protected class of public service pension scheme members beyond 31 March 2022, which could perpetuate the discrimination identified by the courts or give rise to new discrimination. It is worth noting that the Home Office is looking at this issue as we speak and will respond to its full consultation, in which the issue has been considered at greater length. I look forward to seeing the results of its work.

I turn to the contribution from the right hon. Member for Hayes and Harlington on the reforms to the cost control mechanism. The cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of the schemes. These reforms resulted from recommendations by the Government Actuary, and the Government are seeking to implement them following a full public consultation process. They are the reformed scheme-only design and the economic check. The economic check is essential to ensure stability and consistency across the scheme. It is also important to improve the higher bar for benefit reductions or contribution increases if the country’s economic outlook changes.

On the point about the 25-year guarantee, the Government do not believe that these reforms breach that guarantee. The elements protected by the 25-year guarantee were set out in legislation, and the cost control mechanism is not included there. The Government are making these changes following a detailed review of the mechanism by the Government Actuary and a full and open consultation process.

Amendments 22 to 24, tabled by the right hon. Member for Hayes and Harlington and the hon. Member for Hampstead and Kilburn, seek to reverse two decisions. The first reflects the cost of remedies in the mechanism of the 2016 valuation, and the second prevents the waiving of any ceiling breaches of the 2016 valuations that may occur. As I have already noted, the cost control mechanism is designed both to protect the value of schemes to members and to protect the Exchequer from unforeseen costs. At each scheme valuation, the mechanism assesses the benefits that have accrued and are accruing to members, to determine whether future benefit levels or member contribution rates need to be adjusted to meet the costs of the scheme.

The Government are clear that the remedy, by giving eligible members a choice between two sets of benefits, will increase the value of schemes to members, and this increase in value has therefore rightly been included in the mechanism for the 2016 valuations. The Government have decided that it would be inappropriate to reduce member benefits based on a mechanism that may not be working as intended, and clause 93 will therefore ensure that no member’s benefits will be cut or contribution rates increased as a result of the 2016 valuations.

Amendment 23, which would delete clause 93, would therefore reverse a decision that will protect members and would lead to significant cuts to member benefits for any schemes that breach the ceiling of the 2016 valuations. It is therefore important that clause 93 is preserved.

I am grateful to all hon. and right hon. Member for their contributions. With the exception of new clause 1, I hope I have demonstrated the reasons why I cannot accept these new clauses and amendments, and I hope hon. and right hon. Members will agree not to press them to a vote.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

New Clause 1

Guidance to public service pension scheme managers on investment decisions

‘(1) The Public Service Pensions Act 2013 is amended in accordance with subsection (2).

(2) In schedule 3, paragraph 12(a), at end insert “including guidance or directions on investment decisions which it is not proper for the scheme manager to make in light of UK foreign and defence policy”.’—(Robert Jenrick.)

This new clause would enable the Secretary of State to issue guidance to those authorities that administer public sector pension schemes, including the local government pension scheme, that they may not make investment decisions that conflict with the UK’s foreign and defence policy.

Brought up, and read the First time.

Question put, That the clause be read a Second time.

Public Service Pensions and Judicial Offices Bill [ Lords ] (First sitting)

Debate between Tulip Siddiq and Simon Clarke

Committee stage
Thursday 27th January 2022 Public Bill Committees

[Mr Clarke]

To reassure the hon. Gentleman, the amendment is designed to prevent that from occurring. In other words, the fact that their employment was outsourced during that period would not constitute a gap of longer than five years, which would put that out of the scope of remedy. It is designed precisely to ensure that they do have protection, rather than that they do not.

Finally, amendment 36 defines a local government contracting-out transfer for the purposes of what I was just alluding to.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I will start by talking about our public sector workforce and the service they give to this country. The pandemic has highlighted how much we depend on the NHS and on teachers, police and other frontline professionals who keep us and our loved ones safe. It is only right that the state ensures that our public servants are secure in retirement by providing a decent pension on a fair and equal basis.

Labour therefore welcomes the main provisions in clause 1, in particular the attempt to introduce a remedy for the discrimination of younger members in the new pension schemes established by the coalition Government between 2014 and 2016. I recognise that the remedy the Government have opted to include in the Bill—the deferred choice underpin, or DCU—was the preferred option of the overwhelming majority of respondents to the Government’s consultation, including Unison and GMB—my trade union. However, I want to draw the Minister’s attention to the fact that trade unions continue to have concerns about the lack of clarity on how the remedy, expected to cost around £17 billion, will impact the future value of members’ pension schemes.

