Public Service Pensions Bill

Lord Whitty Excerpts

Tuesday 12th February 2013 Lords Chamber

I do not want to give the Government the opportunity to reinforce their discrimination against Ministry of Defence employees but there is a clear possibility that a discriminatory mistake is being made in this regard. It really is not sufficient, at the 11th hour, for the Minister simply to say, “Oh well, we’ll fix it at 65”, when one considers the nature of the work done by, and the considerable physical demands on, local authority firefighters and Ministry of Defence firefighters. It is important to recognise the nature of the work done and that the categories into which we would place the Ministry of Defence firefighters and police are exactly the same as those of local authority firefighters and normal police forces that report to police authorities. I beg to move.

[Lord Whitty]

My Lords, my name is attached to the first of these amendments and I support the second one. I do not want to add a lot to what my noble friend has said but I concur with him that at some point along the line, there has been either a mistake or an oversight. There can be very little argument but that the uniformed ranks who happen to be employed by the Ministry of Defence do a very similar and, if anything, significantly more dangerous job in certain locations than firefighters generally, and that therefore the exception to the general rule that applies to uniformed staff covered in my noble friend Lord Hutton’s report ought logically to apply to this group of workers. I cannot see a logical argument for excluding them from that exception.

My second point is that this group is in a Civil Service scheme that covers several hundred thousand people. We are dealing here with a unique workforce of 800 firefighters who serve our defence forces in the United Kingdom, in war zones and in other parts where the British Armed Forces operate abroad. They are not like the rest of the Civil Service, and nor would it be a major cost to the Civil Service scheme were this anomaly to be rectified in the Bill. In the other areas of the Bill in which I am interested as regards the local government scheme, the Minister has been pretty flexible over many aspects, which I applaud—and he will, I hope, be more flexible later this afternoon. However, I am surprised that he cannot see that this is an issue on which the Government could easily concede; it would meet with huge approval, would cost very little and would correct an anomaly that has been there for some time but does not need to be aggravated by raising the normal statutory retirement age, which the rest of the Bill does.

I ask—I plead with—the Minister, if he is not prepared to accept the amendment, to take it away again and consider it seriously, because in this respect his civil servants, whether in the Ministry of Defence or the Treasury, are not serving him well. We should have found a way through this. We should find a way this afternoon to ensure that the position of this group of workers is recognised and reflected in statute.

[Lord Hutton of Furness]

My Lords, perhaps I should briefly join the debate because my report has been cited by my noble friend. I echo the comments of my noble friends and support their argument. I ask your Lordships’ House to indulge me if I revisit some of the issues from my report. It talked about the uniformed services in general, not about whether you happened to be in the Civil Service scheme or any other scheme. I talked about uniformed services—firefighters, police and the Armed Forces. My report made a simple argument that the nature of their service is unique and should be reflected in the pension arrangements that we make for them.

I have to say that if, during the course of my inquiry, I had known about the unique circumstances of the MoD firefighters, I would have referred specifically to them in my report and urged the Government to show some flexibility, support and sympathy for the special role that they play within our Armed Forces. Sadly, this issue was not drawn to my attention, so I did not make any specific recommendations about the MoD firefighters or the MoD police. If I had known about it, I certainly would have done so.

I am sympathetic to the Minister’s position. I am sure that his officials have told him that enormous complexity is involved in changing the normal pensionable age for this group of workers. However, I ask the Minister to remind himself—I know what a decent and honourable person he is—of the fact that this is fundamentally a matter of fairness and of the need to approach the issue in the right way. I do not believe that there is any substantive technical reason why we cannot look again at the role of the MoD firefighters and the MoD Police. If there is a technical issue it has to be addressed on the face of the Bill, as my noble friend suggested, or in the scheme regulations or the discussions with the relevant trade unions. Surely there has to be a way of doing the right thing for these people. The MoD firefighters currently happen to be in the Civil Service pension scheme, which has a higher retirement age than the firefighters scheme or the Armed Forces scheme. It is incumbent on us to address that issue and not to use the technical arguments as an excuse for not addressing this fundamental discrepancy.

