Public Service Pensions Bill

Nick Gibb Excerpts

Tuesday 4th December 2012 Commons Chamber

[Mr Nick Gibb (Bognor Regis and Littlehampton) (Con)]

The hon. Gentleman will know that the fair deal arrangements introduced in 1999 by the Labour Government were not statutory. Why was he happy to support and serve in a Government who had a non-statutory approach to the fair deal, but in opposition he seeks to make that approach statutory?

[Chris Leslie]

The situation now is different because of the level of trust on which public service employees feel tested when looking at significant changes by the Government. Employee contributions were unilaterally increased by 3% without consultation or discussion—that was simply imposed, even though Lord Hutton was putting measures through. The evaluation arrangement was unilaterally changed from the retail prices index to the consumer prices index. A typical public service employee must have said, “Hold on a minute. Are we supposed to just take this on faith? We are glad that the Government are in negotiations, but as we know, Ministers are here today and gone tomorrow.” In no way do I cast aspersion on the Economic Secretary who I am sure will remain on the Front Bench in days to come. However, we cannot simply rely on statements from particular Ministers at a particular point in time.

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[Chris Leslie]

That comes down to how the legislation is drafted. There are different financial consequences for local government pension schemes than for other public service pension schemes. That is why we need clarity in the legislation. I am conscious that the Scottish National party Government in Scotland have argued that there is no need for a legislative consent motion to cover the matter because, in theory, the UK Parliament always had primary legislative power over the local government pension scheme in Scotland but has hitherto chosen not to use it. The Government in Scotland have been quick to accept the UK’s proposals, which is unusual, because they normally argue that more power should sit with Holyrood. The movement of the regulation-making powers means that the Scottish Government will not need to grapple with difficult decisions on the reform of certain pensions, but the Opposition feel it would be better for Members of the Scottish Parliament to have an opportunity to scrutinise and debate the application of the legislation to the local government pension scheme in Scotland. Amendment 11 to clause 3 would mean that the Bill would not apply to the local government pension scheme in Scotland unless that is explicitly approved by the Scottish Parliament. The hon. Member for Banff and Buchan (Dr Whiteford) and others have tabled parallel amendments—I gather they are in the third group, so we will probably return to this debate later.

Amendment 12, which is in my name and that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), relates to another key Government promise made to public service workers. It seeks to enshrine in the legislation another Government promise made to public service workers—the Government promised that their final salary schemes would be replaced with career-average revalued earnings schemes. That would ensure that public service workers continue to receive a defined benefit pension.

The Bill does not explicitly honour that promise, and clause 7 provides that schemes created under the Bill can be defined benefit or defined contribution schemes, or any scheme of any other description. That is fundamental to the arguments on the Bill, but it is also fundamental to the arguments that Hutton made and the agreements that were reached. All schemes were supposed to be succeeded by career-average defined benefit schemes. In some cases, the Government might like to continue small defined contribution schemes, but the amendment would not affect those; it would apply only to final salary schemes and ensure that they are replaced with another defined benefit arrangement. The amendment therefore simply seeks to put the Government’s promise to public service workers on a statutory footing.

A similar amendment was opposed in Committee, but the reasons given by the Minister were concerning. He claimed that the Government intended to replace the final salary schemes with career-average schemes, but that “the flexibility embedded in” the Bill

“could be helpful to scheme members in future.”

He added that

“it would not be appropriate for this Government to tie the hands of future generations and pension scheme members who might decide that, subject to the protection offered by the enhanced consultation and reporting obligations of clause 20, defined benefit schemes were no longer the most appropriate for public service workers.”––[Official Report, Public Service Pensions Public Bill Committee, 13 November 2012; c. 291-92.]

That is not the first time we have heard the Minister’s bizarre argument that legislation could bind the hands of future Governments. No Government can bind the hands of their successors in that way. Unless the Minister has an insight into changes in the democratic process of which we are unaware, that remains absolutely the case.

