Commonwealth War Graves Commission: Pension Fund

Chris Stephens Excerpts

Monday 29th February 2016 Commons Chamber

[Chris Stephens (Glasgow South West) (SNP)]

I refer to my entry in the Register of Members’ Financial Interests, and my position as chair of the Public and Commercial Services Union parliamentary group. I have secured this debate tonight to bring to the attention of the House the pension fund of employees of the Commonwealth War Graves Commission.

Let me thank the three trade unions that have a membership interest—PCS, Unite the Union and Prospect—for raising these concerns with me and other right hon. and hon. Members, as well as the hon. Member for North Durham (Mr Jones) who serves on the Commission, and the Leader of the House for their helpful information. I must say at this point that I was disappointed with the communication that I received from the War Graves Commission director-general, to which I will return.

The Commonwealth War Graves Commission cares for more than 1,700,000 casualties of the first and second world wars in cemeteries and memorials at more than 23,000 locations in over 150 countries. Indeed, I have two war grave locations in my own constituency. The commission employs more than 1,300 staff worldwide; approximately 250 of whom are on UK-based contracts. Negotiations are also ongoing with the Ministry of Defence to include non-war related graves in the work of the commission.

Staff of the commission take pride in attending to the war graves. It is not just a job, but a way of life and a vocation. Many are from families who have worked for the commission for generations, and many spend their whole working lives in the service of the commission. Jobs at the commission range from gardeners, maintenance and stonemasons to administrators, supervisors, managers, archivists and historians. It is not uncommon for staff to progress through a variety of those roles in the course of their career, re-training and adapting to the needs of the job. There is often a large element of foreign travel and the work can entail working and living abroad for years and even decades; requiring staff to uproot families and learn new languages to adjust. That can have a financial impact too, as spouses have often been unable to have careers. It is disappointing therefore to receive correspondence from the director-general which said that it is hard to argue that our gardeners should enjoy better terms of employment than nurses or members of the armed forces.

Salaries at the commission have also been very modest. A recent Towers Watson global grading and pay review found a need to uprate salaries, leading to most getting an increase of between 1% and 1.5%, or a 1.5% lump sum. Those on the lowest grade were given a minimum £450 increase. Although that is welcome, it nevertheless reflects the fact that salaries over the years have not been commensurate with the job. However, despite some of the sacrifices, staff at the commission remain committed to delivering a high level of service. Most recently, the commemorations of the first world war have required staff to work over and above their normal commitments.

[Jim Shannon (Strangford) (DUP)]

I commend the hon. Gentleman for bringing this matter to the House. The number of Members present in the Chamber is an indication of the importance of the subject. In my constituency, we have between 60 and 70 war graves, which are looked after by the War Graves Commission, and they are very important to us in Strangford. What concerns me is the need to have the pensions and the wages correct across the whole of the Commonwealth, not just in the United Kingdom. Does he think that we should look after those graves in the Commonwealth as well as in other parts of the world?

[Chris Stephens]

I thank the hon. Gentleman for his intervention, and I agree with him.

To recognise the special nature of the job, the loyalty of staff and the financial sacrifices staff have made over the years, the commission has held a final salary pension scheme, ensuring financial security for staff who have spent their lives in dedicated service to the commission. The terms of this scheme are good with a low employee contribution, a spouse’s pension, death in service and lump sums based on final salary—40/60ths. That reflects the fact that the pension has traditionally been one of the most important conditions of service, recognising years of dedication and loyalty.

In December 2014, however, the CWGC announced the intention to close the final salary pension scheme in April 2016 and move staff to a far less favourable defined contribution scheme, the Group Pension Plan. The terms of this scheme are much higher employee contribution, lower employer contribution and less of a pension pot at the end. The changes will see a drastic reduction in the pensions of 180 long-serving staff, with some losing more than £6,000 for every year that they draw their pension. The introduction of the new pension will also see a reduction in employer contributions from the current 22.4% of salary to a limit of “up to 15%”. On average, employer contributions will likely be much lower as the 15% rate can be reached only when employees significantly increase their contributions in turn. That came just two years after the Commonwealth War Graves Commission had closed the final salary scheme to new entrants, promising:

“Closure of the scheme to new members does not have a negative impact on the funding of the existing pension scheme…The current pension scheme remains in a relatively strong surplus position when assets and liabilities are calculated on a long term actuarial basis.”

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

My hon. Friend is making a profound speech that chimes with some of the history books that I have read. He is right that the Government will find a lot of money for weapons, but they find less money for the wounded, and it is disappointing and sad that for the dead there is less money still. The facts that my hon. Friend is discussing go contrary to the sweet words that are often said about remembering and honouring the dead in Chambers such as this.