On Second Reading on 5 January, the Under-Secretary of State for Justice, the hon. Member for South Suffolk (James Cartlidge) said

“liability…will fall on the Exchequer.”—[Official Report, 5 January 2022; Vol. 706, c. 112.]

That is an important commitment, but as Lord Davies of Brixton, a Member of the other place and one of the country’s foremost pension experts, has said, it does not address the question of whether the remedy will be included in the cost control mechanism at a later date. If this cost were to be included in a future cost control mechanism valuation, it would result in members receiving lower benefits and having to make higher contributions to their pension schemes. As the Public Accounts Committee has warned, this would, in effect, be unfairly penalising our public sector workforce for the Government’s economic incompetence by passing on some of the cost of the Treasury’s £17 billion mistake to members.

Can I ask the Minister to confirm, once and for all, whether the estimated £17 billion cost of the remedy will be included in future valuations of the pension schemes under the cost-control mechanism? If it is to be included, can he please set out how that will impact on the future value of members’ benefits and contribution rates? I think he will agree with me that our public servants deserve better than to be left in the dark, so I hope he will clarify this in detail.

Today, the Government have failed to address concerns about how pension scheme members will be protected from unscrupulous advisers. I know that Minsters have been reluctant to include pension scams in the draft Online Safety Bill, despite the spiralling costs of pension fraud and mis-selling. I would like the Minister to set out what steps he is taking to protect members from scammers, who may try to exploit the greater choice that this Bill provides by getting people to transfer out of the pension schemes in a way that is not in their best interest.

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[Mr Clarke]

I beg to move amendment 5, in clause 4, page 5, line 4, at end insert—

“(3A) In a case in which any of the person’s remediable service in the employment or office in question is excess teacher service, “the relevant Chapter 1 legacy scheme”, in relation to so much of the person’s remediable service as is excess teacher service, means the local government new scheme mentioned in section 98(2).”.

This amendment updates the definition of “the relevant Chapter 1 legacy scheme” for a case in which a teacher has excess teacher service. A definition of “excess teacher service” is inserted into clause 98 by a separate government amendment.

The amendment concerns only the interaction between the Teachers’ Pension Scheme and the Local Government Pension Scheme and covers the complex issue of future pension service. It updates the definition of the relevant Chapter 1 legacy scheme for a case in which a teacher has excess teacher service and specifies that that is the Local Government Pension Scheme—the LGPS. That allows the member’s excess service to be rolled back to the LGPS, where the member would have been eligible to join the LGPS had they not been moved to the reformed scheme. This ensures that the member’s excess service is rolled back to the correct scheme.

[Tulip Siddiq]

We very much support the clause.

Amendment 5 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

[Mr Clarke]

Clause 4 ensures that members are returned to the appropriate legacy scheme, which is the scheme that they would have been entitled to be a member of if they had not been moved to a new scheme on or after 1 April 2015. The apparently complex drafting does nothing more than that. The clause simply reflects that some legacy schemes contain different eligibility provisions.

Question put and agreed to.

Clause 4, as amended, accordingly ordered to stand part of the Bill.

Clause 5

Election for retrospective provision to apply to opted-out service

Question proposed, That the clause stand part of the Bill.

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[Mr Clarke]

The amendments in this group deal with various specific scenarios which may apply to members with remediable service. Clause 19 provides that scheme regulations may make provision in relation to a member who has divorced or dissolved a civil partnership, and, where a pension sharing order is in place, to enable their pension to be shared with their former spouse or civil partner. Clause 20 provides for scheme regulations to make provision in relation to additional voluntary contributions paid during a member’s remediable service.

Clause 21 ensures that, where a member transfers their pension rights from one public service pension scheme to another, they still receive a deferred choice in respect of any remediable service that was subject to the transfer. Clause 22 provides that scheme regulations may make further provision about special cases. The provision that may be made under this clause, or under clauses 19, 20 or 21, includes provision corresponding to any provision in chapter 1 of the Bill or applying any provision of this chapter to persons specified in the regulations.

