Public Service Pensions and Judicial Offices Bill [ Lords ] (First sitting)

Peter Grant Excerpts

Committee stage
Thursday 27th January 2022 Public Bill Committees

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I will start by talking about our public sector workforce and the service they give to this country. The pandemic has highlighted how much we depend on the NHS and on teachers, police and other frontline professionals who keep us and our loved ones safe. It is only right that the state ensures that our public servants are secure in retirement by providing a decent pension on a fair and equal basis.

Labour therefore welcomes the main provisions in clause 1, in particular the attempt to introduce a remedy for the discrimination of younger members in the new pension schemes established by the coalition Government between 2014 and 2016. I recognise that the remedy the Government have opted to include in the Bill—the deferred choice underpin, or DCU—was the preferred option of the overwhelming majority of respondents to the Government’s consultation, including Unison and GMB—my trade union. However, I want to draw the Minister’s attention to the fact that trade unions continue to have concerns about the lack of clarity on how the remedy, expected to cost around £17 billion, will impact the future value of members’ pension schemes.

On Second Reading on 5 January, the Under-Secretary of State for Justice, the hon. Member for South Suffolk (James Cartlidge) said

“liability…will fall on the Exchequer.”—[Official Report, 5 January 2022; Vol. 706, c. 112.]

That is an important commitment, but as Lord Davies of Brixton, a Member of the other place and one of the country’s foremost pension experts, has said, it does not address the question of whether the remedy will be included in the cost control mechanism at a later date. If this cost were to be included in a future cost control mechanism valuation, it would result in members receiving lower benefits and having to make higher contributions to their pension schemes. As the Public Accounts Committee has warned, this would, in effect, be unfairly penalising our public sector workforce for the Government’s economic incompetence by passing on some of the cost of the Treasury’s £17 billion mistake to members.

Can I ask the Minister to confirm, once and for all, whether the estimated £17 billion cost of the remedy will be included in future valuations of the pension schemes under the cost-control mechanism? If it is to be included, can he please set out how that will impact on the future value of members’ benefits and contribution rates? I think he will agree with me that our public servants deserve better than to be left in the dark, so I hope he will clarify this in detail.

Today, the Government have failed to address concerns about how pension scheme members will be protected from unscrupulous advisers. I know that Minsters have been reluctant to include pension scams in the draft Online Safety Bill, despite the spiralling costs of pension fraud and mis-selling. I would like the Minister to set out what steps he is taking to protect members from scammers, who may try to exploit the greater choice that this Bill provides by getting people to transfer out of the pension schemes in a way that is not in their best interest.

[Peter Grant (Glenrothes) (SNP)]

It is a great pleasure to serve under your chairmanship, Mr Sharma. Some of the comments that I will make today will repeat the assurances I asked for on Second Reading. Looking back over the Hansard record, I think I was the only Member who spoke in that debate who did not have their queries addressed in the Minister’s summing up—not that I was keeping track or feeling got at, at all.

I am grateful to the Minister for clarifying the query from my hon. Friend the Member for Glasgow South West; it should concern all of us that such a massive injustice almost slipped through the net. There have been dozens of chances for amendments to be made and for this Bill to be got right. I said on Second Reading that I was concerned that the number of very late amendments that the Government tabled in the Lords was an indication that there were still big gaps. Something as vital as not denying a public service worker their pension rights was missed because, as a result of a dreadful piece of legislation, their job was sold off to the private sector and then brought back in house again. For that potential injustice to have got this far, until the Government spotted it and brought them in, will leave us all at the end of today’s proceedings—and Tuesday’s if we sit then—still wondering what else is left that has not been picked up.

It is quite clear that, with some of the later amendments, the Government did not identify issues for teachers, whose length of service provision and their age sometimes will not fall into line with each other in a way that would be expected. Some of the later amendments suggest that the Government forgot that sometimes the Treasury does not decide things in Northern Ireland, but rather, it is the Northern Ireland Department of Finance that decides. How could such a crucially important piece of legislation have got to that stage without basic facts of the UK constitution having been picked up somewhere within Government?

I hope that when we come to those sections that the Minister will have the good grace to admit that sometimes there have been simple blunders by the Government, that mean we will have to consider these things as amendments rather than them being part of the substantive Bill.

[Chris Stephens]

Does my hon. Friend agree that we are taking about deferred pay for public sector workers, and therefore we should be treating this Bill with a great deal of care and attention?