Therefore, the argument that clause 7 provides welcome flexibility to scheme members now or in future is, in the Opposition’s view, potentially misleading. In the rare circumstances that a defined contribution scheme is better than the defined benefit one, and scheme members and the Government wish to change schemes to defined contributions schemes, clauses 19 and 20 allow that to happen. Clause 7 provides no flexibility that does not exist in clauses 19 and 20. If we do not make the amendment, we allow the Government to go back on their promises. We seek to keep them to their word on those arrangements.

I know that many hon. Members wish to speak to proposals in this large group, so I shall make my final point on the question of closing local government pension schemes. My hon. Friend the Member for Corby (Andy Sawford) and the hon. Member for Finchley and Golders Green (Mike Freer), among others, have had extensive experience of local government schemes. In Committee, there was anxiety that the Bill mentions closing existing LGP schemes and beginning new ones. The problem with closing schemes is that there can be unintended and adverse consequences. We heard in Committee about triggering debts which might need to be crystallised on closure. Of course, not just big local authorities but small academies, charities and others are members of such schemes. They might find that they suddenly need to shell out one great lump of money simply because an existing scheme closes and the deficit needs to be dealt with there and then.

The Minister assured us that regulatory provisions did not require such crystallisation, and that there could be protections. The Opposition are not massively happy with that, but even if we accept the Minister’s word that closure does not mean closure, thousands of employers in the local government pension fund have individual admission agreements governing the terms of their participation—the agreements are not necessarily in a standard form, meaning that there could be thousands of different admissions contracts for the schemes. It is likely that at least some of the agreements will set out various powers for local authorities in the event of closure, including the power to collect a debt from the employer equal to its share of the scheme’s deficit. That would put a massive strain on participating employers and could put some of them out of business.

The Minister gave assurances on some of those points in Committee, but he missed the problem that the Bill allows local authorities to close their funds. The Government cannot prevent them from doing so under the Bill. The problem of triggering debts therefore remains substantive. There is also the question of whether closure means closure or continuing a scheme. The Opposition believe that a different approach is needed and that the Bill needs better drafting, which is why we have tabled amendments 20 to 28. We are not trying to add costs to the public purse and are keeping the Government’s proposals, but we are saying that it would be better to amend an existing scheme rather than to close and reopen it. They are in some ways technical proposals, but it would be better to err on the side of caution and provide that new regulations can amend scheme rules to ensure that all future benefits are accrued according to the provisions of the Bill and negotiated arrangements.

Those are essentially my comments on the Opposition’s proposals. My hon. Friends and others have tabled amendments in this group, but I shall let them make the case for them.

[Mr Gibb]

I rise to speak briefly to Opposition new clause 3, which is on fair deal arrangements. Hon. Members will be aware that fair deal arrangements were originally addressed by Lord Hutton in his interim report in October 2010. Hutton was concerned that the arrangements at that time created barriers to the plurality of public service provision. He said:

“At present, when employees are transferred to non-public service bodies, the organisation they move to is required to ensure that there is ‘broadly comparable’ pension provision for future service, through the Fair Deal provisions…This arrangement has maintained the level of pension provision for those compulsorily transferred out of the public sector. However…this can make it harder for private sector and third sector organisations to provide public services because providing a ‘broadly comparable’ defined benefit pension scheme can be significantly more expensive and risky for private sector organisations than for public sector employers.”

That was the starting point of the debate. In box 1.A—a shaded box, the hon. Member for Nottingham East (Chris Leslie) will be intrigued to know—Lord Hutton concluded:

“Ultimately, it is for the Government to consider carefully the best way of moving forward with Fair Deal in a way that delivers its wider objective of encouraging a broader range of public service providers while remaining consistent with good employment practices.”

[Andy Sawford (Corby) (Lab/Co-op)]

My principal concern, fresh from the doorsteps of Corby, is for the many individual members of the pension scheme. In his extensive piece of work, Lord Hutton considered the future of public service reform and the relationships between the public and private sectors. What I am most concerned about in the debate today and in supporting the amendment tabled by my hon. Friend the Member for Nottingham East (Chris Leslie) on the fair deal, is giving an assurance to those individuals in Corby and East Northamptonshire—cleaners and nurses and so on—that the goalposts will not be constantly shifted away from what they expect from their pension. From the 3p in the pound change to the RPI to CPI change, they feel buffeted by huge changes that are really affecting them at the moment. That is why we need the assurance in the Bill.