Clause 22(2) sets out a number of areas where provision may be needed in scheme regulations. These include matters such as the benefits payable to members who had tapered protection, which is termed “mixed service” here, and to members who had a right to buy out an actuarial reduction in relation to early payment of benefits in respect of their remediable service in a new scheme. The amendments that I am about to explain add four areas to ensure that schemes have the necessary powers to deal with specific cases in relation to children’s pensions, partnership pension accounts, redundancy and teachers’ excess service.

Amendment 6 delivers the commitment in the Government’s consultation and consultation response. It set out that where a member has died and a child pension is already in payment, which would otherwise be impacted by a decision taken by someone outside the child’s household, that pension will be protected. The amendment confers power to enable provisions to be made in scheme regulations about the benefits payable where a member dies in respect of surviving children who do not live in the same household as a surviving adult. Amendments 10 and 11 provide clarification by defining “adult survivor” and “child” respectively.

Amendment 7 extends the power to make provision about special cases in clause 22 to enable provision to be made in scheme regulations about excess teacher service. These amendments will allow the teachers’ pension scheme to process excess service cases using existing provisions of the Bill, such as clauses 14 to 17, to correct contributions and benefits whether the service is pensionable in the local government pension scheme or not. Amendment 37 defines “teacher”.

Amendment 8 concerns partnership pension accounts. The Bill already provides for members of the civil service who opted to have a partnership pension account to be reinstated to the appropriate legacy scheme where they so wish. However, there may be cases where that is not possible—for example where the member has died. The amendment therefore provides schemes with powers to make provision to take a different approach where needed to provide a remedy in such cases.

Finally, amendment 9 further amends clause 22 to permit scheme regulations to make provision for cases in which a person who has remediable service is made redundant. This will ensure that schemes are able to make provision for a member to make their deferred choice to receive new scheme benefits at the time their employment ends. This approach will be needed in cases where the member’s redundancy payment is calculated by reference to the pension scheme in which they have remediable service, which is the case, for example, in the armed forces. Amendment 12 inserts a definition of “made redundant”. I beg to move.

[Tulip Siddiq]

I understand that clause 22 permits changes to the existing and traditional pension scheme and allows for the deregistering of these schemes for tax purposes so that a lifetime allowance tax charge does not apply on the basis that judges are an exceptional case. In making that exception, is the Minister confident that it will not open the door to legal action from other professionals, such as senior doctors, perhaps, who may argue that they want similar treatment?

[Mr Clarke]

Yes, I can provide the hon. Lady with that reassurance. There is obviously the question whether what we are putting in place for judges is replicable for other professions, and we are confident it is not. That is due to the unique career path of judges, many of whom leave lengthy careers in the private sector to enter public service at the culmination of their careers, and where there is an expectation that, after having served as a judge, there can be no return to private practice. That is precluded uniquely for judges. Once they have made their decision to go to the bench, they cannot then return to practice. That distinction accounts for their very particular career path and very particular constrained options, which means there is a strong case that judges are a unique group for these purposes and therefore there is not discrimination for other professions.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clauses 20 and 21 ordered to stand part of the Bill.

Clause 22

Further powers to make provision about special cases

Amendments made: 6, in clause 22, page 19, line 20, at end insert—

“(da) provision about the benefits payable in respect of a child of a deceased member where—

(i) the member has remediable service in an employment or office, and

(ii) the child is not living in the same household as an adult survivor of the member;”

This amendment confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 7, in clause 22, page 19, line 20, at end insert—

“(db) provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service;

(dc) provision about cases in which a person has remediable service in an employment or office and also has service in an employment or office as a teacher which—

(i) takes place in the period beginning with the day after the closing date and ending with 31 March 2022,

(ii) is pensionable service under a Chapter 1 new scheme, and

(iii) is not remediable service;”

This amendment enables provision to be made where a teacher has excess teacher service or has service which takes place in the remedy period, is pensionable under a Chapter 1 new scheme, but would not have been pensionable under a Chapter 1 legacy scheme, or under a local government new scheme, if the unlawful discrimination rectified by the Bill had not taken place.

Government amendment 8, in clause 22, page 19, line 20, at end insert—

“(dd) provision about cases in which a person has a partnership pension account;”

This amendment confers power to enable further provision to be made about cases in which a person has a partnership pension account.

Government amendment 9, in clause 22, page 19, line 20, at end insert—

“(de) provision about cases in which a person is made redundant;”

This amendment confers power to enable further provision to be made about cases in which a person is made redundant.

