Sajid Javid
Main Page: Sajid Javid (Conservative - Bromsgrove)Department Debates - View all Sajid Javid's debates with the HM Treasury
Public Service Pensions Bill
Sajid Javid Excerpts(12 years ago)
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Sheila Gilmore
I thank my hon. Friend for her intervention, but I suspect that it might also be outwith the terms of the new clause, so I shall refrain from commenting.
Finally, there is a risk that we are missing something in Scotland and are not getting—or even trying to get—the powers we could have. That decision might be for purely party political reasons, so that people can lay blame, saying, “There is nothing we can do; we cannot make life better for you because we do not have the power to do so. It is all because of that nasty Government down in London and your only way out of this is to make that amazing leap so that with one bound we are free. Then, everything will suddenly be wonderful,” in the hope that that will persuade the people of Scotland that they should vote for separation. I am confident that the level-headedness of the Scottish people will mean that they will not be taken in by such proceedings.
The Economic Secretary to the Treasury (Sajid Javid)
I thank the hon. Member for Edinburgh East (Sheila Gilmore) for her speech. For the short time for which I have been a Minister so far, in every debate and in every Bill Committee in which I have been involved, no matter what the subject, she has spoken. I can always rely on her to quiz me and keep me on my toes, so I thank her for that.
Let me also thank all other hon. Members who have contributed to the discussions we have just had: the shadow Financial Secretary, the hon. Members for Hayes and Harlington (John McDonnell) and for Banff and Buchan (Dr Whiteford), the right hon. Member for Wentworth and Dearne (John Healey) and my hon. Friends the Members for Bognor Regis and Littlehampton (Mr Gibb), for Bromley and Chislehurst (Robert Neill) and for Finchley and Golders Green (Mike Freer). I shall try to deal with all the points that were raised.
I am glad that we are starting with new clause 2 and that we have started our debate discussing annual benefit statements. It is right that scheme members should be kept informed of their pension rights and provided with an annual update. I fully understand the case for doing more in that area and find myself in agreement with the arguments that Members on both sides of the House raised today and in Committee.
I agree that information should be provided for some members, without request, in one format or another. However, I cannot support the precise wording of the new clause. For example, it does not distinguish between active, pensioner and deferred members but we would need to take that distinction into account. I would also wish to ensure that any change was future-proof—for example, we should not inadvertently mandate paper statements when it might be easier and cheaper for schemes to implement online and perhaps mobile technologies in the future.
Although I respect and understand the spirit in which the new clause was tabled, and although I have listened carefully to what hon. Members have said, I would not propose to use its exact wording. I am now persuaded that there is a case for going the extra mile to ensure regular updates are provided for scheme members. That is why we will consider the matter further and propose an amendment in the other place to deal with annual benefit statements.
Stephen Williams (Bristol West) (LD)
I welcome the Minister’s statement. I had quite a lot of sympathy with the Opposition’s case, simply because many of the representations made to me as a constituency MP while the negotiations were taking place contained a mixture of misinformation that came, perhaps, from the trade unions or from a basic misunderstanding of the scheme. The Government and all the scheme employers definitely have a role to play in clarifying the terms and conditions of the scheme so that we do not have these misunderstandings again.
Sajid Javid
My hon. Friend makes a good point and I hope that he is also reassured by the commitment I have just given.
I also want to thank my hon. Friends the Members for Finchley and Golders Green and for Bedford (Richard Fuller) for their input on this issue in Committee.
John Healey
I welcome that commitment. The Minister said that the information should be provided “to some scheme members”. May I urge him to take a maximalist approach and make sure that the maximum reasonable number of members get the most regular and at least annual information that will allow them to understand the scheme better and to plan for retirement and manage it better as well?
Sajid Javid
I agree. All scheme members, one way or the other, should receive annual information. That is the type of amendment we will table in the other place. However, there are different types of members of schemes, such as deferred members and active members. That needs to be taken into account when they receive that information.
Jim Shannon
I seek clarification and perhaps also reassurance in relation to those who are members of small public bodies. They have been informed that their pensions will transfer to larger schemes where they feel that they will lose out more than anyone else. What assurance can the Minister give the House and people in small public bodies that their pension rights will be guaranteed or assured?
Sajid Javid
I thank the hon. Gentleman for the question. We will come to a related issue later, which may be a better point at which to discuss that.
