Pensions Bill

Lord German Excerpts

Wednesday 18th December 2013 Grand Committee

[Baroness Turner of Camden]

My Lords, I do not want to add anything to what my noble friend just said about public sector schemes, but at Second Reading I referred quite briefly to the fact that DB schemes have been under threat for a very long time. I can well remember when I was head of the pension committee of a well known charity that had a very good DB scheme. While I was there, there was a suggestion that in future new people would not be entered into the DB scheme. Gradually, it would be phased out. I spent a whole day persuading the executive not to go down that path. Time went on, and I ceased to be in that office. I went to a dinner on one occasion several years afterwards and somebody said, “Remember that? It’s all changed now. They waited until you’d gone and changed it”. It is absolutely dreadful, quite obviously, as far as my union is concerned.

I have tabled amendments further on that deal with the private sector. My noble friend dealt with the public sector, but also mentioned the private sector, for which we have very much the same cover as far as DB schemes are concerned. I am sure that a number of us have had letters from public sector unions that are very concerned about the future of their schemes, and they have every right to be. I hope very much that the Government will consider very carefully what has been said this afternoon. It is very important.

[Lord German]

My Lords, I congratulate the noble Lord, Lord Whitty, on his success in having a ticket for the 1966 World Cup final—very exciting for those of us who can remember it—and for raising these issues. At Second Reading, I also raised the issue of public sector schemes and how we should try to deal with them. I want to address Amendment 41, which I will not support in its directive approach to the Government, but I echo some of the issues that the noble Lord raised as being significant to the discussion of the Bill. Undoubtedly, we will return to them later when we get to the appropriate clause, Clause 24.

The abolition of contracting out will result in additional national insurance revenue to the Exchequer: £6.1 billion in 2016, of which £3.7 billion comes from public sector employers and £1.5 billion from public sector employees. If you project those figures forward from the £6.1 billion in 2016, they go to £5.6 billion in 2020, £4.3 billion in 2030, £3.8 billion—which is the lowest point in projections—for 2040 and start to rise again to £4.7 billion in 2050 and back to £6 billion in 2060.

So far the Government have allocated some of the funding they see coming back to them already up front. They have allocated to the Dilnot proposals and to some employment measures; but that leaves a significant tranche of money, of the money available, for the Government to deal with as they see fit but also, I hope, to use to deal with some of the problems that affect public sector pension schemes.

The first question that we have to ask ourselves is: what is a public sector pension scheme? I am a recipient of the Local Government Pension Scheme, although I did not work for local government, because I worked for a charity that was a company limited by guarantee and a member of the Local Government Pension Scheme. I transferred my teacher’s pension scheme to the local government scheme, as it was, but I have never been an employee of local government. I was a councillor, but that was not a time when councillors were entitled to retirement benefit.

A public sector scheme, therefore, could mean a scheme that has private sector people within it. We need a definition of whether that is just one single member of a scheme, because it can work the other way round for a private scheme. Does a single member make it a public scheme, or does it mean a group of members or which organisation came into it? The effect of having no, or very little, room for manoeuvre in public sector pension schemes means that there is going to be an effect on the employers, or those public sector services which we all cherish.

The point about local authorities is probably the most relevant. I took the opportunity to try to work out, with some help, what might be the effect upon the small Welsh council, because they are smaller than those in England. I did choose not the one that I live in, but the one alongside it. The extra cost on that Welsh council, if it simply had to meet the cost of the reduction in NIC, would probably be a £33 rise in council tax. If you took a council in the south-west of England—which shall remain nameless, but is probably far west—you would see an increase in its expenditure of £2 million that it would have to find, simply in the first year of the new scheme. Of course, it is possible to work out the impact on a specific council by doing the figures—working out what is 3% of payroll or 3.4% adjusted. Not all their employers are in the scheme, but you can work out what might apply to each local authority in the land.

Some public sector pension schemes can make adjustments through their investment policies; but I think the noble Lord was probably right that not many public sector pension schemes have the ability to match and manage this change. Therefore I believe, quite sensibly, that it is important that the Government use some of the tranche of money that they will have available by not having to pay out national insurance contributions to smooth over the process of changing from one to another. Over time, pension schemes are able to make adjustments through their investment policies. These are important issues.

I have a plea to make to the Government, and I hope that my noble friend can help with this. I know that it is the Exchequer, and not the DWP, that will make this decision. As the Government have made some forward commitments in relation to this money and have forward-spent it in advance, I think that it would be right for them to say now that they are prepared to help these public sector schemes to smooth the transition over the period in which they can make those adjustments in order that we, the council tax residents and people who use public services, will not have to pay more for those services in the immediate future. These are crucial issues and I am grateful to the noble Lord, Lord Whitty, for raising them, but the Government are going to have to make some effort to compensate the way in which these changes impact upon the public services that we all cherish.