Government amendment 10, in clause 22, page 20, line 17, at end insert—

““adult survivor”, in relation to a member of a Chapter 1 scheme who has remediable service, means a surviving spouse, civil partner or other adult who is entitled under the scheme to a pension determined (to any extent) by reference to the member’s remediable service;”

This amendment contains a definition required for the amendment of this clause that confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 11, in clause 22, page 20, line 19, at end insert—

““child”, in relation to a member of a Chapter 1 scheme, means any individual who—

(a) is entitled to receive benefits under the scheme in their capacity as a child of the member, or

(b) would have been entitled to receive benefits under the scheme in that capacity on the assumption that any election under this Chapter was, or was not, made in respect of the member;”

This amendment contains a definition required for the amendment of this clause that confers power to enable provision to be made about the benefits payable, where a member dies, in respect of surviving children who do not live in the same household as a surviving adult.

Government amendment 12, in clause 22, page 20, line 19, at end insert—

““made redundant”: a reference to a person being “made redundant” includes, in relation to a member of the armed forces, a person becoming entitled to a redundancy payment under—

(a) Part 2 of the Armed Forces (Redundancy, Resettlement and Gratuity Earnings Schemes) (No 2) Order 2010 (S.I. 2010/832),

(b) the Armed Forces Redundancy Scheme Order 2006 (S.I. 2006/55), or

(c) the Armed Forces Redundancy Scheme Order 2020 (S.I. 2020/1298);”—(Mr Clarke.)

This amendment ensures that the power to make provision about cases in which a person is made redundant covers any case in which a member of the armed forces becomes entitled to a redundancy payment under the instruments listed.

Clause 22, as amended, ordered to stand part of the Bill.

Clause 23

Power to pay compensation

Question proposed, That the clause stand part of the Bill.

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[Mr Clarke]

This group of amendments relates to chapter 3, concerning the remedy to the discrimination for local government workers. Let me begin by setting out why there are separate provisions in the Bill relating to local government schemes.

In line with the reform processes applied in other parts of the public sector, local government schemes were reformed by the Government following the review undertaken by the Independent Public Service Pensions Commission. In the local government schemes, however, trade unions, employers and the Government agreed to implement transitional protections for members nearing retirement in a different way. Under that approach, all local government scheme members moved to the new and reformed career average schemes from 1 April 2014 in England and Wales and from 1 April 2015 in Scotland and Northern Ireland. That differed from the approach in other public service pension schemes, where protected members stayed in their legacy schemes.

In their reformed schemes, protected local government workers were given the benefit of underpin protection, providing them the value of their legacy final salary pension if that would have been higher than their reformed scheme pension. Following the Court of Appeal’s judgment, which held that transitional protection unlawfully discriminated against younger workers in the judicial and fire schemes, the Government accepted the wider implications that the judgment had for all schemes, including local government.

Policy consultations were undertaken for local government in 2020. Chapter 3 of the Bill provides the necessary powers to address the discrimination in those schemes, which will be done by extending the statutory underpin to younger members who did not originally have protection. The new clauses in this grouping are designed to ensure that a comprehensive remedy is in place for local government workers. The changes include replacements for clauses 77 and 78, which set out the main principles of the remedy as it will apply in local government.

As many of the new clauses are of a technical nature, I will not explain each in detail, but I hope that the Committee will find it helpful if I explain their themes. I will of course be happy to turn to specific new clauses if members of the Committee have any questions. The first theme is to ensure that, where appropriate, there is a consistent approach with other public service pension schemes. The new clauses will therefore provide equivalent powers to those that already exist in respect of the other public service pensions schemes covered in chapter 1. The new clauses cover technical matters, including compensation, special cases and interest payments. They are necessary to ensure that the complexities arising can be addressed robustly across all workforces.

New clause 3, which is a replacement for the existing clause 77, makes an important change to broaden the scope of eligibility for remedy in local government to align it with all other public service schemes. Under the amended approach, members who were in pensionable service on, before or after 31 March 2012 would be in scope of remedy if they leave local government and return within five years, as well as meeting qualifying criteria. The change ensures that, for example, women are not disadvantaged by their increased likelihood of having breaks in employment, which may be due to childcare.