[Mr Gibb]

I congratulate the hon. Member for Corby (Andy Sawford) on his election to the House. His intervention indicates the seriousness with which he takes his new role. I am grateful for that and I take his point. All of us on the Government Benches want to ensure that we have sustainable, good-quality defined benefit pensions in the public sector, but to achieve that there has to be major reform to public service pensions for a raft of reasons to do with longevity, cost, poor performance of the stock market in the past 12 years and tax changes that occurred in 1997. For all those reasons, if we are to have good-quality, defined benefit pensions for public service employees, there have to be major reforms.

The Government have been clear, open and transparent in the negotiating process, and an ample number of documents are circulating that set out precisely the conclusion to the negotiations, not least the proposed final agreements. The idea that without changing primary legislation the Government can somehow slip through major changes to the quality of benefits to the employees, which the hon. Gentleman is talking about, is just not in the real world. All Governments have to behave reasonably, and this Government are no different from any other. Not only have they behaved reasonably in these negotiations, but, I believe, they have given rise to high-quality public service pension arrangements that offer benefits way beyond the arrangements in the private sector. That is a sign that the Government recognise the important contribution that public sector employees make to our society.

I point the hon. Gentleman to the consultation on the new deal that took place between March and June 2011. That was a broad consultation, to which there were more than 100 responses. In July this year, in a written ministerial statement, the Chief Secretary to the Treasury stated:

“the Government have reviewed the fair deal policy and agreed to maintain the overall approach, but deliver this by offering access to public service pension schemes for transferring staff…this means that all staff whose employment is compulsorily transferred from the public service under TUPE…to independent providers of public services will retain membership of their current employer’s pension arrangements.”—[Official Report, 4 July 2012; Vol. 547, c. 54WS.]

That is on the record and should provide the hon. Gentleman and the rest of the House with the assurance they need.

[Chris Leslie]

We hear what the Liberal Democrat Chief Secretary to the Treasury says, but can the hon. Gentleman, as a Conservative MP, give us a guarantee that that would also be the case under a future Conservative Government?

[Mr Gibb]

Alas, I no longer speak on behalf of the Government, but that is a commitment given by Ministers of this coalition Government. The hon. Gentleman is trying to create a division between the Conservative party and the Liberal Democrats in our approach to public service pension reform, and there is no such division. There is no such difference in attitude between the two parties on public service reform.

[John Healey]

I rise to support the hon. Gentleman. Unlike my hon. Friend the Member for Nottingham East, the House and the public have a right to take at face value the words of a Chief Secretary—a Chief Secretary is a Chief Secretary is a Chief Secretary. That is a statement of Government policy and of coalition Government intent. Therefore, I think the onus is not on the hon. Gentleman, but on the Economic Secretary to the Treasury to explain why his statement is different from the Chief Secretary’s statement.

[Mr Gibb]

I listened carefully to my hon. Friend and to the Chief Secretary and I did not find any difference. My hon. Friend was addressing whether particular matters should be in primary legislation; the Chief Secretary was setting out the case for the policy.

On teachers’ pensions, there was anxiety that the current arrangements, under which teachers in the independent sector can be members of the teachers’ pension scheme if their employer signs up to the scheme, might be put in jeopardy by the words of Lord Hutton’s interim report, so the Chief Secretary’s statement was welcome news to teachers. Paragraph 8 of the proposed final agreement states:

“the Government agrees to retain Fair Deal provision and extend access to public service pension schemes for transferring staff. This means that all staff whose employment is compulsorily transferred from maintained schools (including academies)…under TUPE…will…be able to retain membership of the Teachers’ Pension Scheme when transferred.”

That is welcome news. The agreement goes on to state:

“The Government’s decision on Fair deal means that…independent schools which already have access to the Teachers’ Pension Scheme will continue to do so (for existing and new teachers); and new teachers and independent schools will continue to be able to join the scheme under the existing qualifying criteria.”