[Peter Grant]

I absolutely agree. I made it clear during my comments on Second Reading that I do not doubt the sincerity of the Minister’s and the Government’s intention to do the right thing. However, I believe it is a fundamental principle that if someone signs up to a pension scheme, they get what they were promised, even if it becomes inconvenient or the Government discover afterwards that it is going to cost more than they expected. That is why it is important we get clarity on who is going to pick up the tab for the £17 billion, for example. It concerns me that a group of workers who were very badly treated by legislation in the past would have lost even more than they thought they had done if the Bill had not been amended at such a late stage.

I hope that these will be the last substantive amendments that we need to see, but I suspect that on Report the Government will have another raft of big amendments for things that nobody spotted until now.

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[Mr Clarke]

I thank all hon. Members for their contributions. It is important to clarify one of the misapprehensions about what has happened over the course of the passage of this legislation to the issue that we are working to address. The Government did not, as it has been described, make a mistake. We inserted transitional protections into the scheme after the recommendations of Lord Hutton, expressly at the request of the trade union movement. It is important to establish that the request for transitional protections to be inserted was a trade union-led request. That is what triggered the discrimination action against the Government, which we are now working to address. I would defend the Government’s record here quite strongly; this is not something that we have brought about. None the less, we are obviously working in good faith to seek to address it.

[Peter Grant]

It just will not wash for the Minister to blame the trade unions. If this Government were in the habit of paying a blind bit of attention to anything else the trade unions say, that might be credible. But the trade unions did not make the regulations that were proved to be unlawful; the Government made them. Why can the Minister not accept that the Government took the decision and got it wrong?

[Mr Clarke]

The Government obviously take responsibility for all of those things, but it is important to establish the full context. We inserted the changes at the request of the trade union movement, and they were found to be discriminatory in a way that could not have realistically been anticipated at the time that the legislation was brought forward. None the less, we are where we are, and I want to address some of the substantive concerns raised in particular about the cost of remedy. We will come back to this later as well in the course of the Committee, because it will arise again in the context of some of the other clauses.

It is really worth clarifying definitively that the Exchequer is responsible for paying out pensions due from unfunded public service pension schemes, to which this relates. This works in practice by current employer and member contribution incomes being used to meet the costs of paying current pensioners. Where contribution income does not match the cost of pensions in payments in any given year, the Treasury has to make the balancing payment. In this way, the Exchequer guarantees the benefit that members worked so hard to earn, as the hon. Member for Glenrothes rightly said, during their time in service.

Remedy increases the pension rights of eligible members over the period in question—2015 to 2022. As the hon. Member for Hampstead and Kilburn said, the estimated cost of this remedy for unfunded schemes is in the region of £17 billion, in terms of long-term liabilities for the Exchequer. The Exchequer will therefore pay out these increased pension benefits due to members over several decades as members retire. There should be no doubt that the ultimately liability sits with the Exchequer, rather than scheme members. It is worth noting that, overall, these reforms are estimated to save the Exchequer some £400 billion in long-term liabilities, which is important for the long-term sustainability of our public service pension schemes in an age of rising life expectancy.

On the question of remedy, which is really important in the cost control mechanism, I should be clear that member benefit levels and contribution rates are set out in individual scheme rules and can be adjusted through the cost control mechanism at scheme valuations. The cost control mechanism—again, I will expand on this later—is designed to both protect the value of schemes to members and to protect the Exchequer from unforeseen costs.

At each scheme valuation, the mechanism assesses the benefits that have accrued and are accruing to members to determine whether future benefit levels of member contribution rates need to be adjusted to manage the cost of the scheme. By increasing the pension rights of eligible members, the remedy we are talking about today increases the value of those schemes to members, which is why it is right that it is reflected in the cost control mechanism for the 2016 valuations.

However, because we are waiving the ceiling breaches while honouring floor breaches of the mechanism, it is vital that we establish now, for the avoidance of any doubt, that no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations. Any benefit improvements due will be honoured, but no additional costs will be imposed. I reassure the hon. Lady, on her important question, that the costs of our remedy genuinely sit with the Exchequer, not scheme members.

I entirely agree with the hon. Lady’s important point regarding people not being caught up by pension fraud. Public service pensions schemes do not allow members to transfer to such arrangements, only to equivalent defined-benefit schemes, so there is a degree of protection against the most egregious fraud, but we are always happy to work with individual schemes and the industry to try to promote best practice and make sure that people do not fall victim to any form of mis-selling.

As I set out, this is a highly complex and technical Bill. The amendments in this group, and some we will come on to discuss, are crucial to ensuring that a robust remedy is in place—in this particular instance, for teachers with excess service and those who have a period of service that was subject to a local government contracting-out transfer. On the point that the hon. Member for Glenrothes raised, it is important to note that many of these amendments result from close discussion with individual schemes and stakeholders right up until this moment, not because we had not anticipated many of these questions but because, in truth, how best to resolve them—there are sometimes multiple ways—has been a matter for close discussion. We are confident that the remedies we are bringing forward and the amendments that fall within the scope of today’s proceedings are the optimal way of making sure that we have a new system that is fair and, crucially, provides the most robust possible remedy to the concerns being raised.