[Chris Stephens]

I thank my hon. Friend for that intervention, and I shall come on to say more about the position of the scheme.

The news of the closure of the final salary scheme has come as a terrible shock to long-serving staff, with more than 50% of those affected within 10 years of normal retirement age, leaving little time to readjust. For some, that has meant completely changing retirement plans as they can no longer afford to retire or as key assumptions such as being able to pay off a mortgage are no longer the case. Staff feel betrayed that what was promised to them for years is suddenly being snatched away.

Let us consider the financial position. In the commission’s statement of accounts of March 2014, the key numbers show a surplus of £1.4 million on income of £67 million, with balance sheet reserves up from £4.3 million to £7.2 million and net current assets up from £1.5 million to £2.2 million. The balance sheet shows an improvement in reserves of £2.9 million, due largely to the improvement of £2.6 million in the pension deficit from £8.3 million to £5.7 million. In its 2015 accounts, the position had changed. The balance sheet showed a deficit of £6.1 million, having been in surplus by £6.7 million in March 2014. The reason was a sharp increase in the deficit shown in the pension scheme, a deterioration of £13 million in the year, taking the deficit to £18.6 million. The background is the effect of the recent three-yearly valuation, which reflected a collapse in the forecast interest rates for the pension fund investments.

My first question to the Minister is: what investments resulted in this change from 2014 to 2015? Despite the commission announcing its intention to close the pension scheme in December 2014, formal consultation with the three trade unions representing staff at the commission—PCS, Prospect and Unite—did not start until June 2015. During the consultation period, the trade unions took a reasoned and helpful approach, proposing numerous alternatives in an attempt to find a solution that both recognised the financial position of the commission and mitigated the most detrimental effects on staff. However, the commission rejected all the proposals, remaining resolute on closing the final salary scheme and moving to a defined contribution scheme.

Proposals were numerous and wide reaching and included increasing member contributions to enable the scheme to stay open. The initial proposal put forward by the trade union side, a proposal that directly addressed the commission’s concerns about the pension scheme deficit and about future risk in the scheme, was as follows. First, it proposed a cap on pensionable earnings for future service with effect from 1 April 2016, which would immediately address the pension scheme deficit by enabling a downward revision of the actuarial costs of the scheme. Secondly, it proposed to increase member contributions from 1.5% to 5%, phased in over the next two years. Thirdly, it suggested that the decision on the closure of the scheme should be postponed for three years, linked to a further valuation of the scheme during 2018. That would enable a considered and measured review of the scheme’s funding, taking account of the previous two proposed measures, both of which would have a positive impact on past service deficit and future service costs. These proposals were rejected almost immediately, with no costing done by the commission, leading the trade unions to believe that the consultation was hollow and the commission was intent on closing the final salary scheme regardless.

The final proposal from the trade unions was the option of CWGC UK-based staff transferring to the civil service Alpha pension scheme, as provided for under the Cabinet Office’s new fair deal. We are aware that many scheduled bodies including English Heritage, the Churches Conservation Trust, the Royal Botanic Gardens, the Imperial War Museum and the British Council have been permitted to join the new civil service pension scheme.

[Mr Kevan Jones (North Durham) (Lab)]

I declare an interest as a member of the Commonwealth War Graves Commission. I congratulate the hon. Gentleman on securing the Adjournment debate tonight and I hear what he says, but what he has just suggested was considered. It was not possible, and if people had been transferred to the civil service scheme, the terms offered to them would have been worse.

[Chris Stephens]

I thank the hon. Gentleman for that intervention. He has spoken to me about that privately and I have asked questions about it. His comments are surprising because of the aggregate accrual rates in the Alpha scheme. One of the problems is that there has been no discussion of the actuarial variations between the trade unions and those representing the commission in the talks. I hope the hon. Gentleman will use his good offices to put that right.

The commission’s response was to assert that CWGC staff are not civil servants, making them ineligible to join the Alpha scheme. However, the Office for National Statistics details the CWGC as part of the MOD accounts, and Her Majesty’s Revenue and Customs also lists CWGC staff as civil servants. In fact, the CWGC tends to pick and choose when the civil service hat fits. For example, the 1% pay cap in the public sector is often cited in pay talks as a reason to keep down pay rises.

The trade unions believe that they were never given a satisfactory reason why the CWGC did not apply for admittance as a scheduled body under the Government’s new fair deal policy. Instead of putting forward a case for staff to join Alpha, the commission seemed to decide in advance that they were ineligible to join and then sought confirmation of this from the MOD. The commission’s unwillingness to engage and seek alternatives that would mitigate the financial impact on staff was demonstrated throughout the consultation.