The second theme is to ensure that the powers reflect the particular circumstances of the local government schemes and the differences in how remedy works there. New clause 4, which is a replacement for the existing clause 78, permits scheme regulations to require that separate periods of pensionable service are aggregated or joined up for underpin protection to apply. That is an important principle in the local government pension scheme, which is locally administered. In England and Wales alone, there are 86 administering authorities. To avoid administrative complexity, established policy is that where scheme members have multiple periods of pensionable service, those are each treated separately unless they are aggregated together. Allowing scheme regulations to require aggregation will ensure that underpin protection can be provided in line with that policy, and that substantial administrative complications in the coming decades are avoided.

New clause 3 also ensures that scheme regulations can reflect another aspect of remedy that is unique to local government schemes. When transitional protections were originally negotiated in the sector, it was agreed that the period of protection should cease when a member reaches their legacy scheme normal pension age, usually 65. In line with the Government’s 2020 consultation proposals, it is proposed that that approach is retained, subject to an overall requirement that underpin protection must cease for all members by 31 March 2022. That is crucial to ensure that, going forward, all LGPS members accrue pension on the same career average basis. The amended clause 77 would ensure that underpin protection reflects this policy intent.

The new clauses also make amendments to ensure that the remedy applies correctly to local government staff who were compulsorily transferred from their employer as a result of outsourcing and were entitled to pension protection. That change is consistent with that made in chapter 1, as we discussed earlier. For those members, the time they spent in a private sector pension scheme will not count towards a “disqualifying gap in service”, which we discussed earlier, when assessing their eligibility for the remedy.

Turning to the final theme, some clarifying changes have been made to ensure that the Bill works as intended. In particular, new clause 5 sets out transitional arrangements making it clear that existing scheme regulations providing for underpin protection are to be treated as being made under the powers in the Bill. That change ensures that it is clear that the same legislative framework applies to the members originally protected and those who have been subject to the discrimination found by the courts. It means that scheme regulations can fully remove the differences between the two groups.

Finally, clause 79 provides important definitions for the terms “local government new scheme” and “local government legacy scheme” as they are used in chapter 3. They are important to the meaning and effective application of the clauses in the chapter, so I recommend that that clause stands part of the Bill. I hope that my explanations regarding the new clauses, which ensure a full and robust remedy for the local government workforce, have been helpful to the Committee.

[Tulip Siddiq]

I am grateful for the explanation given by the Minister. We support the changes to the local government pension scheme and the other technical amendments, in particular those that aim to broaden the scope of members’ eligibility for the proposed remedy.

--- Later in debate ---

[Mr Clarke]

The cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of those schemes. Clause 86 would ensure that there are no cuts to member benefits or increases to member contributions as a result of the cost control mechanism at the 2016 valuations. New clauses 1 and 2 are designed to replace and supplement the clause while preserving its existing effect. That goes to the point that I was discussing with the hon. Member for Hampstead and Kilburn at the outset of this morning’s proceedings.

The cost control mechanism was introduced following the recommendations of the Independent Public Service Pensions Commission in 2011. Although the commission recommended a mechanism to protect the Exchequer from increased costs, the Government went a step further and introduced a mechanism that is symmetrical, so also maintains the value of pensions to members when costs fall. At each scheme valuation, the mechanism assesses scheme costs against a base level. If those costs move beyond a certain amount compared with the base level, member benefits or contribution rates must be adjusted to bring costs back to target. All the main reformed public service pension schemes are subject to the cost control mechanism.

The intention was for the mechanism to be triggered only by unforeseen and unpredictable events. In 2018, the Government Actuary was asked to review the mechanism after the provisional results of the 2016 valuations suggested that the mechanism was too volatile and not operating in line with its objectives. The review commenced in 2020 and his final report was published in June 2021. It contained several recommendations on how to improve the mechanism. Following a full public consultation process, the Government confirmed in October last year that it would take forward three reforms to the mechanism in time for the next scheme valuations. All three reforms are recommendations by the Government Actuary.

New clause 1 sets the legislative framework for the implementation of two of those reforms: the reformed scheme only design and the economic check. A reformed scheme only design means that costs associated with the old legacy schemes are excluded from the mechanism. That will make it more stable and reduce intergenerational unfairness, because comparatively younger members’ benefits or contributions will not change based on the cost of legacy schemes to which they had little, or no, access. That transfers the risk associated with legacy scheme costs to the Exchequer, but ensures consistency between the set of benefits being assessed and the set of benefits potentially being adjusted.

