Public Service Pensions Bill

Debate between John Healey and Richard Graham

Monday 29th October 2012 Commons Chamber

[Richard Graham]

I have no idea whether the word “guarantee” is in the Bill. In life, only two things are guaranteed as far as I know: taxation and death. We are talking about not guarantees as such, but a defined-benefit scheme in which the entire risk is taken by the taxpayer and the certainty that gives people the chance to budget in their retirement is with the scheme’s beneficiary. In fact, it is even better than that. As the hon. Gentleman will know, because he has studied these things carefully, the advantage of a career average defined-benefit scheme is that it benefits precisely those workers whom I would have imagined he would be most in favour of protecting.

The Pensions Policy Institute, which the hon. Member for Hayes and Harlington referred to, says:

“The Coalition’s proposed reforms will remove the different outcomes for high-flyers and low-flyers which exist in final salary schemes.”

It goes on to estimate that, under the current scheme, a high flyer

“would have had a pension benefit of 29% of salary, compared to 11% of salary for the low-flyer.”

Under the reforms proposed by this Government, both high and low flyers will have

“the average value of the pension offered being worth 15% of salary”.

That is a significant improvement for the low flyers. I would be astonished if all Members of the House were not in favour of that reform.

The hon. Member for Leeds West recognised that something had to be done, but tellingly, she made no reference at all to three of Lord Hutton’s four tests—affordability, fairness to the taxpayer and governance and transparency. Did she not think they mattered? Should they not be at the heart of what any Government do? That was a disappointing series of omissions.

[John Healey]

The hon. Gentleman said a moment ago that the total risk of the schemes was borne by the taxpayer. Does he not realise that he is making the same mistake as Ministers in not recognising that the local government pension scheme is a funded scheme? The income from its investments last year topped £3 billion, and there is also a strong contribution from employees alongside that of employers. That makes it a case apart from his general argument.

[Richard Graham]

The right hon. Gentleman makes half a good point. I know local government pension schemes very well, as many of them are my former clients. The reality is that they have never been as separate from the public sector balance sheet as he might be implying. One of his predecessors as Economic Secretary, Ruth Kelly, tried to amalgamate the whole lot, recognising their fragility. As the National Audit Office has revealed, the schemes are significantly underfunded, and I think I am right in saying that 20% of all money paid in council tax now goes towards paying the pensions of scheme members. He is right to say that local government schemes are different from others, but they are not quite as different as he suggests.

The hon. Member for Leeds West mentioned the fear that public sector workers would opt out of schemes altogether, because they might become unaffordable, and thereby become a burden on the state in a different way. I think it is fair to say that she did not recognise that opt-out rates have not altered. There is good reason for that, because although contributions are higher than they were, the value of a defined-benefit scheme is still considerable. In case her concern becomes real and there are large numbers of opt-outs, the Government have built into the Bill a provision for regular reviews to address the situation if and when it arises.

Several Opposition Members have expressed the concern that the Government are trying to set the private sector against the public sector. I have already totally rejected that point. All Government Members are as committed as anyone to helping every worker get some form of pension as quickly as possible. The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) missed the crucial point that the Government are trying not only to make defined-benefit schemes sustainable for the public sector, but to get millions of workers in the business sector to have a pension at all through the auto-enrolment scheme. It is disappointing to me, and I think to others, that she did not understand that.

Several Members have claimed that the real scandal is the lack of pension provision in the private sector, but it is a curious fact that one legacy of the previous Government is that 13.5 million workers in the private sector have no pension at all. Some Ministers in the Labour Government did good work, including the late Member for Croydon North, to whom I pay tribute for his work in the pensions sector. However, as with so many things, it has fallen to the current Government to seek an agreement and to implement reforms that will give people without pensions the chance to have something to retire on for the first time in their lives.

Today’s debate has covered many aspects of the Bill. As I said, it is a good thing that its Second Reading will not be opposed today, but I can see that there will be many arguments ahead in Committee.

Let me leave with hon. Members the points that I make to everyone in my constituency who is employed in the public sector and is in a defined-benefit scheme, whether they are teachers, nurses or other workers. First, the defined-benefit pension has fabulous benefits for all those involved, especially lower-paid workers; secondly, the increase in accrual rates means an improvement of some 8% for public sector workers; thirdly, anyone within 10 years of retirement is completely protected; and finally, I hope that the Opposition will drop their instinctively tribal approach, and recognise that the Bill tries to reform public sector pensions in a way that will, above all, be sustainable. Should our children and grandchildren work in the public sector, they will receive a career average defined-benefit pension, as will today’s workers, should the Bill go through successfully.