When we debated the issue in Committee, the hon. Member for Nottingham East conceded that the new fair deal

“is an improvement on the current fair deal arrangements”,

but, as he has just now, he complained that

“the promise does not appear in the Bill.”––[Official Report, Public Services Pensions Public Bill Committee, 22 November 2012; c. 458.]

He will be aware, however, that the fair deal arrangements were non-statutory when they were introduced in 1999, and that they remained non-statutory when they were revised in 2004. Notwithstanding the fact that the new fair deal arrangements are an improvement on the old ones, if it is good enough for a Labour Government for the policy to be non-statutory, it ought to be good enough for the hon. Gentleman. As my hon. Friend the Minister made clear in Committee, the recently published Government response to the fair deal consultation included draft guidance setting out how the new policy would work in practice. Given all the public statements by my hon. Friend the Chief Secretary and the published guidance and consultation documents, the hon. Gentleman should be assured by the commitments given.

[Chris Leslie]

Does the hon. Gentleman not understand the sense of anxiety that many public sector employees feel? Their trust was shattered because of the unilateral decisions on RPI to CPI and the 3%. They are saying, “Don’t we need more safeguards?” Can he understand why they would want safeguards now that might not have been necessary in the past?

[Mr Gibb]

Of course, that is an assertion by the hon. Gentleman. I do not recognise that crushing of confidence. What the Government had to do when they came into office was tackle a huge public sector deficit of £156 billion, and they have done that. As a consequence of the difficult decisions the Government have taken, the capital markets have been assured that the Government are getting the public finances under control. That itself should assure beneficiaries of public service pensions that the Government will put the public finances in a stable condition and so avoid the need for the sort of draconian changes to public service pensions being implemented in other European countries as they seek, rather belatedly, to tackle their public deficits.

[Sheila Gilmore]

Why does the hon. Gentleman think that that is a comfort, given that, as far as we can see, the Government’s deficit reduction plans are failing and debt is rising? In the light of that, many public service workers might well expect another bite at the cherry.

[Mr Gibb]

I fear that we are straying slightly from new clause 3 and the group of amendments, but I believe that the Government’s economic strategy is right. It is a judgment call, but one that I believe has been proven right by the fact that the Government’s borrowing cost for 10-year bonds, as they seek to fund the deficit, which has been reduced by a quarter over the last two and a half years, is 1.8%. That is a tribute to the difficult judgments Treasury Ministers have made, and they should be given credit for their achievements. As a consequence, however, there have had to be increases in the contribution rates of active members of public service pension schemes. In addition, Lord Hutton believes that even if there was not a deficit, major reform of public service pensions would still be needed, if they are to be sustainable in the long run.

The Government’s commitment to sustainable public finances is of more concrete value than a proposal from a party with a track record of undermining the public finances. Ultimately, in a pay-as-you-go public service pension scheme, the quality and assurance that members want will depend on the ability of the Government to maintain stable public finances.

[John McDonnell]

I rise to speak to the amendments in my name: amendments 4, 7 and 8.

Throughout the progress of the Bill, I have tabled a series of amendments with a central thrust—the same one raised by my hon. Friend the Member for Nottingham East (Chris Leslie)—which is about trust. The amendments would ensure that at each stage and for each grouping, there would be full consultation with and the full involvement of representatives of employees and scheme members. I apologise: I should have declared an interest as a member of the local government pension scheme. Nevertheless, each amendment would address the issue of confidence and secure a recognition, as promised by the Government, that employees will be fully consulted and represented and kept fully informed of changes to their pension schemes, which has not been the case up to now.

It is worth remembering that the pension deal was not a deal for a large number of unions; for more than 1 million workers, it was imposed. The Northern Ireland Public Service Alliance, the National Union of Teachers, the Public and Commercial Services Union, the Prison Officers Association, the University and College Union and Unite did not agree to the deal or the heads of agreement; instead, the deal was imposed upon them. There is deep scepticism amongst workers, and if Government Members do not recognise that, they are not living in the real world, or encountering the same constituents I am, or receiving the letters I get from police officers, teachers and local government workers across the piece.

