Public Service Pensions Bill

Baroness Donaghy Excerpts

Wednesday 19th December 2012 Lords Chamber

[Baroness Donaghy]

My Lords, I should declare an interest as I am in receipt of two public sector pensions—one from my university career and the second from ACAS. I have been involved in public service pensions since the early 1970s and I helped to establish a final salary pension scheme for non-teaching and support staff at the University of London in the mid-1970s. Many of the schemes established before that were administered by insurance companies, which charged significant administration fees and allowed the staff no voice. I mention this because I have direct experience of the world before a decent occupational pension was established. There was no consultation with staff and no transparency, and the insurance companies exercised powers that would make Henry VIII look like a wimp. Therefore, I do not want to go back to that world.

I should also say that I was president of NALGO in 1989. This was a lay member position. NALGO was one of the forerunners of the union UNISON, and I am grateful to it for briefing me on this subject.

Framework agreements were reached with most of the unions involved in the negotiations last year. The main objective is to make sure that some of the fundamentals are adhered to in this Bill—that Treasury powers should not undermine scheme arrangements or introduce retrospection. The trust of public sector workers, which has been shattered by having to negotiate two major changes in a very short space of time, should now be rebuilt. The Bill should not cut across negotiations which are taking place in the health service and fire service on normal pension age, and the unique features of the Local Government Pension Scheme should be recognised. I fully support the noble Baroness, Lady Eaton, in what she said on that. Ministers have given certain assurances which are not reflected in the Bill, and I will be seeking to table amendments, if necessary, to try to make sure that those assurances become a reality.

The Bill is based on negotiations in England and Wales, and has not been subject to the same level of negotiation in Scotland. I am aware that the noble Lord, Lord Newby, referred to this and hoped that the Scots would come along, but my emphasis would be that the Scots should be given full consultation rights and that the Bill should be amended to maintain the powers of the Scottish Parliament to design and regulate the public service pension schemes that are devolved to Scotland. The Bill prescribes the design of Scottish schemes in a way that current UK primary legislation does not.

As has already been referred to, the Chief Secretary to the Treasury, Danny Alexander, incorporated an assurance that:

“The Government intend to include provisions on the face of the … Bill to ensure that a high bar is set for future Governments to change the design of the schemes”.—[Official Report, Commons, 20/12/11; col. 1203.]

The wording of the Bill erects a much lower hurdle for scheme design changes than currently exists by introducing wide-ranging new Treasury powers, repealing relevant sections of the Superannuation Act 1972 and replacing them with limited consultation rights.

On retrospection changes, which have already been referred to, the Government indicated at the Report stage in the Commons that they do not have a closed mind on this issue, and that is welcome. Clause 3(3)(c) provides for enabling provisions which would allow scheme regulations to make retrospective changes. Although I do not object to that in principle, it is essential that regulations that have the effect of reducing accrued rights to pension benefits cannot be made unless the scheme members or their representatives agree to that change. The absence of such wording could undermine the commitment given by government that accrued rights up to the date the schemes are changed will not be reduced. This would ensure that workers in public service pension schemes enjoyed the same protection in relation to their accrued pension rights as exist for workers in the private sector under pensions law.

On the subject of retrospection, the Bill currently allows for pension revaluation rates to be negative, meaning that someone’s accrued pension earned to date can be negatively revalued if inflation is negative. This was not mentioned in the scheme negotiations and is a change from current practice whereby scheme revaluations can never be less than zero. This would have been a deal breaker in the local government scheme and Civil Service schemes where a revaluation of CPI alone has been agreed. No other pension funds outside those provided for in this Bill have the potential for negative revaluation and I hope the Government will be prepared to accept an amendment to ensure that a revaluation will never be less than zero.

On consultation and scrutiny, members should receive the same level of protection accorded to scheme members as that provided under the Superannuation Act 1972. It is essential to the spirit of the agreement that any future changes to the scheme design that are likely to have an adverse effect on members’ benefits are subject to meaningful consultation and at least require the affirmative procedure rather than the negative. There are a number of issues on governance which need to be clarified in the Bill and on these matters I support the words of the noble Lord, Lord Sharkey. There should be a clear separation of powers between scheme managers and scheme boards to avoid conflict of interest, as recommended by the noble Lord, Lord Hutton. There should be national and local boards for the Local Government Pension Scheme to ensure effective separation of responsibilities. Although there was a small amendment in Committee in the other place, it identifies only the structure of the local boards within the Local Government Pension Scheme and not the relationship between them and the national board. Once established, national boards must have explicit powers to make real recommendations to scheme managers, as they do now, otherwise they have little purpose. The Bill should clarify the advisory nature of such boards. Although I accept there was no agreement in negotiation about the number of member representatives on scheme boards, nevertheless the Bill should require explicitly that boards must include member representatives among their number.

I hope the Minister will give an assurance that all the schemes will comply fully with the European legislation—namely, the institutions for occupational retirement provision. The Bill sets the local authority as a scheme manager but does not say how that board is to be constituted. The current Local Government Pension Scheme is not compliant with Articles 8 and 18 of the European directive. Article 8 requires the legal separation of fund institution from any sponsoring employer. Article 18 requires pension funds to invest in accordance with the “prudent person” rule. That is, investments should be made in the sole interest of members and beneficiaries. Will the Minister agree to add sub clauses on compliance with Articles 8 and 18 of the EU directive and ensure that one of the pension board’s functions is to ensure such compliance?

The power currently in Clause 7 of the Bill, to replace defined benefit schemes, will undermine confidence in the negotiated agreement and we will have to come back to that in Committee. We will also have to return then to the issue of normal retirement age. The current wording of the Bill restricts the work currently being undertaken by the NHS Working Longer Review Group to make evidence-based recommendations. There is also no mention in the Bill to there being regular review of the link between state pension age and normal pension age, which was a specific recommendation of the review of the noble Lord, Lord Hutton. At the very least, ambulance service staff should be included in any exemptions.

In Clause 10 on scheme valuations, it should be made clear that Treasury directions should be subject not just to consultation but to the agreement of the Government Actuary. Also, the Treasury should be required to consult and to take into account the opinions of the existing scheme governance structures before making a direction. To do otherwise would undermine the role of scheme-specific governance structures.

Clause 11, as it stands, gives the Treasury discretion over how the cost cap is set. The negotiated agreement in local government ensures that control of cost management issues are the responsibility of the principal stakeholders of the scheme and, as mentioned by the noble Baroness, Lady Eaton, this should be made clear in the Bill. The issue of Fair Deal has already been mentioned by other speakers and I simply wish to endorse this.

There is much to be done. If the trust of public service workers is to be rebuilt, it is vital that the Government keep faith with the negotiated agreements by reflecting them in the Bill.