Public Service Pensions Bill

Lord Davies of Oldham Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Davies of Oldham]

My Lords, in the unavoidable absence of my noble and learned friend Lord Davidson, I beg leave to take his place and make the initial response of the Opposition to the Minister’s speech, which I very much appreciated. We all recognise the need for further reforms to public service pensions. That does not detract in any way from the continuing need for public service employees to have good quality, sustainable pension schemes after what for many will have been a lifetime’s career in public service. In government, we established a framework to manage the changes in the demography of the UK—changes which inevitably impose a need for public sector pensions to reflect them. We all know of the increased longevity of our population and therefore we support the basic principle underlying this Bill.

The area of public sector pension reform has of course been recently and independently investigated in depth by my noble friend Lord Hutton of Furness, who I am delighted to see in his place. I look forward to his contribution to this debate a little later. The report which he produced has been broadly welcomed and has substantial acceptance from this side of the House. It is regrettable that the many sensible long-term reforms suggested by my noble friend have been disrupted somewhat by the Government’s sudden imposition of a 3.2% increase in contributions and a crucial switch in the indexing from RPI to CPI, all without any prior negotiation and without the benefit of falling within any of the recommendations in my noble friend’s report. That has somewhat queered the pitch and made life very difficult for those representing public sector employees.

Nevertheless, that does not alter the fact that we all recognise that this Bill is based upon sound principles and needs to be supported across the House. Of course, we understand the increasing cost of pension benefits caused by increased longevity. We also understand the range of proper concerns about the Bill raised by a number of trade unions and professional associations representing public sector employees. We share some of their concerns.

We are concerned that Clause 3 is couched in the broadest of terms that permit the Government to amend through secondary legislation public sector pension provision at any time of their choosing. I accept what the Minister said, that the complexity of public sector schemes and the differentials across them require amendment from time to time. In the Bill, there does not seem to be any clear limitation on the power that may be deployed by the Government and being carried through by SIs on negative resolution procedures. Clause 21(2) provides some attempt at control, but it is expressed as applying subject only to the negative procedure as a generality. We all know the limitations of the negative procedure.

That is hardly much of a fetter on the relevant authority, which will seek to make changes. Additionally, there is little to alert the many thousands of public employees who may be affected by the use of such a power. That does not sit easily with parliamentary scrutiny on what could be very significant issues for people in receipt of public sector pensions. The capacity of Clause 3 to enable amendment, by secondary legislation, to future pension statutes, not yet enacted, is providing an extraordinary measure of discretion to the Executive in an area where the goal, we are told by the Chief Secretary to the Treasury, is apparently

“no more reform for 25 years”.

Those changes, which will inevitably be necessary over a period of time, will be subject to limited scrutiny. Governance in this vital area of people’s lives requires a sturdier safeguard than the one that the Minister has identified, which is in the Bill. That is why, when we get to Committee, we expect considerable debate on this issue.

Furthermore, the capacity of Clause 3(3)(b) to allow retrospective change to pension schemes by way of secondary legislation is concerning. It raises real concerns that adverse changes may be visited on existing schemes, thereby undermining accrued pension rights. The Minister sought to give a categorical assurance that accrued benefits would not be affected. That is not quite what the Bill says, so we will again wish to press him in Committee on this crucial area. Although not wholly unprecedented conceptually, retrospective alteration sits a little oddly with the Government’s aspiration that there is to be no more reform for 25 years.

At Clause 21(1)(b) there is a degree of recognition by Government of the inherent undesirability of retrospection in this area in so far as retrospective regulation is subject to affirmative procedure where, in this limited area only, it,

“appears to the responsible authority to have significant adverse effects in relation to members of the scheme”.

The well-known problem with this approach, through secondary legislation, is that it is not susceptible to any amendment, leaving as the only possible response acceptance or rejection.