Amendment 2 agreed to.

Amendments made: 3, in clause 1, page 2, line 37, at end insert

“, or

(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”.

This amendment amends the definition of “disqualifying gap in service” so that it includes a period during which the person was transferred to a private sector employer under local government contracting out arrangements.

Amendment 4, in clause 1, page 3, line 3, after “scheme” insert “or excess teacher service”.—(Mr Clarke.)

This amendment is consequential on the amendment of the second condition in this clause made by separate government amendment.

Clause 1, as amended, ordered to stand part of the Bill.

Clause 2

Remediable service treated as pensionable under Chapter 1 legacy schemes

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Mr Clarke]

Clause 5 requires scheme regulations to make provision to allow a member who opted out in relation to a period between 1 April 2015 and 31 March 2022 to elect for that service to be reinstated as though they had not opted out, if they satisfy conditions that may be specified in the regulations. This ensures that the member can be put back in the position that they would have been in had they not chosen to opt-out as a result of the discrimination.

[Peter Grant]

Can I raise with the Minister the concern that I raised on Second Reading but did not get an answer to? I welcome the vast majority of clause 5, because it is right that if a member of a pension scheme took a decision about opting in or out based on circumstances that have now changed beyond their control they should be given the opportunity to reconsider that decision. That is absolutely correct. And there has to be some kind of provision as to the conditions about when that right is put in place; I do not have a problem with that.

However, paragraphs (5)(c) and (6)(a) refer to conditions potentially being applied that would require the applicant to submit certain information before the application could be accepted? The House of Commons Library has suggested that one type of information that could be asked for would be for the individual to demonstrate that the reason that they took action was because of what we now know to have been unlawful discrimination built into the scheme.

My question to the Minister is this: is it reasonable to expect somebody to be able to demonstrate that? What standard of proof will be required? I need to remind the Minister that the Windrush scandal happened because the Government retrospectively decided to demand that citizens produce certain information in order to have their rights of citizens respected and they made completely unreasonable expectations on people to have retained information.

Okay, we are talking now about something five or seven years ago instead of 30, 40, 50 years ago, but the principle is still the same. Is it reasonable to assume that people will have kept documentation to demonstrate that they acted on the basis of information at the time and not for some other reason? Can we have an assurance that any regulations will not put an unreasonable burden of proof on people who may well have acted for the reasons set out in the clause, because the chance of them having kept any evidence to prove it five or 10 years later is pretty slim?

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[Peter Grant]

Again, I have a question that I put on Second Reading that was not truly answered then.

In the background papers for the Bill, the Government suggested that clause 6(7) would apply to a fairly small number of people—I think that was how they described them. These are the people who would have a better deal if they were able to mix and match some provisions from one scheme and some from another, and they are now being told that they can opt for entirely one scheme or the other.

I understand the Government’s position, which is that these are people who have been given a benefit that they would not have had if there had not been unlawful discrimination, so they can have no reasonable objection if it is taken away. I suspect that the people who will lose that benefit will take a different view.

However, my real question was this: how many people are potentially affected? The information I have seen—this is the figure I quoted on Second Reading—is that we could be looking at somewhere up to 245,000 people. That is a small percentage of the total number of pensioners affected by this legislation, but a quarter of a million people cannot be described as a small number. Will the Minister confirm how many people he expects to be affected particularly by the restriction in clause 6(7)?

[Mr Clarke]

I can commit to write to the hon. Member with our best estimate, although it may be that my officials can provide me with such an estimate. In that case, I will relay it to him in a later answer as we make progress on the Bill.

Question put and agreed to. 

Clause 6 accordingly ordered to stand part of the Bill. 

Clauses 7 to 9 ordered to stand part of the Bill. 

Clause 10

Deferred choice to receive new scheme benefits

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Mr Clarke]

Clauses 23 to 25 are concerned with ensuring that schemes have further powers to remedy the discrimination that arose. Clause 23 provides a power for scheme managers to pay compensation in respect of any compensatable losses incurred by members as a result of the discrimination suffered. Clause 24 provides a power for scheme regulations to award a member additional benefits where a member has suffered a tax loss because of the discrimination. Finally, clause 25 provides that scheme regulations for a chapter 1 legacy scheme may make provision to give members with remediable service the facility to enter into new arrangements to pay voluntary contributions, to further address the discrimination.

