Baroness Clark of Kilwinning
Main Page: Baroness Clark of Kilwinning (Labour - Life peer)Department Debates - View all Baroness Clark of Kilwinning's debates with the HM Treasury
(11 years, 10 months ago)
Commons ChamberI am not aware of any technical reason why a time gap should occur, but I know that officials in the Northern Ireland Department of Finance and Personnel discuss this regularly with my officials in the Treasury. If there is any evidence of such an occurrence, I will be happy to consider it in the normal way. There have been regular discussions on these matters, not least in our Finance Ministers quadrilateral. We will meet again in a couple of weeks in Edinburgh, when this subject will be on the agenda, so we can discuss it then.
The Chief Secretary will be aware that several of the Bill’s provisions will affect Scottish pension schemes for the first time. There is a debate in Scotland about whether a legislative consent order is required, so will he address that point in detail in his speech?
I certainly will, when I come to it.
Lord Hutton’s first set of recommendations consisted of safeguards to ensure that the long-term cost of pensions was sustainable through a link between state pension age and normal pension age, and included a cost-cap mechanism to protect the taxpayer in the event that other unforeseen costs arose. He recommended that the new schemes should be fairer by smoothing the current disparities between high and low-income earners and ensuring that benefits are distributed more equally, which was why he recommended a move from final salary provision to career average revalued earnings—CARE—schemes. Finally, he recommended stronger governance provisions for the new schemes so that scheme members and the public could understand how the schemes were run and what they cost.
We accepted all 27 of Lord Hutton’s recommendations as the basis for discussion with trade unions and scheme member representatives across the public service, and designed our blueprint reference scheme in a way that reflected the recommendations of the Hutton report without any cherry-picking. Our aim was to strike a deal that would last, unchanged, for 25 years. Talks with the unions took place on all elements of that deal. I should stress that the Government did not do all the talking in those meetings—we listened carefully, too. Agreeing the design of these pensions has taken a considerable cross-Government effort over the past 18 months. The Minister for the Cabinet Office, the Home Secretary, the Lord Chancellor, the Education Secretary, the Defence Secretary, the Communities and Local Government Secretary and the former Health Secretary worked hard to understand the concerns of the trade unions and member representatives in their sectors.
We have taken great care to work with the TUC. We have taken it through the text of the Bill, listened to its concerns and made adjustments where necessary. This has not just been done through the scheme negotiations; we have also been open by sharing the Bill with trade union colleagues. Given the long-term nature of the reform and the fact that it affects so many people, it was important to engage properly. My departmental colleagues have engaged closely with representatives of the relevant work forces to ensure that that has happened.
The Bill sets out a framework for the schemes, with some restrictions, and in due course we will have to produce regulations to set out the design of each scheme. There are well-established processes within Departments for working with employers and employees on such details. My experience is that those processes work pretty well, and there is a pretty good co-operative spirit among the pensions experts around the table. I therefore do not foresee any problems but, of course, if the hon. Member for Coventry South (Mr Cunningham) does, I would be delighted for him to bring them to my attention so that I can try to resolve them.
I will make some progress and give way to the hon. Lady later.
I return to Lord Hutton’s four key tests for the future design of public service pensions: affordability, fairness to public service workers, fairness to the taxpayer and transparency. Those objectives have prevailed throughout the process and remain the cornerstones of the Bill. First, on affordability, it is clear from Lord Hutton’s report that the new scheme should be affordable and sustainable. The Bill represents a significant proportion of the total of more than £430 billion of savings that our reforms of public service pensions are estimated to save over the next 50 years.
The right hon. Gentleman is absolutely right to say that the link between the state pension age and the normal pension age is fixed in the legislation. That is a matter that was discussed in the negotiations, including the detailed negotiations with health service unions. The point I was seeking to make was that, as Lord Hutton recommended, we have agreed to review how that link operates at each stage at which the state pension age is increased, to enable those issues to be debated.
I will give way one more time, then I must make some progress. There is a lot of detail to get through.
Clause 9(2) means that firefighters would not be able to retire with a pension until they were 60. Many in the industry believe this is unworkable. What would the right hon. Gentleman suggest to firefighters who cannot work until they are 60?