We had a robust discussion of new clause 3. The Government have set out their commitment to retaining the fair deal, but reforming it. Staff who are transferred from the public sector to an independent provider will be provided with continued access to the public sector pension scheme. This commitment has been made on numerous occasions by my right hon. Friend the Chief Secretary, as my hon. Friend the Member for Bognor Regis and Littlehampton rightly mentioned in his contribution. It was announced on 20 December 2011 and confirmed in the Chief Secretary’s announcement on 4 July this year. We also reaffirmed this in our response to the fair deal consultation which was published on 19 November this year.
The Opposition say that the Government have not made a commitment to the fair deal in the Bill. That is not entirely correct. Both clauses 22 and 26 allow for the new fair deal policy to be implemented. The Bill has been deliberately crafted so that the new fair deal can be delivered under these provisions. Let me be clear. The current fair deal, which Members are rightly keen to retain, has never been statutory. The new fair deal does not need to be statutory to bind non-public sector providers to the policy. The contracts that independent contractors enter into when tendering will ensure that the fair deal is applied.
The right hon. Member for Wentworth and Dearne referred to my comments in Committee, and it is important to be clear. We are consulting on how the fair deal should apply to those employees who have already been transferred out under the existing fair deal, but we are not consulting on the commitment that we have already made, which is that public sector workers who are transferred out under the new fair deal will retain a right to public sector pensions. We are also consulting on what to do when an existing contract that has already been tendered out is retendered under the new fair deal. There is work to be done to determine how and when the new policy will be implemented. We want to be sure that the contracts put in place will safeguard the legal rights of employees and employers. As the Government, rather than the independent providers of the services, will be retaining the risk of providing these pensions, we need to get this right.
The amendment would also bind the local government pension scheme. However, the fair deal does not apply to staff transferred out of local government. It would not be appropriate to accept the amendment as the implications for local government and the LGPS need to be fully explored. This is work that the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis), is already doing. For all these reasons, we believe the amendment is unnecessary and would pre-empt the ongoing work on the local government scheme.
On amendment 11, we will no doubt look at Scotland in more detail later in the debate, but let me try to set hon. Members’ minds at rest on the issues raised in the amendment. Legislative competence for the local government pension scheme in Scotland sits with this Parliament. The approval of the Scottish Parliament is therefore not needed under the Sewel convention or the Scotland Act 1998 for primary legislation on Scottish local government pensions. This is a position accepted by the Scottish Government and emphasised by the Scottish Finance Minister on 28 November. He told the Scottish Parliament that the Bill does not contain any provisions
“over pensions for local government, the national health service, teachers or police and fire staff—that would trigger the Sewel convention.”—[Scottish Parliament Official Report, 28 November 2012; c. 14014.]
Cathy Jamieson
The reason why we tabled the amendment is important. Notwithstanding the Minister’s comments on what the Cabinet Secretary for Finance said, concern has been expressed by the trade unions that the ability to make some of the regulations relating to the local government pension scheme in Scotland might change the relationship that had previously existed. We want to ensure that the existing practice is in the Bill and that there would be no change. That is what the amendment seeks to do.
Sajid Javid
I respect the hon. Lady’s intentions, but for the reasons that I set out, I do not believe the amendment is necessary. The situation as it stands is quite clear.
Cathy Jamieson
I thank the Minister for giving way once again. In all the correspondence that has gone back and forth between the Scottish Government and the Chief Secretary to the Treasury, did the Scottish Government at any stage ask for any amendments to be made to the Bill, either to clarify it or to give them further flexibility?
Sajid Javid
I have not seen all that correspondence, but to my knowledge the Scottish Government have not asked for any such amendments.
On amendment 12, I welcome the opportunity to reaffirm the Government’s commitment to the defined benefit structure of the new schemes. I would hate to think that the hon. Member for Nottingham East is unaware of the 85,000 or so public service workers who are already members of the current career average schemes. His amendment, which he says is designed to reassure public service workers about the nature of their pensions, refers only to final salary schemes. I can reassure all public sector workers, including those currently in career average schemes, that the Government are fully committed to implementing the defined benefit schemes that have been negotiated. I assure the House, just as I assured the Committee, that the Government have no intention of replacing these defined benefit schemes with different types of scheme designs.
There is no secret plot here. We have spent a long time in discussions with trade unions and member representatives to get where we are today. It would be foolhardy to throw away 18 months of work and do something entirely different. We do not intend to move away from defined benefit schemes in public services. Defined contribution schemes would not be the right kind of pension provision for many public servants.
