Pensions Bill

Lord Whitty Excerpts

Monday 24th February 2014 Lords Chamber

Moved by

[Lord Whitty]

11: Clause 24, page 11, line 38, at end insert—
“( ) The power conferred by subsection (2) on employers to amend occupational pension schemes does not override the powers and duties of Trustees of such schemes nor any duty to consult members of such schemes and their representatives in accordance with the terms of such schemes.”

[Lord Whitty (Lab)]

My Lords, with Clause 24 and Schedule 14 we deal with the impact of the ending of contracting out on existing occupational, or work-based, pension schemes. The impact is pretty severe, being up to 5% of the income of those schemes. The Government have provided some measures in Schedule 14 and Clause 24 that allow employers effectively either to increase the contributions of employees but not of employers or to cut back on the benefits of those schemes. I do not approve of that way of dealing with the situation for either the public or the private sectors. Of course, ending contracting out impacts on both sectors. Although Clause 24 is primarily about the private sector, there are a couple of related questions on the public sector that I should like to put to the Minister.

I declare an interest as a vice-president of the Local Government Association and as a long-term member of the GMB. I am therefore particularly concerned about the local government scheme but other public sector schemes are also affected. In Committee the Minister indicated that he was prepared to have discussions with the LGA—and, presumably, parallel discussions with other public sector employers—to consider how the loss to its funds could be made up.

I understand that a meeting took place on 14 January and that the noble Lord, Lord German, was present at that meeting and may be able to elucidate. However, from the note of the meeting that I have seen, I am not clear as to the Government’s position on follow-up to that meeting in relation to the Local Government Pension Scheme. Of course, the Local Government Pension Scheme affects a large number of employers, not only local authorities but others in the public, private and third sectors. It is therefore important that some understanding of the stability of those schemes in future public expenditure allocations is established. It would be useful to hear of any progress on that or parallel fronts, so can the Minister update us on progress?

As to some of the schemes which are now in the private sector, Amendment 14 goes some way to meeting the concerns expressed on behalf of the post-privatisation schemes where guarantees were given that there would not be any diminution in the benefits from such schemes at the point of privatisation. So anyone who was in a scheme before that point should have been covered. I welcome that. However, I have a concern about the definition of “protected person”. The amendment refers to it being defined in regulations, whereas the schemes to which the Government have referred in their statements on electricity, railways, nuclear decommissioning and coal do not cover all the people who were given guarantees post-privatisation. For example, the guarantees for gas workers were written into the deeds of the scheme but were nevertheless promises backed by the Government. I should therefore like to know how far into the area of protected persons the regulations are likely to go. If the noble Lord wishes to write to me on that front I would be grateful but, in any case, out of equity, it ought to be addressed in the same way for every group of workers affected during that period of major privatisation of the utilities and other nationalised industries.

Of course, the Government have provided in Clause 24 and Schedule 14 a way out for others who are in private sector schemes. The way out is hugely detrimental to the members of those schemes in that it gives the right of override to employers—not to the scheme—to alter the terms of that scheme in order to make up the effects of the ending of contracting out, which can be up to a 5% deficit in such schemes. As the Bill stands, that ability to override is without reference to trustees, without invoking any consultation with members and without negotiations with trade unions or other worker representatives. Amendment 11 seeks to ensure that the rights of trustees are protected and that their legal responsibilities are recognised; that the trustees will be involved in any alteration of the scheme; and that consultation will be conducted in accordance with the terms of the scheme. Amendment 13, tabled by my noble friend Lady Turner, goes further and requires a ballot of members of such schemes. Unless we do that, we are seriously undermining the whole system of trusteeship of private sector occupational schemes.

I hope that the Minister will be able to tell me that Amendment 12 is unnecessary because it is in the existing law. I hope that is the case but the terms of Clause 24 and Schedule 14 which allow for override and alteration are extremely wide. It should have been the law and it was generally accepted that it was the law post the Maxwell scandal and the reforms that led to the requirement that schemes could not at any point retrospectively change the accrued benefit of members up to that point. In other words, the scheme could be altered subsequently but anything accrued up to the point of change could not be retrospectively downgraded. Amendment 12 seeks to ensure clearly that this is the case.