In that case, we followed the recommendations of Lord Hutton—and, indeed, previous practice. The point I made just a moment ago—I am sure the hon. Lady was listening carefully—is that the provision does not stipulate the date to which people must work. Clearly, if people wish to retire earlier, they can do so and take an actuarially reduced pension or, indeed, retire later and take an actuarially enhanced pension.
The Bill and, perhaps more significantly, the delegated legislation that will follow it, will undoubtedly have far-reaching consequences for all those who receive public sector pensions in this country, as the debate has clearly highlighted. Analysis from the Pensions Policy Institute suggests that the proposed changes to the NHS, local government, teachers and civil service pension schemes will reduce the average value of the benefit offered across all schemes by more than a third compared with the value of the schemes in place before the coalition Government came forward with these proposals and the other steps they have taken since coming to power. The Minister has already spoken about a 40% cut in costs over time, so I assume that he will accept that figure.
We find it shocking that while there have been pay cuts of 40% in Greece as its austerity programme has been implemented, pensions in the UK are facing equivalent cuts yet most people are unaware that that is happening, perhaps in part because many people find pensions complex and difficult to understand. Of course, pensions are as much a part of our employment package as other benefits, such as pay. Indeed, many argue that pensions are in fact deferred pay, so in effect we are discussing significant cuts in the terms and conditions of all public sector workers in this country, which will, of course, have all sorts of ramifications for the private sector.
According to the Pensions Policy Institute’s analysis, following the coalition’s proposed changes, the scheme value across the four largest public sector pension schemes will reduce on average from 23% of a scheme member’s salary to 15% of their salary, with the net effect that the pension will form a much smaller part of an employment package. I argue that we should not support that. I have listened with interest to the debate on private sector pensions—I hope that we have can have a much fuller debate about it on another occasion—but I think that the message that should be coming from the House is that we want the pension to form a much bigger part of a person’s employment package. We should put in place a framework whereby the individual is required to save, as is the employer, and the Government have a role to play by ensuring that the policy framework is in place to enable that to happen.
My hon. Friend the shadow Minister said that the change in the indexation for public sector pensions from RPI to CPI is wiping 11% off the value of pensions in the public sector. In effect, that means that the pension of each public sector worker will be 11% lower in each year of their retirement. We have already heard about the implications of people opting out if these proposals are implemented, but we must also consider the implications for the public purse if people have lower incomes in retirement and therefore need to look to the state for support through welfare benefits. Half of all women workers who have a pension of less than £4,000 will be worse off, and the TUC estimates that 60% of all public sector part-time workers earning less than £15,000 a year will have to pay higher contributions. We need to look at the wider implications of the proposal.
In previous debates in the Chamber on public sector pensions, many figures have been cited to show the low salaries that most people who receive such pensions receive. As we know, public sector pensions are far from gold-plated. The Hutton report said that the average pension paid to scheme members was about £7,800 per year, with the median payment being £5,600 per year, while half of all women public sector pensioners get less than £4,000 per year. In reality, however, many people in receipt of public sector pensions receive smaller sums. The proposals suggest that those people should be required to pay greater pension contributions, to work longer, and to receive a worse pension at the end of the process.
Tribute has already been paid in this debate to the former right hon. Member for Croydon North, Malcolm Wicks. It is incredibly sad that he is not here to explain, in his most articulate way, why it is not the case that everyone should be expected to work longer, especially those who have worked in heavy manual jobs from an early age. Perhaps such people should have a lower retirement age, with the retirement system and their pension schemes taking that into account. I remember chairing a sitting of the Committee that considered the Bill that became the Pensions Act 2011 during which Malcolm Wicks entertainingly and powerfully highlighted his passion for this issue as he strongly led a rebel Labour effort to make the case that we need to look seriously at how we deal with those who carry out manual tasks.
Does the hon. Lady share my particular concern about firefighters whose retirement age will be extended? It is argued that fire prevention roles requiring less manual work will be made available to them, but does she agree that that will probably not prove to be the case for the vast majority of firefighters as they reach their later retirement age?
I am grateful to the hon. Gentleman for that intervention. I referred earlier to clause 9(2), which clearly states that firefighters will be required to work until the age of 60 before receiving their pension, whereas at the moment they have to work only until they are 55. My understanding of the fire service is that jobs requiring lesser physical skills would not be available, so I asked the Minister what he expected people to do. Labour Members fear that they would retire early, but would then have to get other employment, such as a part-time job in Tesco, or to sign on. That is not an adequate way to deal with people who do such jobs over a lengthy period.
