Public Service Pensions Bill

Lord Hutton Excerpts

Wednesday 19th December 2012 Lords Chamber

[Lord Flight]

If the noble Lord thinks that the growing cash-flow deficit cannot be solved by increasing contributions and should not be solved by changing benefits, how is he going to solve it?

[Lord Hutton]

One of the great things about no longer being in government is that I can point to the government Front Bench—to people who can answer that question. I do not want to put words into the Minister’s mouth or the Government’s mouth, but they have set out their stall as to how they can manage and contain these costs. There is going to be an increase in costs—there is no doubt about that—but through higher contributions and changes to the indexation rules for public sector schemes, they have set out their strategy for managing that pressure on public spending. That is the Government’s concern. I think the noble Lord has more of a concern with his own Front Bench in this regard than with anything that I have proposed.

However, I accept that it is a big challenge. These are difficult things to wrestle with. To be fair to the Government, they have set their sights on ensuring an adequate level of pension benefits from these schemes and I support that principle. I do not think that there is an answer to the demographic challenge we face in simply stripping away further benefit entitlement from retirees in the public sector. The combined effect of both the changes that the Government, whom I was proud to serve, and now the changes that this Government have made has been to reduce the value of these pensions by about 25%. That is a substantial change. If we were to go very much further we would undermine the principle point and purpose of those pensions, which is to give people adequate income when they retire.

The noble Baroness, Lady Noakes, referred to a lack of public support for these schemes but I wonder whether that is so. I have never found anyone in the country who begrudged a soldier, sailor or airman a proper defined benefit pension. I never met anyone who did not think that police, firefighters and others did not deserve one. There is one job that is probably more important than anything else in our society. We entrust those who teach our children with a very great deal of responsibility and I for one do not begrudge teachers a defined benefit pension.

In relation to retrospectivity, the Government have a serious problem. We have to be mindful if there are to be DB schemes in the public sector. We know that there are fewer in the private sector, but those 2.6 million people in the private sector who still have access to a defined benefit scheme know for certain, because of the current law, that their accrued rights cannot be changed unless they give their consent to that change. The same rules should apply in the public sector. I do not believe that we can have a different set of rules in relation to accrued rights for people in public sector schemes.

Many people have spoken in this debate—this is my final concern—about how this Bill affects the Local Government Pension Scheme. It is fundamentally different in its characteristics because it is not just about contributions for employers and employees; it is about assets and the investment income that is produced. My concern about the Bill and Clause 16 in particular, with its reference to closure, is that it implies some sort of segregation between the Local Government Pension Scheme as it now is and as it will be post-2014. That could run the risk of a whole set of additional costs and complexities creeping in and we should try to avoid that.

Again, I know from studying proceedings in the other place that Ministers have made it clear that that is not their intention. As a good rule of thumb, if it is not the Government's intention, they should have that on the face of the Bill, because once this Bill reaches Royal Assent, which it will, how are pension advisers to reconcile the difference between what the Bill says and what a Minister may or may not have said in Committee in this House or the other place? That is a difficult set of challenges. If the purpose of this Bill fundamentally is to create a simpler, straightforward legal framework, we will have absolutely failed if we end up with a contradiction between what the Bill says and what ministerial intentions are.

That is all I want to say about the Bill. I am looking forward to working with the Minister and colleagues on both sides of the House in improving its detailed clauses as we make further progress with it.