John McDonnell
Will the Minister therefore meet with the War Graves Commission, because that looks as if it is planning to move from a defined benefit to a defined contribution scheme?
Sajid Javid
If the commission would like to have a meeting with me, I would be happy to do so.
However, we must not vilify defined contribution schemes either. There might be a small group of individuals who consider that their needs are better served by defined contribution schemes—for example, those spending a short time in public service roles who would prefer to use their employer contributions to maintain their existing defined contribution schemes. Approximately 7,000 people are already in that type of scheme by choice. There is nothing wrong with giving people such a choice. The Government believe that clause 7 already provides the right powers to allow the new defined benefit schemes to be set up while allowing alternatives types of scheme for those who want them.
I turn to amendments 19 to 28 to clause 16. I understand the concerns raised by the hon. Member for Nottingham East and others in Committee and this afternoon. We have provided reassurances on some of those concerns in correspondence. I hope that all hon. Members are now assured that the effect of the clause will not be to crystallise liabilities or to wind up any of the funded schemes. The amendments highlight those issues over which there are lingering doubts. As the hon. Gentleman set out, those relate to the extent and effect of the closure of the current schemes and the dates on which the changeover will take place.
Ian Paisley (North Antrim) (DUP)
I would like to thank the Minister for the clarity his letters provided on clause 16, which was helpful, because there was originally some confusion about that in the Bill.
Sajid Javid
I thank the hon. Gentleman for his kind remarks and hope that I can provide further such reassurance on the clause this afternoon.
Amendments 19 to 21 seek to provide that the reforms are made by replacing the existing regulations. The scheme regulations made under the Bill would therefore have to provide for both accrued rights and new service, which we do not believe is sensible. The hon. Member for Nottingham East has expressed concerns that the Bill, as drafted, could create two separate schemes and that that could create extra costs. The Local Government Association has further clarified its outstanding concern that members of existing schemes are treated as deferred members of the existing schemes when the new schemes are introduced. That is not our intention. We will look closely at that, with the Local Government Association and others, to see whether any changes are desirable or needed to put that beyond doubt.
With regard to amendments 22 to 28, the purpose of clause 16 is to prevent benefits from being provided under existing terms in respect of a member’s service after the schemes are reformed. It closes the existing schemes, but only by closing them to future accrual. Clauses 4 and 5 already provide for existing and new arrangements for each work force to be managed and administered together. The old and new schemes will be administered by the same scheme manager, who will be assisted by the same pension board. From a member’s perspective, the transition between their old and new pension rights and the administration of their pensions will be seamless.
The dates proposed in amendments 21 and 22 do not fit with the dates agreed for the reform of the schemes: 1 April 2014 for the local government schemes in England and Wales and 1 April 2015 for the other public service pension schemes. I appreciate that the date set out in clause 16(4)(b) might also look a little odd. It allows schemes that want to reform at the start of the public sector’s financial year—1 April—to do so while leaving the option open to make reforms at the start of the tax year instead.
Although I remain convinced that the Bill will deliver what we want, I am aware that others believe that the dates are confusing. It is a concern that I will continue to consider. I regret to say that we cannot accept these amendments, because I am afraid that they would not work. However, they are clearly well intentioned and we can see what they are trying to achieve. As I said in Committee, we will continue to work through the outstanding concerns. I will reflect further on the amendments and we might return to the matter in the other place.
I turn now to amendment 4, tabled by the hon. Member for Hayes and Harlington and others. I thank the hon. Gentleman for the amendment; its purpose is clear but the practical effects would be fraught with problems. First, in England and Wales the appointed person will be reviewing the valuation and employer contribution rates of 89 separate pension funds. The appointed person will not know who the employee representatives are for each of those funds. The clause already requires the appointed person’s report to be published. That is the appropriate course of action. We envisage that the appointed person will publish a single report covering each and every one of the local authority funds. The Bill rightly requires that a copy is sent to the relevant authority and to the scheme managers, because those persons might need to take action as a result of the report.
If the appointed person identifies a problem in a pension fund, under the Bill the scheme manager would be required to take remedial action. The Bill also allows the relevant authority to intervene if necessary. However, members and their representatives will not need to take any action. The management of local authority pension funds needs to be more transparent, and the clause achieves that. The information will be published and members, local authority residents, Parliament and others will be able to see and consider it. The amendment would add no value, but it would create unnecessary costs and burdens.