Even organisations that signed up to the heads of the deal are now expressing concerns. The British Medical Association, whose briefing Members will have received, thought it had signed up to an assurance from the Government, which I remember being made, that there would be a 25-year guarantee of no change around a number of protected issues. The Government said:

“This means that no changes to scheme design, benefits or contribution rates should be necessary for 25 years outside of the processes agreed for the cost cap. To give substance to this, the Government intends to include provisions on the face of the forthcoming Public Service Pensions Bill to ensure a high bar is set for future Governments to change the design of the schemes. The Chief Secretary to the Treasury will also give a commitment to Parliament of no more reform for 25 years.”

Yet clause 3, described in briefings by the Royal College of Nursing, the BMA and others as a Henry VIII clause, gives extraordinary powers to the Secretary of State to return to these issues, introduce further reforms and make fairly significant changes through statutory instruments, not primary legislation to be debated in the House. Consequently, there is a lack of confidence in the words of Ministers, particularly given that, as my hon. Friend the Member for Nottingham East said, those words are contradictory, not just across Government, but within the same Department. It is extraordinary.

Others also signed the deal. The RCN wrote to us explaining its concerns:

“Clause 3(3) is a Henry VIII clause which enables the Government to amend the Act at a later date through the use of secondary legislation. The RCN is concerned that, as a result, the Bill gives powers to the UK Government to amend and make retrospective provisions to any other related legislation without sufficient member consultation or scrutiny by Parliament.”

I also received a letter from Mary Bousted of the Association of Teachers and Lecturers, which also signed up to the deal. She wrote:

“As you may know, the ATL accepted the Government’s proposed final agreement on changes to the teachers pension scheme as the best that could be achieved through negotiations. We now find the Bill contains additional elements that go beyond what was agreed in March 2012 and believe that the proposed changes could adversely and unfairly affect the quality of education that the nation’s children receive in our schools.”

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[Chris Leslie]

While I do not disagree about the bravery of those in the professions listed in the Bill, I counsel the hon. Gentleman against taking the prescriptive view that only those categories of employee are engaged in brave acts or in risky professions. I accept that there are risks that go beyond the question of physicality, but there are other professions where the distinction is not as black and white as the Bill makes out. Mental health workers often take significant risks in the course of their duties, for example if they have to restrain patients. Prison officers are often in dangerous situations. Paramedics, hospital porters and others also have very physically demanding duties. There are gradations of physicality and risk.

My point is that there is an anomaly in the legislation, because one cannot be quite as prescriptive as to set out in the Bill particular classes of job and suddenly regard all others as not involving the same level of physicality or risk. I will not say that there are 50 shades of grey, but there are certainly gradations.

[Mr Gibb]

Perhaps I may help the hon. Gentleman to address the conundrum with which he is challenging himself by referring him to the Hutton report, which the Bill is implementing. I refer him to one of the shaded boxes that I know he is very keen on. Recommendation 14 states that the exception to linking the normal pension age to the state pension age should be

“in the case of the uniformed services where the Normal Pension Age should be set to reflect the unique characteristics of the work involved.”

Hutton also states that the uniformed services are in a different position because their current pension age is 55 or less. That is another key reason why there is a different normal pension age for the uniformed services, which Hutton specifically lists as

“the armed forces, police and firefighters”.

[Chris Leslie]

I do not deny the important role that is played by the professions listed in the Bill. What I am saying is that it is not as simple as saying that all other professions should therefore be exempt from considerations about the physicality of their endeavours. One could argue that prison officers, being a sort of uniformed service, have cause to have such protections. My point is that it is inconsistent and unfair to make exceptions for some workers in physical roles and not others. It is by no means clear that 60 is the appropriate age for all firefighters, police and Army personnel, when some of them undertake such demanding physical activity. There is no room in the Bill to make further exceptions to the state pension age link or to respond to any review that makes recommendations about the appropriate retirement age for firefighters, the police or Army personnel. Members who served on the Committee will recall that we cited the working longer review in the national health service, which was set up by Government Members. There is also an ongoing review of the working age in the fire service.

