Public Service Pensions Bill

Russell Brown Excerpts

Monday 29th October 2012 Commons Chamber

[Danny Alexander]

The hon. Gentleman will know that Royal Mail is a public corporation, and therefore not within the scope—

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

rose—

[Danny Alexander]

Let me respond to one intervention before I take another. I know that the hon. Gentleman is keen for me to clarify one of my points—I am sure that I will be able to do so—but let me respond to the important matter raised by the hon. Member for Blaydon (Mr Anderson). As part of our measures to support Royal Mail, we recently took its pension scheme on to the Government’s balance sheet. Many schemes took holidays during the previous Government’s time in office—

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[Mr Russell Brown]

In response to my hon. Friend the Member for Central Ayrshire (Mr Donohoe), the Minister made it clear that the devolved Administrations would need to fund anything different that they wished to do. However, will he clarify the situation fully? We know that the devolved Administrations must fund those differences, but will there be an additional financial penalty through the block grant allocation?

[Danny Alexander]

No, there will not. Let me describe how this works. The negotiations that my ministerial colleagues and I conducted in UK Government Departments allow considerable flexibility within the parameters of the Bill—for example, the link between the state pension age and normal pension age, and the move away from final salary—and within the so-called cost envelope set up around the schemes. For example, the hon. Gentleman will note that the teachers pension scheme has agreed a different balance between accrual rates and revaluation factors for its new scheme from that for the health workers pension scheme. There is great flexibility in the provisions, provided things stay within the cost envelope. Under the Bill, the devolved Administrations are free to make more generous provision, as happened with the offer for prison officers. The Ministry of Justice agreed to fund an additional element of the proposed scheme to enable prison officers to have enhanced early retirement factors beyond those that were affordable within the cost envelope. The Ministry had offered to put additional resources on the table from its own departmental expenditure limits, and that was part of the offer that prison officers sadly rejected. Should the devolved Administrations wish to do something similar, they will be within their rights to do so, at their own expense.

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[Robert Neill]

I certainly agree that the impacts of crystallisation have to be considered carefully. It is worth saying, however—I was going to come to this point later, but I will deal with it now—that the reason why we are dealing with the matter in this way is in no small measure the result of an agreement between the unions and local government employers. They agreed that it was desirable to have a single reform of the system to deal with both short and long-term pressures, which was referred to as a “single event”, and that it should take place in 2014. There is a technical debate to be had about how best to achieve that while avoiding the risk of crystallisation, and I hope that my hon. Friend the Economic Secretary and his ministerial colleagues will have that debate. However, that is certainly not a reason for opposing the Bill, and I do not think for one moment that it undermines the major thrust of the Government’s reforms. The structural issues that require reform in all the public sector funds, including the LGPS, need more radical work than that.

It seems to me that there is scope to reflect the particular circumstances of the LGPS within the parameters of the Bill, and I hope that Ministers will recognise that. It is still significantly funded, and at its best it has very high standards of governance. Many of us in local government have wanted to examine the capacity of some of the smaller schemes, and I believe that there is scope for the Government to encourage greater collaboration between some of them, or perhaps even mergers. The large and well run ones such as those in Greater Manchester, London and elsewhere have good governance arrangements, and I concede the point that was made about the Greater Manchester scheme. There is no reason why we cannot ensure that those arrangements are reflected in the secondary legislation that flows from the Bill. That will be a desirable outcome.

I hope that there will be democratic local accountability through elected members serving on the boards of schemes. I do not think it is necessary to impose a one-size-fits-all approach on the governance of schemes in order to achieve the important financial and structural reforms that are needed, which I support the Government in taking forward. We can reflect the particular circumstances of the local government scheme within the parameters that the Government have rightly set. That also applies to certain aspects of the scheme’s design, because there were constructive negotiations on the LGPS on the basis that the key point was to achieve the required cost envelope, which, as I recall, was 19.5% of salaries. Particular parts of the scheme enable us to do that while reflecting the particular nature of the local government work force and the scheme’s governance arrangements. I hope Ministers will ensure that the commitment to do so is maintained, and I have no doubt that they will.

I referred earlier to the investment potential of the local government scheme. It is already a significant player in many investment markets, but it could do more. I support the Government proposal to lift the cap on the amount that local government schemes can invest in local infrastructure schemes, which is currently an arbitrary 15%. When I was a Minister, I believed passionately in ensuring not only that local authorities had more resources of their own to put towards local investment but that they made the best use of their current assets, so it does not seem unreasonable that we should remove that cap. The professionals in the field have suggested that something like 30% would be a more realistic cap, and I am open-minded about the exact amount.