Of course, it is not only firefighters who will be affected. Many people in the public sector work in very physical jobs, whether they are the paramedics in our ambulances or nurses—particularly grade A nurses. Those who carry out manually demanding tasks would not be able to work until they were 68, but other jobs might not be available to them. We need to think this through very carefully. Having listened to the Minister, I am worried that the Bill has very little flexibility. We need to be able to think far more flexibly about working ages. We must recognise that while it may be appropriate for some people to work for longer—indeed, many people might want to work until they are much older than has traditionally been the case—for others that is simply not appropriate.
The Bill will have significant implications for the various public sector schemes in Scotland, where there has been considerable debate about its impact. Of course, the civil service schemes are a matter for this Parliament, but the local government, national health service and police pension schemes, as well as those of teachers and firefighters, are devolved. When Westminster legislates on matters that are devolved to Scotland, it usually needs to obtain a legislative consent motion from the Scottish Parliament. I appreciate that the Scottish National party spokesperson, the hon. Member for Banff and Buchan (Dr Whiteford), is in the Chamber, so she might address this later, but I am told that Scottish officials have advised Ministers in the Scottish Government that such a motion is not required, although the view of the trade unions in Scotland, on the basis of legal advice that they have obtained, is that a motion would be necessary. I was interested to hear what the Minister said about that, because there are very significant implications for Scotland. The negotiations that have taken place there are not identical to those that have been held with Ministers down here. I hope that the Scottish Government will wish to ensure that they are able to enact measures on the basis of whatever agreements are made with the unions in Scotland.
I believe that this is a devastating Bill, not only for pensioners in the public sector, but for those in the private sector. It sends all the wrong messages about what we should be seeking for pensions. We need to put in place frameworks through which we collectively save far more than we have in the past to ensure that we have provision in retirement. That does mean that individuals who can afford to should be paying more into their pension schemes, but it also means that the employer should be paying more and that the state should be playing a greater role in ensuring that that happens. In 2007 and 2008, the then Labour Government implemented reforms to the four largest public sector schemes that took account of the changing demographics that we faced. My view, which is shared by most people who have looked seriously at this, is that those schemes are viable and that sufficient funds are available to ensure that pensions are paid out.
In actual fact, the Audit Commission report on the local government pension scheme, which is by far the largest scheme, says that it can meet only 75% of its future liabilities. Far from being sustainable, it has a shortfall.
My understanding is that there will be a review of the scheme. Having spoken to some of those who are directly involved in the negotiations on the scheme, I am firmly of the view that we need to look carefully at those figures. On the basis of the financial information that we have, which is, of course, dated, because there has not been an up-to-date review, the reality is that the scheme is viable and there is no reason to believe that that will change.
May I advise my hon. Friend of a successful local government pension scheme, namely the Greater Manchester pension scheme, which is administered by my own local authority—Tameside metropolitan borough council—and is fully funded? Is it not the case that best practice therefore exists, and should not other local government pension schemes utilise it?
I am interested in the scheme to which my hon. Friend refers, and I might get more information about it from him later.
It is worth putting on record that under the deal negotiated by the Labour Government, if there were increased costs with regards to longevity, there would be a cap on the employer’s contribution and the additional cost would be borne by the contributors—the scheme’s participants. The issue of longevity was therefore dealt with by agreement with the unions.
I listened carefully to the hon. Member for Finchley and Golders Green (Mike Freer) and I can say to him that while there needs to be a review of the local government scheme, I understand that the current position is that it is perfectly viable. This proposal has been made because Government Members take the view that public sector schemes are too generous and form too large a part of the employment package in the public sector. We actually need to use the public sector schemes as a model to ensure that pensions are a much greater part of everybody’s employment package. If we do not do so, we will simply end up paying in other ways, whether that is because people opt out, or because people will rely on the state as they are living in such poor circumstances. We should have a debate about how we can move towards a situation whereby, collectively, we save more for retirement, so that people have decent pensions that they can afford to live on and do not need to rely on the state in other ways.
I will try to keep my remarks to the point, Madam Deputy Speaker, and enable other Members to get in.