We need clarity from the Government on this and we need their vision for the future of occupational work-based schemes because there is a contradiction in the Government’s position. On the one hand, we are engaged in a system of auto-enrolment to increase the coverage for workers who hitherto have been outside occupational schemes, and in principle we welcome all that. On the other hand, the effects of the Bill, without mitigation of the kind I am suggesting in Amendments 11 and 12, will undermine and even destroy the viability of many existing schemes. It is not just the final salary schemes that we are talking about here, or career average schemes or simply defined benefit schemes. It will also apply to or have implications for all occupational pension schemes, partly because of the financial effect but also because the viability of pension schemes depends not only on the funding arrangements and the rigour with which those schemes are managed, but on the mutuality between the members, the employers and the funders under which those schemes are set up. That is reflected in the trustee arrangements; expectations are based on that mutuality continuing and on that trustee protection. If that goes, then members’ and potential members’ trust in such schemes goes too. We need to hear clearly from the Government what their intentions are for this sector.

If trust goes, then the level of opt-out from such schemes will increase. Pension schemes will be seen as non-viable. Some pension schemes will fail and the workers and the employers who have hitherto seen their pension contributions as part of deferred pay may no longer regard them in that light. Therefore, pressure might grow for them to be paid immediately. Pension schemes are the most effective form of savings but they will not appear that way if trust in such schemes disappears. That is bad for future pensioners but it is also bad for the economy if that element of relatively automatic saving is undermined. To maintain the trust, the role of trustees is vital. I would therefore like the Government to accept Amendment 11 and to indicate that the role of trustees, and therefore the trust in such schemes, would be maintained. That is not to say that alterations could not be made, but they would be made through the way in which the role of the trustees and the consultation is laid down in such schemes.

At a minimum, I hope that the Government can accept Amendment 11, confirm my understanding that Amendment 12 is indeed the law as it stands and clarify the situation of protected persons in the post-privatisation schemes. I would also like them at least to consider accepting the amendment tabled by my noble friend Lady Turner, which would delete Schedule 14 entirely, because the idea behind this whole way of overriding long-standing schemes is pernicious. Amendment 11 gives a way of doing it in effect, but doing it by consent, which is far preferable and will preserve a very significant part of the remuneration package and savings structure of the country. I beg to move.

--- Later in debate ---

[Lord Freud]

My noble friend is probably way ahead of everyone in this Chamber at this moment on this matter, but I think I can simply answer yes to his understanding. As he says, whereas final decisions tend to get taken at a relatively late moment, if the processes are well organised, that matters less and they can be effectively activated.

The ending of contracting out is an inevitable consequence of the state pension reforms. We want to manage this as smoothly as possible and to minimise impacts on employers, schemes and individuals. I have set out why the override is necessary and why the amendments tabled by the noble Baroness and the noble Lord would make the override unworkable. Amendment 11 would in many cases allow trustees to block changes to the scheme and would increase the risk that employers would simply close their schemes. That is why I urge the noble Lord to withdraw his amendment.

[Lord Whitty]

My Lords, I thank the Minister for that. There is quite a lot in there which has cheered me up slightly—not everything, but bits of it. I am grateful for this update on the LGA position. We will watch this space. I am interested to see that there are other sectors that could be involved in that. I welcome the Minister’s statement in relation to the consultation of members of the scheme. I think I am quoting him correctly that the override does not affect the duty to consult, that the Government support the continuation of DB schemes and that the rules of such schemes on consultation are not affected by the override.

That deals with the consultation with members of the scheme, but it does not effectively deal with the trustee position, and the role of the trustees is very important in the future of the schemes and in future faith in them. The Minister said that trustees are bound to consult; yes, they are possibly bound to consult. The override clearly applies in his mind, and I presume the intention of the override is that in those schemes that require trustee consent, the employer, using Clause 24 and Schedule 14, can override the need for that consent. That seems a pretty fundamental alternation in the role of trustees. I hope that, even at this late stage, the Government would reconsider that position.

I am grateful for the Minister’s view on accrued rights and the fact that Amendment 12 is not, therefore, needed. I am less grateful for his indication that “protected workers” will not apply to those who are protected on the word of the Government of the day but not actually embedded in statute. This applies principally to the gas workers and I suspect I will be in correspondence with him about that.

The central point of this group of amendments is that, in this clause, the Government have, effectively, overridden the governance structure of work-based occupational schemes by attacking the very fundamentals of trusteeship. That is a mistake. Over the years, many changes have been made at the behest of employers and with the agreement of trustees. Some of these were detrimental to future members because of the financial position of the scheme or legislative changes. Trustees are unlikely to be unable to recognise the need for such changes, but to override and delete trustee consent is a very serious step which the Government should be much more hesitant about taking. However, for the moment, I beg leave to withdraw the amendment and thank the Minister for some of his other remarks.

Amendment 11 withdrawn.