I recognise that Brian Strutton, from one of the public sector unions, has some concerns about that idea. If I may say so, I regarded him as a responsible interlocutor in my dealings with the trade unions. He rightly recognises that it might be possible to achieve our objectives either through changing the cap, which I think the unions are wary of, or through the creation of a new asset class for infrastructure. I hope that my hon. Friend the Economic Secretary will consider how we can achieve the important objective of giving local schemes a greater ability to invest in local infrastructure. We should not miss that important opportunity.

I turn now to the firefighters scheme. Again, I accept that it has differences from other schemes. A particularly important issue in all my negotiations with the Fire Brigades Union was the retirement age. The final agreement that was achieved, on which I reported to the House shortly before the summer recess, provided us with adequate and proper flexibility to take on board the concerns of our firefighters, whom I greatly respect. Two matters were put forward in that agreement. The first was that there would be a review of contribution levels from 2013-14 onwards, taking into account the impact of opt-outs, to which the hon. Member for North Ayrshire and Arran referred. I am sure the Economic Secretary will confirm that that remains the position.

Secondly, it will be recalled that I commissioned Dr Tony Williams to examine the evidence base for the case that was made about the physical impact of a firefighter’s job and its relation to the retirement age. The new firefighters scheme has had a normal pension age of 60 for new entrants since 2006, so the situation will not change for many firefighters. In addition, the retirement age of 55, or 50 after 25 years’ service, has been protected for entrants from before 2006. There are significant protections built in for long-serving firefighters. Dr Williams is extremely reputable in this field. He is the medical director of Working Fit and has 15 years’ experience as an occupational physician in the NHS as well as experience of firefighting. I hope that my hon. Friend the Economic Secretary will be able to confirm that the Government will look very closely at the outcome of his review.

[Mr Russell Brown]

The hon. Gentleman is absolutely correct in saying that there is some element of protection for firefighters, but we need to look forward, because that is what pensions are about. The new retirement age will keep firefighters working to 60 years of age in future. Are we about to breed supermen and superwomen who will be able to withstand such work at the age of 60?

[Robert Neill]

We need to look with care at the evidence, but that does not mean that we should keep the current generous—I use that word with care—retirement age. Firefighters work very hard, but the nature of jobs changes, and there is a case to be made—I put it no stronger than that—that the job of a firefighter is less physical than it was in some respects, because of the amount of technology and kit that they happily have to assist them. There is also a case to be made that increasing health levels in the population should not be taken out of account.

Equally, although I take on board the point raised by the hon. Member for North Ayrshire and Arran, it is realistic to accept that there are generally fewer “light duty” jobs in the fire service than in the police service. That is because fire authorities generally operate within a lean and flat structure, and there are fewer civilian-style jobs to which people can be moved. We must take all those important considerations on board, which is why the report was commissioned.

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[Mr Russell Brown (Dumfries and Galloway) (Lab)]

It is ironic that we are discussing pensions today, given that much of what we have seen in the press over the past 10 days or so has been about the comments of the Secretary of State for Work and Pensions on whether we, as taxpayers, should support unemployed families with two or more children. No thought has been given to who those children are, but they will become the next few generations of taxpayers who will be making contributions to support pensions, either through public sector pensions or by putting money into the pot to provide benefits for others. I am pleased that we have moved on from having a go at households in which no one is working to looking at a different group of people.

I want to put on record the fact that some of the poorest paid people in our country are public sector workers. As my good friend and colleague, my right hon. Friend the Member for Wentworth and Dearne (John Healey), said earlier, pensions in the public sector are actually pay deferred. That is exactly right, and when we end up with poor pay in the public sector, we also end up with poor pensions.

Much has been said about Lord Hutton’s report. The commission firmly rejected the claim that current public sector pensions were gold-plated, and we have heard that the average pension paid to public sector scheme members is about £7,800 a year, while the median payment is about £5,600. We have also heard that half of women public sector pensioners get less than £4,000 a year.

Labour Members recognise that public sector pensions need to be reformed, which is why we have consistently argued that there will need to be some kind of an increase in contributions and, as the population gets older, an increase in the retirement age. We have also been clear that any settlement or agreement should meet three tests, which are slightly different from the Government’s four tests, although there are elements on which we agree.