[Peter Grant]

I have some similar questions to the one that I asked on clause 10, although the wording here is much more specific. I am looking at clause 25(3), where, again, there is a requirement that if someone wants to pay the additional voluntary contributions that they would have paid earlier but for the change in the scheme regulations, they can do so

“only if the scheme manager is satisfied that it is more likely than not”

that they would have chosen to pay them had they known that the change was coming.

I have a few questions for the Minister. First, how do we ensure consistency of treatment if we have scheme members applying to different scheme managers? Perhaps more importantly, what is the route of redress if someone is unhappy with the decision of the scheme manager? Do the Government plan to legislate in order to set out clearly what the redress is in those circumstances, or do members have to fall back on the grievance and dispute procedures that are built into their terms of employment or the terms of individual schemes? That could mean that we get inconsistency when people in similar circumstances put in similar applications, so that one is approved under the rules of one scheme, and one is not approved under the rules of another. That does not deliver the equality of treatment that the Bill is intended to deliver.

--- Later in debate ---

Finally, Labour Members are also concerned that the economic check is insufficiently transparent and provides too much room for ministerial interpretation of long-term economic assumptions, which could risk politicising the mechanism. I sincerely believe that the Government should rethink their approach to the economic check. We are opposed new clause 2 as it stands, and I will press it to a vote.

[Peter Grant]

I share a lot of the concerns that have just been expressed so eloquently from the Labour Front Bench. I have a couple of other issues with what is in the new clauses; perhaps the Minister will explain.

I understand why the Government want to build in growth in the economy, but at the same time I agree fully with the concerns expressed by the official Opposition. In new clause 1, in what circumstances does the Minister envisage

“or any sector of the economy”

becoming relevant? In which particular sectors of the economy does he think that growth will be particularly relevant to local government or other public sector pensions?

The provision goes on,

“the growth in the economy…of the United Kingdom or any part of the United Kingdom”.

Who takes the decision that the economic performance of one particular part of the United Kingdom is relevant to a particular pension scheme or to all pension schemes? What do we mean by a “part” of the United Kingdom? Is that simply the four constituent nations? Can it be influenced more by the economy in London than the economy in Yorkshire?

As the hon. Member for Hampstead and Kilburn mentioned a minute ago, the Bill will be far too vague at this point. It will put far too much power into the hands of, presumably, Ministers. There is no guarantee of any accountability or transparency as to the way this is operated. For that reason, my understanding is that a number of unions, although they support the intention behind new clause 1 in its entirety—I am struggling over whether to oppose the entire new clause, as I want to see a lot of stuff in there in the Bill—have significant concerns about that particular part of the economic check. If I were not opposing the new clause, I would be minded to table a more significant amendment at a later stage in proceedings. Will the Minister explain when he envisages a particular sector of the UK economy to be relevant, and when he expects that to be the economy in a particular part of the United Kingdom?

Finally, the Minister was keen to tell us what the unions had said about the previous transition arrangements. Will he tell us what the unions are saying about the economic check in this part of the Bill? Will he explain why he listened to the unions previously, but does not seem to be listening to them now?

[Matt Rodda]

I rise to support my hon. Friend the Member for Hampstead and Kilburn. She is making an excellent point, and I am glad that she will press for a vote. The issue here relates to the need for transparency and trust, and the Government must reassure worried public servants, who have worked hard and have every right to expect a decent pension and retirement, that there is no sleight of hand here.

One of the three issues the Minister mentioned is to be dealt with in regulations, and the other two are on the face of the Bill. I would like him to reassure the Committee about the nature of those regulations, how they will be dealt with by the House and when they will be brought forward. I also remind him of the views of the independent Public Accounts Committee, which urged the Government to take the matter seriously, saying that the Government should

“quickly resolve the challenges presented by the McCloud judgment and cost control mechanism”

and that that was important to rebuild trust. I hope the Minister will consider the PAC’s thoughtful advice on this matter.

--- Later in debate ---

[Mr Clarke]

We have modelled the full detail. In so far as there is any particular point of clarification that the hon. Lady would like, I will happily write to her after these proceedings to provide whatever we can.

[Peter Grant]

Will the Minister clarify something about the other part of my question? Who will decide whether the appropriate measure to use is the growth in the economy of the entire UK, the growth of the economy of one sector, or the growth in the economy of one nation or region? Is that decision within the remit of the OBR?

[Mr Clarke]

It is the OBR’s decision to make.

Question put and negatived.

Clause 86 accordingly disagreed to.



Clause 87

Amendments relating to the Secret Intelligence Service etc

Question proposed, That the clause stand part of the Bill.