The economic check will ensure consistency between member benefit or contribution changes and changes in the wider economic outlook of the country. There will be a higher bar for benefit reductions or contribution increases if the country’s long-term economic outlook has improved. That will equally apply to benefit increases or contribution reductions if the long-term economic outlook has worsened. The economic check will therefore operate symmetrically for the benefit of both members and taxpayers. It will operate in a transparent way and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the Office for Budget Responsibility. Given that the economic check can only offset or prevent breaches, not cause them, the likelihood of changes to member benefits or contributions will decline.

As some members of the Committee will know, the Government also consulted on a third proposal to widen what is called the cost corridor, which will be implemented through secondary legislation in due course. That, again, is designed to reduce volatility. All three proposals will make the mechanism more stable and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes. The changes also reproduce, with technical changes, some subsections of the clause as it stands.

New clause 2 replaces clause 86 as it stands in the Bill. The change will ensure that there will be no cuts to member benefits or increases to member contribution rates as a result of the 2016 valuations. Again, that goes to the important point that we discussed at the outset—members will not lose out. However, any benefit improvements that are due will be implemented.

[Tulip Siddiq]

We welcome the proposal in new clause 1 for a reformed scheme only design, which means that the cost of the legacy schemes will no longer be included in the cost control mechanism, but will the Minister provide clarity on a number of points? As he has said, it is a very technical Bill, so please bear with me.

On Second Reading, the Chief Secretary to the Treasury stated the Government’s intention to introduce secondary legislation in due course to widen the margin of the cost corridor from 2% to 3% of pensionable pay. Labour broadly supports that, and I recognise that it aims to provide greater certainty for members and the taxpayer, but, were the cost corridor to be widened to 3%, any upward breach of the CCM might potentially have a larger impact on members, as I am sure he recognises. Will he be willing to commit to publishing impact assessments of the proposed changes to the cost corridor for each public service scheme, to evaluate how members would be affected? Additionally, will the Minister confirm what mechanisms are to be put in place to monitor potential breaches of the cost corridor in the scheme, to ensure that members are given advance notice of possible changes in the value of their benefits?

We have far more serious concerns about new clause 2, which introduces a symmetrical economic check to the cost control mechanism. We object to such a scheme being introduced at such a late stage. It appears as if Ministers are making last-minute amendments to steamroller controversial elements of the Bill through without proper scrutiny. I want reassurance from the Minister that that is definitely not the case.

--- Later in debate ---

[Mr Clarke]

I thank all Members for their contributions, which I will take in turn. I hope to provide significant reassurance.

On the point that the hon. Member for Hampstead and Kilburn made about the widening of the cost corridor, the Government published a full impact evaluation as part of the consultation response on 4 October 2021, so that detail is available and is modelled.

To the point of the hon. Member for Reading East just now, the cost corridor is being addressed in regulations because the current 2% corridor exists under current powers, so we are simply amending 2% to 3% and do not need to introduce anything new.

As for the 25-year guarantee and the assurances given when the pension reforms were first introduced, the Government do not believe that the reforms breach that guarantee. The elements protected by the guarantee are set out in legislation and the cost control mechanism is not included among them. The Government are making these changes following an independent and thorough review of the mechanism by the Government Actuary’s Department and a full and open consultation process. As the GAD’s report makes clear, it does not seem possible for the mechanism to protect the taxpayer unless it considers the wider economic outlook, and the symmetrical operation of the economic check acts to protect members as well as the taxpayer.

The reforms will fundamentally lead to a more stable mechanism, with both benefit reductions and improvements becoming less likely. That aligns with the spirit of the guarantee which, as the hon. Member for Hampstead and Kilburn quite rightly said, is all about certainty. There is absolute conviction that that is in everyone’s interest including, most importantly, scheme members.

As for how the situation is assessed and to the point of the hon. Member for Glenrothes about how we manage the long-term GDP expectation, the check will be linked to the Office for Budget Responsibility’s independent and objective measure of expected long-term GDP growth and the long-term earnings assumptions. The check will operate purely mechanically with no scope for interference from individuals or groups from within Government or outside. It will be an independent, objectively assessed measure by the OBR. There is no sense in which any Minister from whatever party is in government at whatever time would have the ability to intervene in that process. I hope that provides reassurance on all those points.

[Tulip Siddiq]

I thank the Minister for that explanation. Is there an impact assessment for each scheme?

