Public Service Pensions Bill

Lord Flight Excerpts

Tuesday 12th February 2013 Lords Chamber

[Lord Eatwell]

My Lords, it may be for the convenience of the House if I refer to the amendments tabled in the name of myself and my noble and learned friend Lord Davidson, since the government amendments are substantially responses to the points that we made in Committee. I want to make it clear why we feel that the situation has, let us say, not moved on far enough.

Let me deal first with Amendments 37, 38 and 39 because they make a proper, logical story. They seek to remove from Amendment 36 the role of the authority in deciding whether an adverse effect on the pensions payable has in fact occurred. In other words, the authority has to decide whether its measures should be challenged in consultation. This is as if, in a game involving Manchester United, penalty decisions against it were to be made by Sir Alex Ferguson. I am sure that he, as a talented football manager, would then make a decision on a reasonable basis. However, with all due respect to that distinguished person, do we think that these decisions would be made in a way which was balanced? I could choose any other football manager, including Mr Wenger, who apparently never sees things that happen on football pitches.

I refer to balance because in Committee the noble Lord, Lord Newby, in setting out the criteria that he applied in these circumstances, said that he wanted to achieve a sensible balance between members’ protection and the role of the authority. It seems that while the proposed new clause in Amendment 36 provides for a significant protection for members of the scheme, it is still not balanced in that it leaves the authority with the responsibility for deciding that its own measures have had an adverse effect on those members. In those circumstances, even the most reasonable person is likely to be reluctant to feel that measures which they are taking have a negative impact upon the scheme. Our amendments simply remove the role of the authority so that the new clause would say,

“containing retrospective provision which appears … to have significant adverse effects”.

In those circumstances it seems to me that the authority, facing the responsibilities that the noble Lord referred to, and without the protection of the statute giving it the decision-making responsibility—a decision-making role or power—would take a more balanced and reasonable view. These amendments are to encourage reasonableness on behalf of the authority.

Moving backwards, our Amendments 22 and 23 refer to what is now Clause 12, which deals with the employer cost cap. The problem with this clause is in subsection (7), where it is recognised that steps to change the cost cap may result in an,

“increase or decrease of members’ benefits or contributions”.

In other words it may decrease members’ benefits so that the action of using the cost cap to encourage efficiency and efficient management of pension schemes may result in the retrospective diminution of benefits which members feel that they have accumulated.

The key question is whether Amendment 36 covers that eventuality. The eventuality that it covers is,

“where … the responsible authority proposes to make scheme regulations containing retrospective provision”.

Changing the cost cap may have retrospective consequences but does not contain retrospective provision. Much as we welcome the general intent of Amendment 36, then, it does not deal with one of the significant cases of retrospection that still deface the Bill. Amendments 22 and 23 are designed to protect the benefits of pensioners against retrospective effect, perhaps unintentional, when there is some change in the cost cap. We are delighted to see the noble Lord, Lord Sassoon, here performing duties that were formerly performed for him.

Those two amendments are necessary unless the Minister can find a way for Amendment 36 to refer not simply to regulations containing retrospective provisions but to regulations that have retrospective consequences. That would be a way, I suggest, to transform Amendment 36 from a rather imperfect structure to one that would deal with retrospection throughout the Bill.

The amendments that I and my noble and learned friend have tabled are in the spirit of Amendment 36 and indeed of the Government’s laudable attempts to remove the retrospective elements—the ones, that is, which are unnecessary and potentially harmful to members; I understand that there are technical retrospective elements that are necessary—but I feel that they have not yet managed to achieve what the whole House wishes to achieve. Our amendments would contribute to that goal.

[Lord Flight]

My Lords, I should be grateful if the Minister could comment on the extent and the manner to which the Government’s amendments to the ability to make changes and to make retrospective changes affect the fundamental issue of affordability. I apologise for raising this issue yet again but it is fundamental. We start, as everyone knows, from the OBR advising that there will be a cash flow deficit of £15.4 billion by 2016-17. My related question to the Minister is: what is the Government’s estimate of the additional cash flow deficit costs of both increasing longevity and, more particularly, the new single-tier pension proposals made by the DWP? It strikes me that two separate silos have been working on this, with the Treasury in one and the DWP in the other. Precisely what the effects of the loss of employer and employee NI contributions and the ending of contracting out will be on the deficit of pay-as-you-go public sector schemes seems to some extent to be a mystery.

I think it was in Committee that the Minister advised that he felt the estimates I suggested were too high; thus I would be grateful if he would comment on what the Government’s estimates are. My revised estimates, done with the assistance of Michael Johnson, who many noble Lords will know has done significant work on the subject, are that there is an additional cash flow cost from longer longevity of the order of £2 billion per annum, and there may now be an additional £3.4 billion resulting from the loss of public sector employers’ NIC rebates with the ending of contracting out and a further £4 billion per annum as a result of public sector employees continuing to enjoy an enhanced occupational pension as if contracted out while still being entitled to further accruals under the new single-tier state pension, once it appears. In contrast, private sector employers who are contracted out will be permitted to change their scheme rules, effectively to reduce pensions paid, without trustee consent. As I have said, I cannot believe that the prospect of a potential cash flow deficit of some £24 billion per annum will be acceptable to whoever is in power at that stage, given the state of the public finances. Dare I say that it seems that not only the Opposition but the Government are ignoring the affordability issue with regard to this legislation as it passes through both Houses of Parliament?

I would be grateful for a response to the question about to what extent room for manoeuvre is being reduced by the government amendments. Secondly, what is the Government’s revised, post-OBR estimate of the total cash flow deficit cost of the arrangements under the Bill?

[Lord Whitty]

My Lords, as the Minister said, I have Amendments 7, 31 and 35 in this group. I should explain that for the remainder of the discussion of the Bill on Report I am likely to be seeing it through the perspective of the Local Government Pension Scheme which, in response to the noble Lord, Lord Flight, is a funded scheme, not a pay-as-you-go scheme, and, moreover, a funded scheme that has recently reached agreement between the trade unions and the LGA, sanctioned by the CLG and the Treasury, on a new cost-management structure. I therefore think the costs of any limit on retrospection in that scheme are unlikely to arise. I probably should declare that I am an honorary vice-president of the LGA and a member of the GMB, although I have no pecuniary interest in the pensions covered by the LGPS. I was also, until recently, chair of one of its schemes.

The Minister deserves considerable credit for moving significantly on this front. It is clear that what appeared to be quite an open-ended ability to amend primary and secondary legislation in the original text of the Bill has been significantly modified by the changes which he has proposed and the procedures that he has outlined, particularly in relation to Amendment 36. It would be nice if he could go a little further, particularly in respect of two points. Amendment 7 would effectively prevent retrospective changes for non-administrative reasons that had a material detriment for any members of the scheme. The reference in Amendment 36 to “significant adverse effects” sounds like a significantly higher threshold than “material detriment”. Does the Minister think there is a real distinction there? Could some quite serious detriment in effect occur without triggering Amendment 36? I would hope not, but I would like some on-the-record reassurance on that point.