We have heard a lot about some of the changes that have already started to take effect, but one aspect of the Bill that is undoubtedly causing most concern, and proving a sticking point in negotiations with the public sector work force, concerns the equalisation of the normal pension age with the state pension age, and the implications of that for those who may have to work until they are 68.
Although I welcome the exemptions that have been conceded for some of the more obviously physically demanding public sector occupations—police officers, firefighters, members of the armed forces—that is by no means an exhaustive list of public sector jobs that can be extremely physically challenging. Most people would struggle to do many of those jobs into their mid and late-60s, and I hope the Government will listen carefully to employee representatives, and look again at the proposal and at what it might mean for nurses, paramedics, auxiliaries, prison officers and teachers, and others who do stressful and physically demanding jobs. That was one of the principal issues raised across the spectrum of trade unions and other employee representative groups, and the Bill does not currently seem to contain any flexibility to look at the issue in the context of overall negotiations, which is a particular issue in the devolved context.
We need to look at the normal pension age and its alignment with the state pension age in a slightly wider contextual framework, and inject a bit more practical realism into our actuarial spreadsheets. It was a pleasure to follow the hon. Member for Bromley and Chislehurst (Robert Neill), and the issue of life expectancy that he mentioned is important. We all acknowledge that life expectancy is increasing, but that top line trajectory masks great and very marked divergences on a range of demographic and geographic indicators. At this point, may I add my tribute to those of other hon. Members who have mentioned the late right hon. Member for Croydon North, (Malcolm Wicks)? It was he who raised some of these important points during previous debates.
People who have worked in heavy industry, for example, tend to die younger than those who have worked in professional occupations. People in deprived neighbourhoods live shorter lives than those in affluent areas, and on average women tend to live several years longer than men. One aspect of that divergence that does not receive nearly enough attention yet is pertinent to the debate is healthy life expectancy—the number of years in which we can expect to enjoy good health. Healthy life expectancy is rising, but it is not rising as quickly as life expectancy.
In Scotland we have one of the lowest life expectancies in Europe, and men and women can expect to live almost two years less than the UK average, at just over 76 years for men, and just over 80 years for women. The key point, however, is that healthy life expectancy is only 61.9 years for women and 59.5 years for men. The health of many men has already been seriously compromised several years before they reach the current retirement age. Those figures come from the Registrar General for Scotland; they are official Government figures.
Last month, the TUC published research indicating that in the UK as a whole, only 54% of men aged between 60 and 64 are actually in work, which, on the face of it, seems fairly consistent with official figures on healthy life expectancy. Women can obviously claim their state pension at an earlier age so they fare a bit better, but even then only 62% of women between 56 and 60 are in work. We as legislators must be a lot more realistic about how long we can expect people to be fit for work. Furthermore, those figures do not include people who have moved into part-time work because of their health, or taken on unpaid caring responsibilities for a spouse whose health has been compromised. Many people also leave the workplace to look after grandchildren.
I am sure all Members know people who work into their 70s and beyond with robust health and enviable levels of energy, and thanks to equality legislation fewer barriers are now in the way of older people who want—or need—to continue working beyond the state pension age and are able to do so. However, we cannot just cross our fingers and hope that older people will be able to continue in their jobs until they are 68. All the evidence tells us that most people will have developed some serious health problems by that stage in their lives, which may well affect their ability to work. That is not just in heavy occupations, but across the board.
Even if we allow for continued improvement in health outcomes, which I am sure everyone aspires to, and if life expectancy continues to rise, we need to factor in the realistic likelihood that a significant proportion of people will not be fit for work in physically demanding jobs by the time they reach 68. My worry is that those who are forced to leave their jobs early because of ill health face having to live on actuarially reduced pensions. That might well save the public pension schemes money, but it will significantly reduce their standard of living and quality of life in old age. It might even force some to rely on state benefits. The hon. Member for North Ayrshire and Arran (Katy Clark) alluded to that. We currently spend about £13 billion a year in means-tested benefits for older people, most of whom have worked hard all their lives, often in low-paid jobs or in unpaid caring, and do not have occupational pensions. Supporting those people through means-tested benefits is probably the least efficient way we could ensure they have a dignified old age.