[Mr Clarke]

We have modelled the full detail. In so far as there is any particular point of clarification that the hon. Lady would like, I will happily write to her after these proceedings to provide whatever we can.

Public Service Pensions and Judicial Offices Bill [ Lords ] (Second sitting)

Debate between Tulip Siddiq and Simon Clarke

Committee debates 2nd sitting & Committee stage
Thursday 27th January 2022 Public Bill Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

The Government have yet to set out the estimated costs of the provisions for Bradford & Bingley and Northern Rock and whether those costs are in addition to the £17 billion budgeted for the McCloud response or are part of the same overall costs. I would be grateful if the Minister could provide some clarity on that matter.

[Mr Clarke]

To be clear, the measures affecting Bradford & Bingley and NRAM are net cost savings, so this is a net benefit for the Exchequer; it actually reduces costs.

Question put and agreed to.

Clause 99 accordingly ordered to stand part of the Bill.

Clauses 100 to 103 ordered to stand part of the Bill.

Clause 104

Transfer of other pensions and benefits

--- Later in debate ---

[Mr Clarke]

Amendment 48 very simply corrects a cross-referencing error in schedule 1. It references the power described in paragraph 44(2) in schedule 1, which confers upon the Lord Chancellor the power to reinstate retired magistrates, rather than referencing sub-paragraph (3), as currently drafted.

Clause 109, together with schedule 1, will increase the judicial mandatory retirement age to 75. Schedule 1 also gives the Lord Chancellor powers, with the concurrence of the Lord Chief Justice, to reinstate retired magistrates below the new mandatory retirement age where there is business need.

[Tulip Siddiq]

We support the clause, which raises the retirement age of judges to 75, as we recognise the need to deal with the backlog in the judicial system. However, I wanted to make the point to the Minister that measures to deal with the backlog should not distract from efforts to improve the diversity of the judiciary. Shockingly, according to Government data—this will not come as a surprise to the Minister—only 1% of judges were black, and only 4% of senior court appointments came from ethnic minority backgrounds. I want some reassurance from the Minister that the Government will take steps to ensure that this provision does not hinder efforts, in any way, to bringing a more diverse workforce to the bench.

--- Later in debate ---

[Tulip Siddiq]

I beg to move, That the clause be read a Second time.

I intend to press new clause 14, which I tabled on behalf of the Opposition Front Bench, to a vote. It would require the Government to review how losses arising from the pension trap can be compensated and to report on the review within two months of the passage of this legislation. We are concerned that the Bill does not take into account the so-called pension trap, which means that some members may lose benefits due to a higher retirement age brought in under the new pension schemes. This has come about because police and fire service pensions operate differently from other public sector schemes in that they are based on a 30-year service record rather than a specific retirement age.

The Police Superintendents Association, the Police Federation, the Fire Brigades Union and others have raised fears that individual members could lose out in their pension schemes because of the way that the affected years, between 2015 and 2022, are being treated by the legislation. It cannot be right that pension scheme members in the police and fire service, who have given so much service to the country, will see the overall value of their pensions decline even as they continue to work and to pay contributions, so I ask the Minister whether he will commit the Government to entering discussions with the relevant unions and membership bodies to bring forward a fair solution to the pension trap, as it is called. To demonstrate the Government’s commitment to reviewing the issue and finding a fair solution, he should support the new clause.

[Mr Clarke]

I thank the hon. Lady for tabling the new clause, which would require the Chancellor to lay a report before Parliament within two months of the passing of the Act setting out how the Government could compensate scheme members who had reached the required number of years to retire with full benefits under the legacy scheme but who would need to continue to work if they wished to retire with full benefits under the reformed scheme. The intention of the new clause appears to be to require the Chancellor to devise a way to compensate scheme members with remediable service for any reduction of future pension benefits resulting from the prospective McCloud remedy legislated for in clause 8, and the difference in pension ages between the legacy and reformed schemes.

The Government received representations made by police staff associations regarding members of the 1987 and 2015 police pension schemes who reached 30 years of service in the legacy pension scheme before reaching minimum pension age in the reformed scheme. Lord Davies of Brixton proposed amendments regarding that issue during the Bill’s passage through the other place; however, by referring to full benefits in the reformed pension scheme, the new clause appears to go considerably beyond the police staff associations’ representations and proposals, effectively requiring compensation for those below normal pension age, not minimum pension age, in the reformed scheme.