Trade unions repeatedly asked for more information to inform the consultation and aid the consideration of alternatives. However, the commission declined to offer that information, and the trade unions had to conduct much of the consultation without key information. For example, they requested an anonymised breakdown of how the new scheme would financially affect each member of staff, crucial information that would allow unions to see the impact of the proposals and help them put forward alternatives. That request was declined, leaving the unions no option but to ask members to send in their individual statements and to piece them together to form an overall picture.

Staff representatives were denied access to key decision making meetings at which they had requested the opportunity to put forward the case to keep the scheme open. The unions wrote to the commission asking to attend the meeting on 9 December 2015 when the commission put forward its case for closing the scheme to the board of commissioners. The commission wrote back to say that the unions’ attendance would be “inappropriate”.

Despite the trade unions raising numerous concerns and offering reasonable alternatives, the decision to close the final salary scheme appears to have been a fait accompli. The commission made the final decision in December 2015 to go ahead and close the scheme in April 2016. As staff have mentioned, the pension scheme has always been a way of attracting and retaining staff in the commission, and it has featured strongly as part of the overall benefits package that staff have signed up to when joining. To take it away after years of service, when staff are so painfully near retirement, is just unfair. Long-serving staff have put up with great disturbance and sacrifice to their family lives, such as moving to foreign countries. Spouses and partners have often been unable to have careers as a result, and the pension that commission staff accrue should recognise that

Approximately 60% of those affected by the changes are 50 years old or more, so they could be retiring within the next 10 years. Staff within a few years of retirement now have little time to re-adjust their financial planning for retirement, as the alternative Group Pension Plan will not deliver anything like the benefits of the final salary scheme. When changes were made to the civil service pension schemes, protection was given to staff nearing retirement, in recognition of the fact that they would have made financial plans based on the assumption of their existing pension entitlement. That protection has not been offered to staff at the commission.

Closure of the scheme from 1 April 2016 will have a significant detrimental effect on the future pensions of UK-based staff and will cause considerable unrest among employees at a time when they are working hard to further enhance the reputation of the commission with the work on the 1914 to 1918 centenary commemorations. The changes also come at the exact time when workers currently contracted out of the state second pension, as staff in the commission are, will see national insurance contribution increases of 1.4%. From April 2016, staff transferring to the GPP scheme will therefore have the dual disadvantage of paying national insurance increases and pension contribution increases of up to 5% for the new scheme. Closing the final salary pension scheme will create financial difficulty for the commission’s longest-serving, loyal staff, who have sacrificed much for the commission over the years.

The trade unions believe that they have adopted a constructive approach to finding alternatives. However, the commission has refused to make any meaningful changes to its initial position to mitigate the financial impact on staff.

[Mr Kevan Jones]

I do not want to get into a dialogue about this, but I have to say that that is not true. The final scheme was changed, including to help lower-paid staff over the next three years, so changes have been made. I also have to say that I do not recognise the hon. Gentleman’s description of the negotiations, because the trade unions did meet the vice-chair and the secretary-general.

[Chris Stephens]

I thank the hon. Gentleman for that intervention. I am sure that is a discussion he and I can continue to have.

I have a number of questions for the Minister. First, has the decision to close the scheme already been made or is it the case that, in the words of the Leader of the House in a letter to me on 24 February 2016:

“The Commission has undertaken a consultation and is now considering in detail the range of responses received but no decision has yet been taken”?

Secondly, what is the current deficit of the scheme, as of today’s date? Lastly, given what I have outlined in relation to industrial and employee relations, does he not agree that we should ensure that talks begin between the commission and the trade unions—hopefully with ministerial involvement—to share information and actuarial evidence properly and to reach a solution that could be agreed by both sides?

--- Later in debate ---

[Mark Lancaster]

I am not going to give way, because I am going to run out of time. The hon. Lady will have to forgive me.

I have been privileged to visit several sites in recent years, including in northern France and on Ascension Island. I have also visited Stanley cemetery in the Falklands, with the hon. Member for North Durham (Mr Jones), and Stanley cemetery in Hong Kong, which is without doubt one of the most striking cemeteries in the world, with its views over Stanley harbour. I often sat there to reflect during my service in Hong Kong.

It would be beneficial to remind ourselves of the origins of the commission. As hon. Members might be aware, it was established by royal charter on 21 May 1917. The provisions were then extended by a supplemental charter on 8 June 1964. In accordance with its royal charter, the commission has the task of commemorating the Commonwealth war dead of the two world wars by making fit provision in perpetuity for their graves and memorials, and of maintaining records of the dead.