I am not familiar with the history of all this—I am sure that there is a lot of history to it—but I wish that it had been raised with me, as I would have referred to it in my final report in the way that I have suggested. However, we now have an opportunity to do the right thing for these people, and I hope that this House takes the right course.

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[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.

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[Lord Newby]

My Lords, I am pleased that I am moving in the right direction, at least as far as the noble Lord, Lord Whitty, is concerned.

On the amendments of the noble Lord, Lord Eatwell, there are two differences between the Alex Ferguson situation and the one that we are discussing. First, while he could of course be relied upon to act impartially in every circumstance, he is not given that freedom. There are a referee and various other officials on the pitch, taking decisions on a second-by-second basis. There is an authority; it is just not him. The noble Lord is concerned about what happens if that authority then acts improperly or unreasonably—if, say, the referee blatantly misses a series of handballs in the penalty area. The answer is that if there is a sense that the authority is behaving improperly, it has an oversight body: the courts. The authorities cannot just make arbitrary decisions, let alone unfair ones, without acting in good faith. If they do act unreasonably, they are also acting unlawfully. It is right that the responsibility lies with them, as they operate the schemes. Somebody has to make an initial decision. The underlying implication of what the noble Lord is saying is that the authorities will act in a malevolent way to do down scheme members. I do not believe that they will, or that that is the history.

[Lord Whitty]

My Lords, on a point of information, in the LGPS we make a clear distinction between an employing authority and an administering authority, the latter being the equivalent of a quasi-trustee body, whereas this seems to imply the employing authority— that is, the local authority. If it were the administering authority, I think that we would be slightly more reassured.

[Lord Newby]

My Lords, I simply do not know the answer to that question. I will have to write to the noble Lord. I hope that, in doing so, I will be able to reassure him.

I turn to the amendment of the noble Lord, Lord Eatwell, on the cost cap. Its operation has been extensively discussed here and I hope that noble Lords were reassured that we will not seek to use it to reduce accrued benefits. If noble Lords have not been reassured, I hope I can reassure them now by setting out the Government’s own detailed amendments on retrospective provisions and protections.

As I have stated, the new clause on retrospective protections will require that retrospective changes to pension benefits with significant adverse effects be subject to the consent of members or their representatives. This would include changes made as a result of the operation of the cost cap. I have already made clear that adjustments to benefits or contributions under the cost cap would not be retrospective. The new clause, set out in Amendment 36, also provides protections to this effect. First, there would be the procedure set out in Clause 12(6) for reaching agreement on changes that are contingent on the operation of that mechanism. Then, when scheme regulations were made to give effect to those agreed changes, those regulations would require consent for any provisions that were retrospective and had significant adverse effects on pensions.

Given this, I hope that noble Lords are convinced that Amendment 23 is not necessary either. As the noble Lord, Lord Eatwell, himself said in previous debates, this would be a belt-and-braces provision to provide further protection to members in the event that the cost cap is triggered. There is no need for this additional protection because the response to the cost cap calls for the approval of the members themselves. If that response were to involve a retrospective change with a serious adverse effect, the implementing provisions in scheme regulations would also require consent. So the belt and braces are already in the Bill, were that extremely unlikely scenario ever to happen. In these circumstances and with these reassurances, I hope noble Lords will not press their amendments.

The noble Lord, Lord Flight, asked a couple of questions about whether the changes relating to restricting retrospection would reduce the Government’s ability retrospectively to reduce provisions and thus make it easier, in his view, to get the costs under control. The problem about that from a legal point of view—leaving aside whether it is desirable in practice—is that tinkering with accrued rights falls foul of human rights legislation and the Government have made it absolutely clear that they have no intention of going down that road. On the question of figures in Michael Johnson’s report, the Government simply do not recognise them. The House should be reassured that the costings for these reforms and the single tier have been fully worked through. If, at some stage in the future, the schemes appear unfinanceable, we have the cost cap; that is the whole purpose of having a cost cap. If his worse fears were borne out—and, as I say, we do not recognise the figures that Michael Johnson has produced—