Under the Bill, all members in active service will be moved into the reformed schemes in respect of service from 1 April this year onward—that is what is known as the prospective remedy—to ensure that all active members are treated equally from that date onward. For the avoidance of doubt, no legacy scheme member will be unable to access the full value of their accrued benefits in their legacy scheme once they reach the required age or length of service. The vast majority of scheme members will be able to access their benefits in reformed schemes at this point, with a fair actuarial reduction for taking scheme benefits below their normal pension age.

--- Later in debate ---

[Mr Clarke]

I thank the hon. Members for their comments and questions. I entirely echo what the hon. Member for Reading East said about the debt we owe to our police and fire services. Collectively, they are perform enormous public service and we are all in their debt.

We have concerns about the wording of the new clause, particularly where it says that a loss “could be compensated,” implying that compensation should be paid. We are concerned that that creates an expectation on Government.

The Home Office, as the responsible Department, is leading a genuine consultation process about the police pensions services. It will bring forward the outcome of that consultation in due course. To address the issue at this point would fall outside my remit and the remit of this Bill.

[Tulip Siddiq]

First, I want to say that my new clause is supported by the Police Superintendents Association. I checked it with the association before I tabled it.

I listened to what the Minister had to say, but the new clause does not really propose a solution, which is the Government’s job. We were pushing for a review of the issue, which we know is important to the Police Superintendents Association, the Police Federation and the Fire Brigades Union. I am disappointed that the Minister does not seem to recognise what a concern the pension trap is to those organisations. I wish to push the new clause to a vote, Sir Graham.

Question put, That the clause be read a Second time.

Working People’s Finances: Government Policy

Debate between Tulip Siddiq and Simon Clarke

Tuesday 21st September 2021 Commons Chamber

[Mr Clarke]

We did look at this, and Treasury analysis showed that lower-income households will be large net beneficiaries from the package announced by the Prime Minister, with the poorest households gaining the most as a proportion of income. This Government are unafraid to make tough choices in order to safeguard the nation’s finances. The difficult decisions that we have made to increase corporation tax rates and temporarily reduce overseas development assistance—which I know will be considered the right decision by my constituents on Teesside—are clear illustrations of our approach on this front.

As a final point, I remind Members that while we have taken extensive action to safeguard workers’ finances during the pandemic, our record of achievement stretches much further back. Indeed, according to official statistics there were 1 million fewer workless households at the end of 2019 than in 2010, while income inequality was lower going into the pandemic than in that year as well. In fact, over the past 11 years successive Conservative Governments have striven to keep the cost of living in check for millions of households.

Let me give the House some examples. Fuel duty has been frozen for 11 years in a row, cumulatively saving the average driver £1,600. The energy price cap has protected 15 million households in the two years since its launch. We have nearly doubled the personal allowance over the last decade, making it the highest basic personal tax allowance of all countries in the G20 and one of the most generous internationally. In combination, our changes to the national living wage, personal allowance and national insurance currently leave a full-time national living wage employee £5,400 better off in cash terms compared with 2010. I am proud of that, and I think all Conservative Members should be. These measures are just part of a record of achievement that has made a real and lasting difference to people’s lives.

[Tulip Siddiq]

The Minister is talking about everything that he is proud of. Is he proud that the childcare system in this country is the third most expensive in the world, and that parents are making the choice between paying childcare costs or paying their rent or mortgage? Does he think that removing the universal credit uplift will help working parents? I notice that he has not said anything about childcare, so would he care to elaborate?

[Mr Clarke]

I would be delighted to. This Government have doubled childcare for working families to 30 hours a week. That is worth £5,000 a year. For working families claiming universal credit, up to 85% of eligible childcare costs are met. That is the right thing to do. We want to keep women in the workforce, and we want to make sure that it is easy for families to adjust to whatever arrangements best suit them to support their children as they grow up.

A plan for jobs, incomes supported, the economy rebounding—this Government have safeguarded the finances of millions of people and, in doing so, set our country on the path to a strong recovery. Working people right across this country are seeing the benefit. We are not just promising a brighter tomorrow; we are delivering positive, tangible change today. Let me stress that we have no plans to alter our course. We will remain relentless in our mission to provide workers in every part of this country with the better prospects, greater security and increased opportunities that they so rightly deserve.