The commission ensures that 1.7 million people who died in the two world wars will never be forgotten, and it cares for cemeteries and memorials at 23,000 locations in 154 countries. It is worth pointing out that, within the United Kingdom, it helps us to commemorate more than 300,000 Commonwealth servicemen and women, with their graves numbering 170,000 in more than 13,000 locations across the country.

I would like to take this opportunity to point hon. Members to the commission’s website, which, among other things, details the locations of the more than 140,000 graves that it tends in the UK. People tend to think of the commission in terms of precise ranks of graves in cemeteries on the western front, but there is hardly a town anywhere in the country, let alone a constituency, that does not contain at least one grave tended by the commission.

In this year, when we commemorate the 100th anniversary of the battle of the Somme, it is particularly poignant to remember that those graves and memorials allow us to connect with not just the conflicts of the past, but the people caught up in those conflicts. That reminds us of the cost of such conflicts and of the individuals who paid the ultimate price, and it gives us a very human connection with history.

As I mentioned at the start of my speech, the commission is not a UK-run organisation. Its cost is shared by the member Governments, consisting of Australia, Canada, India, New Zealand, South Africa and the United Kingdom, in proportions based on the number of their graves. That results in the UK contributing almost 80% of the total funding, which was in excess of £47 million in 2015. In addition, the Ministry of Defence provides £1.3 million to the commission for the cost of maintaining 20,000 Boer war graves in South Africa and a further 21,000 non-world war graves around the world.

The commission’s day-to-day operations are overseen by the vice-chairman, Air Chief Marshal Sir Joe French; the high commissioners of member Governments; and eight commissioners drawn from the armed forces, the two largest UK political parties—currently those two commissioners are the hon. Member for North Durham and my right hon. Friend the Member for Broadland—and individuals who bring particular knowledge and experience.

Turning to the issue at hand—the pension fund of employees of the Commonwealth War Graves Commission —I need to be clear that, as an independent Commonwealth body established by royal charter, the commission has no requirement on it to consult Her Majesty’s Government on day-to-day operational matters, including the terms and conditions of its UK workforce. However, as a key stakeholder in the commission, the MOD was consulted on the issue and agreed with the decision to consult about the closure of the scheme.

Formal consultation on commission pensions commenced on 8 June 2015. The commission met the trade unions representing UK employees on five occasions and wrote on a further three occasions, providing detailed responses to alternative proposals that were put forward. I can confirm that all the trade union proposals were costed by the commission’s actuarial advisers, so they were certainly not dismissed out of hand.

The consultation period was extended by two weeks at the request of the trade unions to accommodate annual leave commitments. It closed on 14 September 2015 without agreement being reached. Subsequent to the consultation period, further meetings with the trade unions took place on 23 November and 4 December 2015. Following the consultation, the commission has agreed to the closure of the superannuation scheme with effect from 31 March 2016, and has agreed that members will be automatically enrolled into the commission’s alternative group personal pension scheme with a period of enhanced contributions.

[Chris Stephens]

Will the Minister give way?

[Mark Lancaster]

Of course, but I am running out of time.

[Chris Stephens]

What the Minister says seems to be in direct contradiction with the letter I have from the Leader of the House, which says that no final decision has been made. Can he comment on that?

[Mark Lancaster]

I am happy to clarify that. The members of the scheme will have been notified of the closure, as have the trades unions and trustees. Crucially, I understand that the decision was taken against the background of a 60% increase in the cost of the scheme since 2005, a growing scheme deficit, and a further increase in funding stemming from the 2014 statutory valuation of the scheme. The commission has made it clear that it is unable to meet the additional costs of approximately £1 million a year without a detrimental impact on its core task of commemoration. It is clear that the only way to make such savings would be to place many jobs at risk, as the vast majority of its budget is spent on horticultural labour. As the commission is an organisation funded by six Commonwealth nations, its UK employees represent less than a quarter of its workforce of 1,250. The closure of the superannuation scheme has an impact on approximately 180 of those employees, whose terms and conditions of employment are ultimately a matter for the commission, not the Government.

The Commonwealth War Graves Commission’s funding has been maintained over many years, and this Government have recognised in the House its important and sacred mission. I am sure that hon. Members will join me in commending the commission for its outstanding and vital work. However, I must reiterate that the issue of pensions for the commission’s employees is one for the commission and its trustees rather than the Government. I understand the concerns that have been raised in this debate, and a couple of outstanding questions need to be answered. I am happy to engage with the Commonwealth War Graves Commission on behalf of the hon. Gentleman, and I will write to him in due course.

Question put and agreed to.