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[Chris Leslie]

If only we had been talking about jockeys when the Under-Secretary of State for Skills, the hon. Member for West Suffolk (Matthew Hancock) was in the Chamber; he would have found that helpful intervention most interesting. My respect for the hon. Member for Finchley and Golders Green (Mike Freer) grows by the minute and I am grateful for that interjection.

The key point is whether the reviews can find their course into effect. In Committee, the Minister repeatedly stressed that the working longer review for NHS staff was

“not in any way looking at the link between the normal pension age and the state one.”

Instead he said that it was

“considering the implications of working longer for NHS staff,”––[Official Report, Public Service Pensions Public Bill Committee, 13 November 2012; c. 327-28.]

That seems a slightly contradictory statement. Linking the normal pension age to the state pension age means that people will work longer, and therefore the review will look at the effect on the state pension age link for NHS workers.

The terms contained in the Department of Health document “Reforming the NHS Pension Scheme for England and Wales” include the following objectives for the working longer review:

“Identify any categories of worker for whom an increase in Normal Pension Age would be a particular challenge in respect of safe and effective service delivery and consider how this may be addressed;

Identify any categories of worker for whom an increase in Normal Pension Age would be a particular challenge in respect of their health and wellbeing.”

If that NHS review concludes that a higher normal pension age is inappropriate for certain categories of worker, either because working longer would be physically damaging or because it could lead to unsafe practices in the NHS, the current Bill would not allow those workers to be exempt from the state pension age link in clause 9. I therefore contend that it is irresponsible to make legislation before the findings of the Government’s review are published, without allowing the legislation to accommodate some or all of that review’s recommendations. Given that the working longer review was a key component of the agreement reached between health service workers and their employers, it is unfair to fetter the recommendations that the review can realistically make. It is similarly inappropriate and unfair to fix the retirement age for firefighters at 60 when the working longer review in the fire service is yet to report.

This is an incredibly important issue. I accept that we must note that the cost-cap mechanism in the Bill would ensure that any extra costs of the extra exemptions to the state pension age link will need to be met by the scheme—the Opposition are not saying that the additional costs should fall on the shoulders of the taxpayer—but bearing that in mind and the fact that the clause does not require the Secretary of State to make exemptions, the amendment simply allows flexibility. I cannot see how the Government can object to it.

[Mr Gibb]

Before hon. Members speak to other amendments in the group, may I refer the hon. Gentleman to the proposed final agreements? I have in front of me the one that applies to teachers pensions, but it is similar to other schemes. It states:

“Actuarially fair early/late retirement factors on a cost-neutral basis”

will apply in the agreement. That means that teachers can take early retirement if they wish. If the normal pension age is above 65, they will have an early retirement factor of 3% per year for up to three years. People can therefore take early retirement with a small actuarial reduction in the pension. That deals with the problems the hon. Gentleman describes.

[Chris Leslie]

With the greatest respect, that does not deal with the problems, because there is a difference between the early retirement benefits to which an employee is entitled and those they can get at the normal pension age as defined in scheme regulations. The Government set up working groups and committees in the NHS, fire services and services throughout the country. Those groups have been given terms of reference, but now discover that they cannot implement their findings because of a drafting anomaly in this Bill. All the Opposition are asking is that the Government think again about how the scheme capability reviews come to fruition. This ought not to be a partisan point. I am simply seeking to ensure that we have flexibility in the legislation.

Others will want to speak to the amendments in the group that they have tabled, but I strongly urge the House to support amendment 16.

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[Ian Lavery]

The hon. Lady makes a powerful point. Prison officers in Northern Ireland have had a particular problem with security for decades. They have the same security problem here, although it is definitely not as bad as the problem experienced during the troubles in Northern Ireland. Nevertheless, prison officers put their neck on the block at all times. I have been out socialising with members of the Prison Officers Association when they have been approached by ex-convicts. They were out having a decent time, and those people were coming up to them. They addressed the prison officers very politely, but I have to say that they looked rather strange. I would not want them coming to talk to me. We need to look at the security of the people who work in the Prison Service. As I have said, we need to protect those people.