As other hon. Members have said, today is not the day to debate the chronic problems with, and abysmal state of, private sector pensions and the reasons for them, but the warning is there: we should not pull the public sector down to the base level—the absolutely inadequate level—of private and voluntary sector pension schemes. That would be a recipe for spending a lot more on means-tested benefits in the long term.
I was struck by the briefing from the Prison Officers Association, not least because the proposed reforms will affect hundreds of prison officers in my constituency who work at Peterhead prison. The POA points out that, although the average age of prison officers in the UK is rising, prisoners are getting younger, and, in its words, “more dangerous”. It is concerned that many prison officers in their 60s might struggle to pass the physical fitness test that all prison officers undertake to ensure they have the physical strength, stamina and stability to, for example, use control and restraint techniques in the course of their duties. Prison officers make the case that there is a direct parallel between their job and that of police officers, and cannot understand why the recognition that police officers might not be able to do their job effectively beyond 60 has not been extended to them. Will the Minister offer some clarification on the Government’s thinking? Is there scope to reconsider the situation for prison officers? Prison officers point out that, if people are forced to leave their job early through ill health, they could put greater financial strain on the system. For example, it could cost a great deal more if they retire on work-related medical grounds than if they retire normally at a sensible age.
Nurses are another group who do heavy work, so the pension age has potentially significant implications for them. The Royal College of Nursing has formally rejected part of the Government’s proposal, but it makes the point that the Government need to keep the link between the normal pension age and the state retirement age under review, as recommended by Lord Hutton. It has asked that that commitment is made explicit in the Bill, and that the review process is conducted independently. I hope Ministers take that on board.
The RCN has also asked the Government to postpone making a decision on the equalisation of the normal pension age and state pension age until the working longer review in England has reported and the Government have had time to consider its recommendations. In the light of what I have said, I hope the Government take that point seriously, because it would be a sensible approach—the review will help to inform good decision making in the longer term.
Another major concern of trade unions and employee representatives—hon. Members have made points on this, so I will not repeat them—is that the retrospective powers in the Bill allow the Government to amend it with limited consultation. Trade unions and employee representatives are legitimately concerned about instability and uncertainty for scheme members. The consequences of people losing confidence in the pension system and dropping out of it are much bigger—that has happened in other sectors when pensions have become unsustainable. I hope the Government consider that in Committee.
The hon. Member for North Ayrshire and Arran raised specific aspects of devolved pensions regulation. I am by no means a spokesperson for the Scottish Government—I urge hon. Members to direct their questions to the Ministers responsible—but I hope I can shed some light on certain parts of the Chief Secretary to the Treasury’s opening remarks. I also want to ask questions for clarification from him and the Minister who will wind up the debate. My understanding is that occupational pensions policy is largely reserved, although Scottish Ministers have Executive responsibilities for the NHS, teachers, firefighters, police and local government pensions schemes, subject to a number of constraints. The major constraint is budgetary—the Treasury controls the purse strings, and Barnett consequentials have a knock-on impact on a Government who are working on a fixed budget and have no borrowing powers.
Will the Minister confirm that formal approval is needed from the Treasury for any legislative changes to the NHS and teachers schemes? What is the Government’s thinking on the Treasury approval required in relation to the firefighters and police schemes? My understanding is that the Government are trying to introduce a Treasury approval requirement for those schemes. Will Ministers confirm what they are doing? Are they seeking a memorandum of understanding to claw back powers from the Scottish Government on police and firefighters’ pensions? Scottish Ministers have had discretion to determine the design of the police and firefighters schemes, although the settlements have always mirrored agreements in other parts of the UK. So far, the benefits of consistency have been thought to outweigh any benefits of divergence. I am not sure whether that balance of opportunity will be seen in the same light if the proposals are implemented.
I believe Scottish Ministers have responsibilities in relation to the local government scheme, provided the powers are exercised within primary legislation. In practice, that scheme, too, has mirrored that of the rest of the UK. To return to points made earlier, I understand that the local government scheme has been reformed, and that “cap and share” arrangements are in place. It is funded differently from other public sector schemes, and decisions on it are made in Scotland by those who manage it. It is worth pointing out that, in Scotland, the public sector local government scheme does not seem to have any financial problems. There is no immediate shortfall—in fact, it is currently running a surplus—and neither the Convention of Scottish Local Authorities nor trade unions are of the view that there is any need for reform. The Government could helpfully clarify why they believe that scheme needs to be reformed. Is this the right time to do so? Public sector workers are in tight financial situations. Most have seen their contributions increase dramatically, and many had their incomes squeezed.