The Opposition do not see such a possibility of retrospection as either desirable or sound in this area. The Government will be aware that secondary legislation that serves to erode or remove accrued entitlements is very much the terrain where, among other grounds, Article 1 of Protocol 1 of the European Convention on Human Rights may be effectively deployed to challenge. Such a challenge would be based on the concept that the Government should not lightly interfere with individual’s property rights. That is what pensions are, of course; the accrual of pensions is the sacrifice of resources by the individual concerned and the placing of them in a pension. It is of the greatest concern that there should be any threat in this area. Surely public sector pensions should not be subject to the uncertainty and possible litigation that such retrospection invites. If the Government are opposed to creating such a situation, as one would hope, then this must be reflected in the Bill. The observations already made regarding the need for effective parliamentary scrutiny apply even more when the Government assume a power retrospectively to change or reduce pensions’ accrued benefits. Why, if no more reform for 25 years is intended, is such a power incorporated within the Bill without adequate safeguards? This is an issue that we are bound to address in Committee with considerable deliberation.

In relation to defined benefit schemes, the Economic Secretary to the Treasury stated in another place on 4 December:

“We do not intend to move away from defined benefit schemes in public services. Defined contribution schemes would not be the right kind of pension provision for many public servants”.—[Official Report, Commons, 4/12/12; col. 770.]

That is a welcome commitment by the Government. Without appearing in any way to challenge the sincerity of such a statement by the Economic Secretary, though, is there not much to be said in favour of making that commitment clear in the Bill? It would demonstrate a resolve to support defined benefit schemes that the language of Clause 7 does not impart. We shall be looking to amend this aspect in Committee.

Similarly, regarding the provisions in Clause 11 relating to the employer cost cap, to which the Minister has made reference, that place this subject under Treasury direction, would it not be an improvement that consultation be a requirement prior to any such direction? The general obligation in respect of consultation at Clause 19 does not appear to cover this particularly significant part of the Bill.

Clause 9, in linking state pension age to normal pension age, which is set to rise to 68 years, is understandable in the light of improving longevity, and by and large makes proper exception for the Armed Forces, to which the Minister made reference, police and firefighters. Our concern is the insufficient flexibility in the clause to allow for those public sector employees, especially in the National Health Service, whose roles impose physical and mental demands well above the ordinary. Such staff should not always be obliged to accept an increasing retirement age, especially if independently reviewed evidence of capability shows later retirement to be inappropriate for specific groups. It is also desirable that reasonable notice be afforded prior to any rise in the pension age to permit proper planning for retirement. We hope to look closely at these aspects for amendment in Committee.

In relation to the local government pension scheme, Clause 16 creates possible unintended consequences. As the scheme is, unusually, a funded pension scheme, the use of the term “closure” could permit an interpretation with unfortunate consequences, such as the splitting of funds and crystallisation events. Smaller admitted bodies, normally with limited reserves, might similarly be affected, but potentially even more seriously, if the crystallisation of debt were to arise.

I appreciate that the Government have undertaken to look at this matter. It would be helpful to know whether the Government intend to tackle this issue in a forthright manner in the Bill, and avoid the potential for considerable instability within the Local Government Pension Scheme. We welcome the acceptance by the Government of the principle that scheme members should be kept informed of their pension rights and provided with an annual update.

We will want to scrutinise a proposed amendment that the Economic Secretary promised in another place earlier this month. Accurate and effective information is the objective to enable scheme members to know where they stand and to plan for their future.

On the issue of fair deal, the Government have stated a commitment to retaining the fair deal in respect of the pension rights of employees transferred from the public sector to the private. We do not, however, see any unequivocal reflection of that statement in the Bill. Clauses 22 and 26 are prayed in aid by the Government to support the fair deal policy, but it is very far from clear that those clauses offer any kind of firm commitment. Suggestions that contracts with independent contractors could incorporate the fair deal leave very much to be desired if the objective is its retention. Surely the best way is to make a stated commitment real by placing it in terms on the face of the Bill.

