Pensions Bill

Lord Whitty Excerpts

Tuesday 3rd December 2013 Lords Chamber

[Lord Whitty (Lab)]

My Lords, it gives me considerable pleasure to follow and welcome the maiden speech of the noble Lord, Lord Balfe, in this House. He has described the slightly circuitous political route that he has taken through his life, whereby he has ended up sitting on the government Benches. I have long and, by and large, fond memories of his activities when he was, perhaps, in a slightly different political place. When I was in south London, in the early 1970s, he was already a force in the London Co-operative and Labour movement. Eventually, he became my Member of the European Parliament. He probably does not mention it that much to his colleagues these days but, during my period as general secretary of the party and his time as an officer of the British Labour group, or the EPLP, as we now call it—for some reason, whoever was in control of the EPLP, whether it was the right or the left, pro-Europeans or anti-Europeans, Richard was always an officer—he was extremely helpful to me. I shall put it no more strongly than that. When I did a European job in Brussels and Strasbourg, he was extremely helpful to me, personally, and I am very grateful for that.

Obviously, the road to Damascus is dangerous, and the noble Lord has had a bit of a conversion, the full political and spiritual aspects of which I am not entirely clear on. I suspect that the noble Lord, Lord Plumb, is a bit unsure himself, given the past history. But it is clear that he has retained some of his early interests and commitments, particularly in relation to the trade union movement. I recognise the Prime Minister’s wisdom in giving him his remit. I have two regrets. On the one hand, not all leaders of trade unions were prepared to talk to him on the subject; on the other, it is clear that the leader of the Conservative Party has not entirely followed his wise advice. However, he maintains an unashamed interest in that field, I am very pleased to say.

In reference to this Bill, the noble Lord’s experience with the pension scheme of European Members of Parliament is instructive. If he can make improvements to this Bill that render similar conditions for the bulk of the population, I think that we will all be seriously grateful. I extend a very good welcome to him.

As regards the Bill, I share the general consensus of the overall direction and, in particular, the concept of a single-tier pension scheme, but I do have a number of concerns. My main concern is about the impact on employee members and employers who run occupational pension schemes, both private and public. I have concern for certain other groups, as well, which may well come up in Committee—for example, the cohort of women born in the early 1950s, who seem to miss out on both counts, as well as those who would have got a better pension under the old system than they will with this one. We can deal with those issues in Committee.

My main concern at the outset is about the cost that these provisions will impose on all existing occupational schemes. I spent an early part of my youth getting large swathes of manual workers and others into occupational pension schemes, and it is one of my great regrets in life that the security that that seemed to provide them with for the first time has disappeared in the private sector to a large extent and has been diluted even within the public sector.

As the noble Lord, Lord German, said, all occupational schemes will, as a result of this Bill, face increased costs of approximately 1.4% for employees and 3.4% for employers as a result of the national insurance implications. I have a special interest in the local government scheme, and I declare an interest as a vice-president of the LGA and a member of the GMB. In neither capacity do I receive any pecuniary benefit, but nevertheless I have taken an interest, until recently being a chair of one of the member schemes of the local government scheme.

As the noble Lord, Lord German, said, in the case of private sector occupational schemes, Clause 24 allows for the overriding of existing rules and benefits which had previously been negotiated or provided by the trustees of a scheme, in order to offset these costs. I think that that is quite a dangerous move and will cause difficulties in a whole range of private sector occupational schemes. I certainly do not propose that the Government should extend that to public sector schemes. However, there has to be some recognition of the size of the impact on public sector occupational schemes. I think that the local government scheme in particular is likely to suffer from this. Some public sector trade unions and scheme members have been given a bit of a nod and a wink and been told that departmental budgets will adjust to cover these schemes. I suspect that that assurance is not worth the paper on which it is not written, but they have been given some assurance in that regard.

However, no such assurance has been given in relation to the settlement with local government. The cost increase of the local government scheme for the average employee earning about £27,000 per annum will be £25 a month over a lifetime. The cost to the employers is an additional £700 million. For a small Welsh council, that would mean charging an extra £33 in council tax. For a typical northern metropolitan district council, it would mean withdrawing £2.5 million per annum from expenditure on public services. That is not an inconsiderable cost and the Government need to face up to it. The speed with which local authorities are expected to adjust their pension schemes is also an important factor. These provisions are to be brought in almost immediately. Local authority finance directors are already budgeting for 2016-17. To have such additional costs imposed on them, with the accompanying uncertainty, gives them a real problem.

Obviously, every local authority scheme and every local authority fund will suffer as a result of this measure, but it is not only local authorities: a very large number of private bodies—several hundred—are also admitted members to the local government scheme. They vary from outsourced companies as big as Serco, Mitie and Sodexo to relatively small charities such as the North London Hospice, the Norfolk Heritage Fleet Trust and various museums, and to bigger charities such as the Alzheimer’s Society, the Children’s Society and Barnardo’s. They include all sorts of bodies such as museums, the local citizens advice bureaux and parish councils with full-time employees and so forth. So this is a cost issue that hits many large and small private bodies and charities as well as local government itself. It is important that the Government, including the Minister’s department, CLG and the Treasury, face up to this cost.

There are other complications. For example, under the Bill, LGPS funds will suffer significantly from the fact that the payment of pensions increases in members’ guaranteed minimum pensions, which currently the Government pay, will be shifted on to the employers and the public sector pension schemes directly. So there are significant additional costs which fall on the Local Government Pension Scheme and all the participants therein.

I do not have a solution to this problem but the Government need to have one. We took the then Public Service Pensions Bill through this House with some difficulty. However, the employers and the trade unions very responsibly sat down and agreed on how it should be effectively implemented in the LGPS area. These new costs, as well as the possible knock-on effects on the level of contracting out, particularly for low-income employees but more generally as well, and the costs for the employer of running the scheme are likely to tear up that agreement very quickly. At the very minimum, we need more time to ensure that there is an effective answer to this.

Given the scale of the potential financial impact on public services and local government in particular, today I simply ask the Minister to commit with his colleagues to meeting the LGA at some point during the course of the Bill so that they can discuss this matter. A number of potential ameliorations, if not total solutions, need to be considered. The one thing that I therefore ask the Minister today is that he and his colleagues commit themselves to such a meeting.