I cannot with any confidence answer the question put to me by the hon. Member for North Ayrshire and Arran on the legislative consent motion. My understanding is that there is no need for a legislative consent motion for most of the Bill, because pensions policy is largely reserved. However, I believe legislative consent would be required for some of the reforms to non-departmental public bodies and some judicial offices. I am guided by the Bill’s explanatory notes, so perhaps the Minister could explain if the situation is different. The Unison briefing asserts that further legislative consent is required with regard to the local government scheme, but I have not seen the legal arguments that back that up or substantiate it. Perhaps UK Ministers are in a position to clarify the UK Government’s understanding of the situation.
I am grateful to the hon. Lady for going through the detail as she understands it. The Bill will have massive implications for our constituents. Does she agree that, if the Unison legal advice is correct—that a legislative consent motion is necessary in relation to the local government pension scheme—everything should be done by the Scottish Government to ensure that the negotiations taking place in Scotland between them and trade unions take precedence in terms of the outcome for our constituents?
I certainly agree that it is important that we get a fair and equitable solution in the local government pension scheme. I cannot speak for the Government, but I know that some of the negotiations have been very difficult. From speaking to trade union representatives in recent weeks, it is clear that they recognise the constraints within which the Government are working—and they value the tone of some of the negotiations that have taken place so far—but Ministers in Scotland have been negotiating with one hand tied behind their backs. Greater flexibility, especially on age, would go a long way to helping to reach an equitable conclusion.
Underlying this debate is the need to maintain confidence in public sector pensions, which are really very modest. They keep people just above the poverty line, especially women who have worked in low-paid jobs most of their lives and have very modest pensions that keep them just above the level of means-tested benefits. People are not unreasonable in their expectations, but asking them to pay more, work longer and receive less is not a reasonable proposition to put to our public sector workers. I hope that the Government can and will do better.
The hon. Lady makes a fair point, which is why in many of the schemes, particularly those where that might be a bigger issue, the rules try to take it into account. I hope that she will welcome that.
I do not have much time left and I wish to address some of the specific points that have been made. Some questions were asked about the cost cap embedded in the Bill. That cap is designed as a backstop only, and it will be triggered in unforeseen circumstances that lead to large potential changes in costs. It ensures that cost increases do not go unchecked again, as they did for decades before the introduction of this Bill.
A number of Opposition Members talked of the “cap and share” arrangement put in place by the previous Government as though it meant that no further changes were required to public sector pensions. Let me remind hon. Members of what Lord Hutton said in his report:
“cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer.”
Had we kept the arrangements introduced by the previous Government, these questions would not have been answered.
A number of hon. Members also talked about opt-outs. As my hon. Friend the Member for Bromley and Chislehurst said, and as my hon. Friend the Member for Gloucester (Richard Graham) explained well, the incidence of opt-outs as a result of the changes to payments that have already been introduced has had no discernible effect on the use of these pension schemes, but the Government will continue to monitor opt-outs and take opt-out data fully into account before making any decisions on individual schemes.
A number of Opposition Members also raised the issue of public sector pay. Again, Lord Hutton’s commission examined that, and said that public sector workers, on average, had higher pay if account was taken of different qualifications, ages and experience levels. That was also borne out in a report by the Institute for Fiscal Studies.
We also heard some questions about the devolved parts of this Bill, with the hon. Member for Banff and Buchan asking a number. I will not have time to go into them all, but she is right to say that for parts of the Bill we will require a legislative consent motion, and we hope that that will be forthcoming. For the small parts of pension legislation where there is some flexibility for Scotland, Scotland has the flexibility to do something differently, but that would involve a change.
I am afraid I do not have time.
In conclusion, we believe that the changes we have made are generous. They provide a fair settlement and deal with public sector pensions in a manner that is sustainable in the long term. The pensions allowed for under the Bill will continue to be among the best available, providing levels of retirement income that many in the wider economy cannot hope to achieve. There will be tapered protections. Public servants will know how much money they can expect to retire on and will have a greater say in the scheme. I therefore commend the Bill to the House.
Question put, That the Bill be now read a Second time.