Ministers may argue that the fair deal need not be enshrined in statute, but in an area which can easily be the subject of litigation, we suggest that the time has come to provide both clarity and certainty. We do not, with respect, find ministerial assurances sufficient on this topic if those assurances are to form the basis of the next 25 years of public sector pensions. We shall seek to propose changes on this subject in amendments in Committee.

On the issue of Scotland, Scottish Ministers have been responsible for the negotiation and design of the LGPS in Scotland and have not been subject to Treasury approval. As the Bill proposes to extend provisions on normal pension age and the shift from final salary to career average benefits to the scheme in Scotland, should not the consent of the Scottish Parliament be sought for such extensions? I do not suggest that this is necessarily an issue of legislative competence requiring approval by the Scottish Parliament. Rather, taking account of the distinct approach of the Scottish scheme seems a reasonable means to proceed. We shall look also at this matter in Committee.

There remains one further issue, which as I understand it operates as an anomaly under the Bill. It concerns firefighters who are employed in defence establishments and who qualify for exemption from the normal pension age neither as firefighters nor as members of the armed services. If we are correct on this point, it would appear to be an oversight that we would want rectified. I would be pleased to hear any clarification the Minister might be able to provide, perhaps when he winds up in this debate.

To conclude, I wish to make clear that we accept the need for reform of public sector pension provision, as we expressed while in government. Where we differ from the Government’s proposals is that we consider that public sector employees deserve greater clarity and security than the Bill currently provides. It is for that reason that we look forward to a lively Committee debate on the Bill.

--- Later in debate ---

[Lord Davies of Oldham]

My Lords, I will keep my remarks brief because I have been obliged to speak twice in this debate and I am quite aware of the tolerance of the House in that respect.

I have drawn sustenance from the debate in so far as it has been quite clear on all sides of the House that the basic principles of the Bill command assent and support. We certainly want to see effective legislation enacted but we have clear areas of anxiety. They have been reflected in several of the speeches made during the course of the debate. I was grateful to the noble Lord, Lord Sharkey, for emphasising aspects with regard to governance. It is certainly an area that we need to look at quite carefully and there is no doubt that the Minister will be under considerable pressure to improve on the model that obtains within the Bill at present.

I understand that the noble Baroness, Lady Noakes, and the noble Lord, Lord Flight, have certain fundamental positions with regard to public sector pensions and the gold-plated nature and indulgence of the public sector in terms of provision these days. I think my noble friend Lord Hutton in his remarks indicated that in fact the average public sector pension is quite a minimal amount. It is not the case that we should point out to the private sector that there are enormous advantages in being in the public sector. There are not enormous advantages. One of the points that the noble Lord, Lord Flight, emphasised was security. Where is the security when the Government are involved in several hundred thousand jobs being lost at the present time? Where is the security when in quite an arbitrary way the Government have indicated that the costs of pension contributions must increase? We all know the reasons for that, but that is not to deny the degree of reduction in resources that apply to those people, who are often on quite modest salaries in the public sector.

I was also grateful to my noble friends Lord Monks and Lady Donaghy for identifying crucial areas in the Bill about which there is real anxiety among those who know the representations that have been identified by trade union negotiators. We must take these points very seriously. I am sure that the Minister will do so. Of course they identify particular areas on which the Bill at present does not command a great deal of assent across the country, which is essential. I was grateful to my noble friend Lady Donaghy for emphasising the issue with regard to the Local Government Pension Scheme in Scotland.

As was pointed out, in the past all arrangements were on the basis of full consultation and participation. There is an arbitrary quality about the way in which this is expressed in the Bill, which the Minister has an obligation to respond to.

Most of all, I am grateful to my noble friend Lord Hutton for participating in this debate. He has proposed a report that has given us the basis on which to consider very seriously what we all recognise is a fundamental issue with regard to public finances and public provision. We are as one with the Minister in wishing to see aspects and principles of the Bill achieved, but my noble friend identified crucial areas in which the Bill falls far short of what is necessary to win the confidence of the nation, and it is on that basis that the legislation will become effective.