The hon. Member for Finchley and Golders Green said that members of the police force were highly trained, and that they needed shields and other forms of protection. He said that they were out on the front line when there were problems, and that they would get stuck in to try to resolve them. Prison officers and psychiatric nurses do that on almost a daily basis, and it is not very pleasant for them. There are also problems in the Prison Service and the health service, when prisoners are not only violent but spit in people’s faces and when blood is thrown at people’s faces causing all sorts of distress.

It is common sense to try to ensure that prison officers and psychiatric nurses are added as part of the exemption under clause 9(2), just as we rightly wish to protect police officers in their daily duties. Our brave armed forces and our firefighters are other examples, so we should look to protect the prison officers and psychiatric nurses, whose duty is solely to protect us, in the same way.

I will not press my amendment to the vote, as I do not want to divide the House. Should I say that we are too conciliatory on this issue, and should I say that Members of all parties seem to agree—albeit to different degrees—on it? Rather than split the House on it, I gently ask the Minister at least to consider the amendment to ensure that psychiatric nurses and prison officers are included in the provisions of clause 9(2).

[Mr Gibb]

I shall make a brief contribution and oppose amendment 2, tabled by Opposition Members, which would leave out lines 22 and 23 of clause 9— essentially subsection (1)(a) and (b)—and insert in its place

“65, or current pension scheme age if lower”.

That would drive a coach and horses in many ways through one of the Bill’s key provisions, which is to have a link between the normal pension age and the state pension age. I think that is an important way to minimise the risk of longevity to the taxpayer.

Paragraph 4.5 of the final report of Lord Hutton says:

“It is generally assumed that longevity will continue to increase in the future, but there is significant uncertainty about the scale of any future changes.”

He goes on to say:

“Increases in life expectancy have historically been… underestimated”

when the calculations have been made.

In paragraph 1.2 on page 22, Hutton says:

“As a result”

of this underestimation,

“pension costs…have been much higher than originally expected.”

He cites the example of a female pensioner in the NHS scheme who would retire at the age of 60 in 2010, and says that she would be expected to spend around 45% of her adult life in retirement, compared with about 30% for pensioners who retired in the 1950s. That is the issue that Hutton is trying to address. Spending 45% of one’s life in retirement is simply not sustainable for any pension scheme—even one backed up by the vast coffers of the state sector.

Page 9 of the Hutton report states:

“The main risks within defined benefit schemes are: investment; inflation; salary”—

because salaries can be put up without actuaries being aware of the rises—

“and longevity risk. While government, as a large employer, is capable of bearing the majority of the risk associated with pension saving…present schemes involve too much risk for government and the taxpayer.”

He went on to say:

“There should be a fairer sharing of risk between government”

and scheme members. It is that risk that amendment 2 would push back to the taxpayer.

Hutton says that the increases in life expectancy have been recognised within the state pension scheme, and he therefore recommends that we should follow that lead when it comes to helping members bear pre-retirement longevity risk. That is why he recommends the link between the state retirement pension age and the normal pension age. Recommendation 11—it is in a shaded box, which will please the shadow Minister—states:

“The Government should increase the member’s Normal Pension Age in the new schemes so that it is in line with their State Pension Age.”

Lord Hutton also says:

“The introduction of the link to the State Pension Age, which will initially move Normal Pension Ages to 65, will move the proportion of adult life in retirement for public service pension scheme members back to about a third: roughly where it was in the 1980s. The current State Pension Age of 65 is already the Normal Pension Age for most new entrants to public service pension schemes.”

Teachers, for instance, have a 2007 scheme and a pre-2007 scheme. For those who joined before 2007 the normal pension age is 60, while for those who joined after that date it is 65. Lord Hutton goes on to say:

“In the long term, the timetabled increases in State Pension Age should help to keep the proportion of adult life in retirement for members around this level”—

that is, a third—

“on current life expectancy projections.”