I will now speak to amendments 7 and 8. I have already reassured the House that the Government have no intention of replacing the current defined benefit schemes with different scheme designs. Clause 7 allows the necessary flexibility for future Parliaments and pension scheme members to decide on the most appropriate pension scheme design for future generations of public service workers in the largest schemes. Clause 28 allows the same flexibility for the smaller public body schemes made under clause 28(7) or other powers. The Government expect that in most cases employees of the bodies listed in schedule 10 will join the reformed civil service pension scheme and have the same choice that civil servants have now: whether to join a defined benefit or a defined contribution scheme. The amendments would deny the employees of the other public bodies listed in schedule 10 that choice.
John McDonnell
The Minister, as ever, is being generous with his time. On amendments 7 and 8, his response will have a chilling effect for trade unions representing members across the piece, because the Government are not adhering to the direction of travel indicated in their assurances on the 25-year guarantee—that we were moving to defined benefit, not defined contribution schemes. Will the Government at least monitor the process and report back to the House, because I do not think that it is their will—it is certainly not the will they have displayed up to now—that there should be a flourishing of defined contribution schemes which would undermine defined benefit schemes?
Sajid Javid
I hope that I have made the Government’s commitment to defined benefit schemes very clear; I do not think I can make it any clearer than I have already from the Dispatch Box today. That commitment clearly has not changed.
Finally, on amendment 32, I am confident that the Scottish Government can achieve the 2015 timetable. Even more importantly, I have no reason to believe that the Scottish Government share the concerns expressed by the hon. Member for Banff and Buchan (Dr Whiteford). The Scottish Government’s Finance Minister, Mr John Swinney, has not requested that the Bill be amended to allow for a delay for implementation in Scotland. Indeed, such a delay would disadvantage lower and middle-income public service workers, who often benefit from a move to career average schemes. Furthermore, a delay in implementing the reforms would result in additional liabilities being built up in those schemes. These additional costs, running to hundreds of millions of pounds, would have to be paid for through the Scottish budget.
Dr Whiteford
Let me reiterate that I have no problem whatsoever with the move to career average schemes. Does the Minister accept, though, that this process has been subject to unnecessary prevarication and lack of clarity? In relation to amendment 11, tabled by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), does he accept that these proposals will roll back the existing provisions of the devolution settlement?
Sajid Javid
No, I do not. The Scottish Government have had plenty of time to look at the proposals, which originated with Lord Hutton’s report. They may feel that they should have acted earlier, but they clearly had control over that.
Cathy Jamieson
I heard the Minister say that the Scottish Government had not made any formal request to change the time scale, but the Finance Secretary referred to that in his speech in the Scottish Parliament when he indicated that he was not bringing forward a legislative consent motion. If the Scottish Government were to make such a formal approach, would the Minister, even at this late stage, be willing to consider amendments once the Bill moves elsewhere?
Sajid Javid
If the Scottish Government wanted to suggest any amendments, we would of course have a sensible discussion with them about that.
Over the past year the Chief Secretary has written on a monthly basis to the Scottish Government about the public service pension reforms, and we have asked many times whether they would like to consider amending the Bill. They have not requested any such changes so far, and it would therefore be inappropriate to accept the amendment now.
Dr Whiteford
Does the Minister think that nine days’ notice is sufficient time for the Scottish Government to be able to make those plans before the First Reading of the Bill?
Sajid Javid
As I said, virtually every month the Chief Secretary has written to the Scottish Government, and they have had plenty of opportunity to respond. As I said to the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), if, even at this stage, the Scottish Government wanted to suggest amendments, those amendments would be given serious thought in the other place.
I commend Government amendments 35 to 39 to the House.
Chris Leslie
I will start with the good news that the Minister is willing to concede the principle, if not the words, of new clause 2 on member communications. That is an important change of heart. We wanted annual benefit statements to be sent out proactively to members of defined benefit public service pension schemes, as they are for defined contribution schemes. We encountered a bit of resistance in Committee, but the Minister has thought again, particularly in the light of the views of the hon. Members for Bedford and for Finchley and Golders Green, and of many of my hon. Friends who made the same argument. I welcome the fact that the Minister has been persuaded of the spirit of the amendment. We do not get many victories for common sense in legislation, but this is one of them, and I pay tribute to him. It is a mark of distinction for him that we have managed to have him think afresh about the argument, reflect on it, and bring matters forward in the House of Lords. When our constituents receive these annual letters in the post, they can thank him for that extra information, as well as the hon. Members who have argued for it. [Interruption.] The letters may of course arrive online as well.
