Public Service Pensions and Judicial Offices Bill [Lords]

Pat McFadden Excerpts

2nd reading
Wednesday 5th January 2022 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

It is a pleasure to respond to the Chief Secretary’s opening speech. I begin by wishing you, Madam Deputy Speaker, and Members on both sides of the House a very happy new year.

Pensions are a very important part of workers’ overall pay package. It is in the interests of individuals and society as a whole that good pension schemes and good pension benefits are available to workers in both the public and private sectors and that those who pay into pensions schemes should be able to look forward to a good and secure retirement. When that is not the case, there is more pensioner poverty, lower quality of life in old age and a greater reliance on means-tested benefits. In those circumstances, individuals suffer and society is worse off.

The Bill deals with public sector pension schemes. The experience of the past two years has underlined the contribution made by the public sector workers affected by this legislation. Many of them had to be at work physically throughout the pandemic, caring for the sick, delivering key services or keeping our streets and communities safe. They deserve decent pay and decent pensions.

Part 1 of the Bill seeks to correct what the Public Accounts Committee has termed a “£17 billion mistake” made in the reform of this system through changes introduced by the Government in 2015. To state the obvious, £17 billion is a lot of money. Of course, that is the cost over a long period of time, not just one year, but let us think for a moment what that money could do for families facing energy bills which this year could rise by hundreds of pounds a year. Even a fraction of it could make a major difference to those families. Or to put it in another context, the cost of fixing this mistake made by the Government is around three times the annual bill for the £20-a-week universal credit uplift that the Chancellor largely removed in the autumn.

The Government’s main changes to the pension system in 2015 were to move from final salary to career average pensions and to extend the normal pension age in most schemes. But—this is the crucial point regarding the Bill—there was also provision for those within 10 years of retirement to remain in the previous legacy schemes. That provision was challenged in the courts and found to be discriminatory on the grounds of age in what has become known as the McCloud judgment. The Bill seeks to respond to the McCloud judgment and ensure that people are not unfairly impacted on by the changes on account of their age.

The first question for the Minister must be: where will this £17 billion come from and who will pay the bill? Will it come from the taxpayer as a whole or from pension scheme members? We should remember that a very significant proportion of pensioners in this country are members of one of these schemes. It is very important that Ministers give the House clarity on this matter.

The second point is about the design of the remedy for the McCloud judgment set out in the Bill. Consultation took place on this, and the method chosen is known as the deferred choice underpin. It is perhaps not the most user-friendly title, but what it means in simple terms is that, when people retire, they will have a choice as to which pension scheme should apply for the affected years—between 2015 and 2022—to ensure that they maximise their available pension benefits. The second question I have for the Minister winding up is to clarify whether making this choice will incur any extra costs for the pension scheme members concerned. For example, if members opt to remain in their legacy scheme for the seven years affected, because the rate of accrual in that scheme is higher, will they have to pay any backdated pension contributions to do so?

Then there is the question of how people make their decision under this deferred choice mechanism. Anything that involves individual scheme members making a choice that could have a fundamental impact on their income in retirement raises another question, which is about the quality of information that enables a pension scheme member to make such a choice. The recent history of information on pensions has given rise to some real injustices. We have had unscrupulous advisers trying to exploit pension freedoms and get people to transfer out of perfectly good pension schemes in a way that was clearly not in those people’s interests. Indeed, this House has only recently legislated, in the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021, for an increased levy on the pension industry as a direct result of increased levels of pension fraud and mis-selling. So the third question to the Minister is this: how will the Government respond to what has happened in these examples and how will they ensure that, in this case, pension scheme members are equipped with the best possible information to make the choices envisaged under the deferred choice underpin mechanism set out in the Bill?

Finally on this part of the Bill, there is a question about how the cost control mechanism will work. The Chief Secretary has already said that the Government will bring forward amendments on that, and we will have to examine those closely. In brief, it was originally envisaged that, under this mechanism, if costs breached the ceiling, benefits would be reduced, but the Government have said that, in this case, no member will see benefits reduced. What does that mean for where the funding for them will come from, and is there any time period after which this guarantee may lapse?

I now turn to part 2 of the Bill, which makes changes to the pension arrangements for former employees of Bradford & Bingley and Northern Rock. Their assets have, until recently, been managed by UK Asset Resolution, which is an arm of Government. The Bill provides assurance that the pension liabilities for these former employees will be met and underpinned by the Treasury. We welcome pension security for these pension scheme members, but can I ask the Minister what the estimated cost is of these provisions, and whether these costs are additional to the £17 billion budgeted for the McCloud response or part of the same overall costs?

Turning to the part of the Bill dealing with the judiciary, the Bill makes changes to the judicial pension scheme, allowing for the deregistering of this scheme for tax purposes on the basis that judges are an exceptional case. I want to return to the question posed a few minutes ago by the hon. Member for Bromley and Chislehurst (Sir Robert Neill), who asked about the annual allowance and the lifetime allowance. Could I ask the Minister to clarify what this deregistering means in the context of the annual allowance and the lifetime allowance? If it is the case that those two restrictions, as it were, do not apply to the judicial pension scheme, how will the Government respond to representation from others saying that they too are an exceptional case? We have already heard the example of doctors being raised. I would be very grateful if the Minister addressed those points in his winding up. Forgive the irony, but if I am right about the interpretation, how confident are the Government that, in making this exception, they will not open the door to legal action from other sectors arguing that they too should enjoy similar treatment?

The Bill also raises the retirement age for judges from 70 to 75, reversing a change made back in 1993. We understand the backlog in the judicial system, and we support measures to reduce the delays in bringing cases forward. There is truth in the old saying that justice delayed is justice denied, but when the Bill was being debated in the other place, concerns were raised that longevity of service might turn out to be the enemy of diversity in the system. How do Ministers respond to those concerns and what more will the Government do to enhance diversity in the judicial system, because it is important that as the country changes the institutions governing the country change with it?

The final issue on which I would like the Minister’s response is the pensions trap, which has been raised by representatives of police officers, among others. Police pensions operate differently from other public sector schemes in that they are based on a 30-year service record rather than a specific retirement age. The Police Superintendents Association, the Police Federation, the Fire Brigades Union and others have raised fears that individual scheme members in their pension schemes could lose out because of the way that the affected years between 2015 and 2022 are treated. I accept that this is a complex matter, but the end result is that a number of police officers feel that a new discrimination is being introduced by the way in which the Government are applying the remedy for the McCloud judgment. In November, the Home Office acknowledged that there is an issue and said that further work was needed. Has any further dialogue taken place with police and fire staff representatives in the past two months, and can the Minister give any further information on how the issue might be addressed?

In conclusion, we will not oppose the Bill, because we understand that the Government had to respond to the McCloud judgment, and they have a duty to ensure that pension schemes do not operate in a manner that is found to be discriminatory by the courts, but in future we will take with a pinch of salt lectures from Ministers about fiscal probity, when the Government have had to introduce legislation to correct what the Public Accounts Committee has defined as a “£17 billion mistake”. We also want assurances that proper, clear and understandable information will be made available to pension scheme members who will have to make important choices for their retirement under the mechanism that we are legislating for today.

Given that the major part of the Bill arose from a court challenge to the Government’s pension arrangements, we also ask how confident the Government are that this is the end of the story, and there will not be further legal challenges that will mean that we have to return to the issue in the future. Labour hopes that this response to the McCloud judgment settles the issues and ensures good quality pension schemes for the workers affected. We owe them all a debt of gratitude for the service that they have given and, in particular, for the outstanding service they have given over the past few years as the country has struggled with the pandemic.