I believe that amendment 2 is a mistake, and would increase risk disproportionately for the taxpayer.

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[Sajid Javid]

The hon. Lady spoke passionately in the debate about this issue and I am sorry that we ran out of time to deal with it. I will respond to it now, but I am sure that she will not be surprised to learn that I cannot give that commitment. There are exceptions to the link to the state retirement age for certain services—Lord Hutton mentioned the police, firemen and others—and that is what we have taken on board. If she will allow me, I will move on.

As Lord Hutton and others have sought, we have committed to review the appropriateness of that link as changes are made to the state pension age in the future. That commitment is important in ensuring not only that the link continues to remain appropriate in terms of members’ capacity to work, but that the costs of schemes are appropriately managed.

The Bill will introduce stronger governance, administration and transparency frameworks so that Parliament, the public and scheme members can be assured that the schemes are being run and managed properly. Taken together, the key changes will put public service pensions back on to an affordable and sustainable footing—a sound foundation that can prevail for the next 25 years, a deal that can endure for a generation.

Throughout the Committee’s consideration of the Bill and earlier in this Chamber, it has been clear that both sides recognise the urgent case for reform. The Opposition have set out their support on occasion. It is, of course, fair to say that there remain a few areas—we have discussed some today—where matters are not yet resolved to all parties’ satisfaction. However, I suggest that those areas of disagreement are few and do not detract in any way from what the Government are seeking to achieve with the reforms. We have committed to considering further how members and their representatives are engaged in the administration and future change to their schemes.

[Mr Gibb]

I am listening carefully to my hon. Friend. From the evidence session, he will be aware that even Kevin Courtney, deputy general secretary of the National Union of Teachers, which has not signed up to the agreement, said:

“We are strongly advising our members to opt in and stay with the pension scheme. It will still be a good scheme”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 205, Q115.]—

even after the reforms.

[Sajid Javid]

My hon. Friend makes an excellent point. I thank him for the excellent contributions he made in Committee and the tremendous experience he brought to it. His point about opt-in is absolutely right. We all heard it in the evidence session. There has been barely any change to participation in public sector pensions, despite some of the changes the Government have already introduced.

We have committed to ensuring that scheme regulations provide for members to be regularly informed of their pension benefits, so that they understand their value and can better plan for their retirement.

--- Later in debate ---

[Mr Gibb]

I support the Bill, because I want to see good-quality defined benefit pensions maintained in the public sector, even at a time when the private sector is experiencing a wholesale shift away from final salary and defined benefit schemes. In the mid-1990s, 5.5 million private sector employees were in some form of defined benefit scheme, yet membership of such schemes had fallen to 2.1 million by 2010, with only 1 million in schemes that were still open to the public. Longevity, low stock market returns and accounting rules have been blamed for the switch, but the last Labour Government’s decision to end the repayment of dividend tax credits also had a huge impact, taking £3.5 billion a year from the income of the pension funds. From a total asset value of £650 billion, that represents a significant drop in income.

Treasury papers from 1997 that were published in 2007 under the Freedom of Information Act revealed civil service concerns about the impact of that decision on private sector pensions and a fear that it might accelerate the shift towards defined contribution schemes. The Labour Government believed that the stock market would continue to rise, and therefore make up any loss to pension funds caused by the loss of the dividend tax credits. The FTSE index stood at 6,900 in 1999, whereas last night it stood at 5,876. It is still more than 1,000 points below its peak in 1999.

I believe that the proposed final agreement negotiated by the Government will result in public service pensions that are still the best available. They will be defined benefit pensions and will still be regarded as good schemes by the trade unions, even those that have still to accept the negotiated settlement. Chris Keates, the general secretary of NASUWT, has said:

“Our advice to our members…has to be that they must opt into the scheme.”

This is a very good Bill. It reflects a good outcome to the negotiations on the reform of public service pensions, and it means that the public sector can be assured of good-quality defined benefit pension schemes that are sustainable in the long run and that address the main concerns raised in Lord Hutton’s report.