The first test is affordability: will the changes deliver a fair deal for taxpayers when times are tight, when taxes are rising and when spending is being cut? The second test is fairness: will the changes deliver a fair deal for public sector workers on low and middle incomes whose pensions are far from being gold-plated and who have given a great deal to the services in which they work and on which each and every one of us—in the House and throughout the country—depend? The third test is sustainability, because anything that any Government do needs to be sustainable. Will the changes deliver a workable settlement for the long term that does not undermine the sustainability of existing schemes and that can be flexible in the face of rising life expectancy?

I recently took the opportunity to meet several serving police officers in my constituency, and I have been tasked with raising their concerns in the Chamber this evening. We often talk about the good job that the police do, but I almost never hear people talking about police service pensions. For the sake of clarity, I should point out that although certain public sector pensions in Scotland are administered by the Scottish Government, the reality is that the decisions reached here in Westminster are followed—or mirrored, as the hon. Member for Banff and Buchan (Dr Whiteford) said—north of the border.

Despite the stated opposition of the Scottish Government’s Finance Secretary, John Swinney, to the increase in pension contributions, he confirmed in a statement to the Scottish Parliament on 21 September 2011 that the Scottish Government would apply the increase in employee contributions for the NHS, teachers, police and firefighters schemes in Scotland. As my right hon. Friend the Member for Wentworth and Dearne said, that represents an additional 3% tax on those workers in the public sector.

[Dr Whiteford]

Is the hon. Gentleman aware that, before that decision was made, the Chief Secretary to the Treasury wrote to the Scottish Finance Secretary to say that if those contributions were not increased, £8.4 million a month would be removed from the Scottish Government’s financial settlement until such time as the Scottish Government followed the lead of other parts of the UK? I do not know what the hon. Gentleman thinks John Swinney should have done in those circumstances, but I believe that his hands were completely tied. Not only would the Scottish Government have lost that money out of the block grant, but they would have had to find it from another budget. In effect, therefore, they would have had to pay for those contributions twice.

[Mr Brown]

I am pleased that the hon. Lady has come into the debate. I am not sure whether she was here when I intervened on the Chief Secretary to the Treasury to ask whether any such penalty had been suggested, but he did not answer my question in a straight manner, so I thank her for that intervention.

The serving police officers whom I have met are seriously concerned and feel that they have been let down by their representative body, the Scottish Police Federation. We all know about the technique of divide and conquer, yet with regard to the pension changes, it has become clear that we are seeing protection—understandably—for those nearing retirement age, but that that is being provided at a cost to those who joined the police service between 1992 and 2006. Those who fall into that category feel that they have been abandoned and hung out to dry.

Those people joined the police service under certain terms and conditions, one of which was that after paying their contributions into the pension fund, they could retire after 30 years and then qualify for a lump sum and a pension. One officer pointed out that he was halfway through that 30-year period. It was difficult for him to get a forecast, but the closest he could get was an indication that having worked an extra seven years, his lump sum would be about 30% of what was first anticipated, while the pension would be about 70% of what was expected. We all go through life making plans, and for some of us retirement comes that little bit sooner. When people cannot recover ground as they move towards retirement age, it leaves them in a real dilemma. As one chap pointed out, “I had looked at retiring at a specific age. My lump sum would have cleared my mortgage. I now need to rethink where I am going.”

There is a strong belief that section 2 of the Pensions Act 1995 prevents the Government from changing pensions, so I hope that the Economic Secretary will put a clarification of that point on record. The first Winsor report of many years ago stated that officers could not work beyond the age of 55, but we are now seeing a significant change. Officers will be subject to a fitness test, but what will happen if someone fails such a test? Will they be made compulsorily redundant?

We know about some of the activity on our streets today. We should not just condemn groups of people, but there are criminals out there, and I would hate to think that police officers will be trying to chase younger people on foot. If officers are between the ages of 55 and 60, there is every chance that criminals will be significantly younger than them. We will be asking the police to do a task that is beyond many people’s comprehension.

Police officers are asking the Government why there is a further review, given that the scheme was changed in 2006 and every officer who joined after that time is on the new 35-year scheme. Many who joined after 1992 are halfway through their service period and their financial future looks extremely uncertain. We all recognise that police officers are not in a position to take strike action—in all honesty, I do not think that they would—but the fact is that those who joined between 1992 and 2006 feel as if they have been singled out.

Although, according to my Front-Bench team, we will not divide the House on Second Reading, I share colleagues’ real concern about retrospection, which has been raised on several occasions. I look forward to colleagues seeking to improve the Bill in Committee and working to offer some protection to those who work —day in, day out—to deliver the services in our public sector that each and every one of us demands.