The Minister did not say much about Government amendment 35, but that also feels like a famous victory. It means that existing members of final salary schemes in public bodies will definitely be able to stay in those schemes. We are sometimes grateful for small mercies in these legislative processes.
I turn now to the less good news. I heard what the Minister said about our amendment 12, which would ensure that defined benefit schemes that have ended are superseded by new defined benefit schemes. It is a moot point, and we have our disagreements about it. I shall not press the amendment to a vote at this stage, although I am sure that the issue will be revisited in the other place.
Amendments 19 to 22 relate to the closure of local government pension schemes and whether that means that they are really being closed or merely amended. We are worried about the potential for unintended adverse consequences in how the legislation is drafted. However, the Minister said that our amendments were well-intentioned, and that is good enough for me at this stage. They were, indeed, well intentioned and that is another issue that we will want to revisit in the other place.
We have debated the question of devolved responsibilities and amendment 11, which would clear up some of the confusion, particularly in relation to applications by the Scottish Government for legislative consent motions. We feel strongly that there needs to be some clarification on the issue, but the Minister was helpful in saying that the Government want to consider it, so I shall not press that question, although it is very important.
The new fair deal is a promise whereby existing members of public sector pension schemes will be allowed to retain their membership even if they are transferred or outsourced to the private sector, but we have still not received a commitment to that beyond Ministers’ verbal promises. The Minister has said that more work needs to be done, that they need to explore further the issues and that they do not want to pre-empt ongoing work, but that does not sound like the decision that we and many on the employee side thought had been made for a clear and unequivocal commitment to the new fair deal. It is integral to the deals that were agreed in the process leading up to this Bill. I cannot see what harm can be done by including the new fair deal in statute. It is a question of trust, so I want to press new clause 3 to a Division. With those words, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Fair deal
‘A member of a public service pension scheme is entitled to remain an active member of that scheme following—
(a) the compulsory transfer of his contract of employment to an independent contractor; and
(b) any subsequent compulsory transfer of his contract of employment.’.—(Chris Leslie.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Sajid Javid
I thank the hon. Member for Nottingham East (Chris Leslie) for tabling amendment 10, which gives us the opportunity to discuss member protections again. This is a serious issue, and although we had some long debates in Committee, it definitely bears revisiting. We have a duty to consider how best to protect the interests of scheme members.
The Government have made a clear public commitment to protect the rights that people have built up in their current schemes. We have said clearly and on several occasions that past service in final salary schemes will not be affected by pension reform. The commitment to honour rights in old schemes is built into the Bill. The power in clause 3, to which the amendment pertains, could be used only for the purpose of setting up new schemes in scheme regulations or for transitional or consequential purposes.
Secondly, there is the umbrella protection in UK general legislation that restricts state interference with personal possessions such as pension rights, unless such interference is lawful and proportionate. This protection of property rights is also an area of the European convention on human rights. This Bill is compatible with that convention. Of course, Ministers and others making scheme regulations are always bound to act in a way that is compatible with the law. This will prevent scheme regulations from proposing unlawful changes to protected pension rights.
Lady Hermon
I am sorry to interrupt the Minister so early, but would he kindly explain for the benefit of the House the jurisprudence of the Court of Strasbourg that allows him to say with such confidence that this Bill is compatible with the European convention on human rights? What is the jurisprudence to support that contention?
Sajid Javid
I am pleased that the hon. Lady is asking for clarity on this important question. When the Government put this Bill together, it was important, as with any measure, to make sure that it was compatible with existing legislation, including the European convention on human rights. I mentioned it here not to raise the issue of compatibility—of that I have no doubt—but to say that the convention provides protection for property rights. It represents another layer of protection that should reassure people that high hurdles would exist if any future Government tried for whatever reason not to honour the commitments made by this Government.
Chris Leslie
I simply do not understand why the Minister refuses to put clearer unambiguous clarifications, protections and safeguards directly into the Bill. What is the purpose of leaving this as some sort of moot issue about whether there is sufficient jurisprudence to prove compatibility with umbrella protections in the European convention of human rights? That is not strong enough. The Minister must understand that people will be very anxious about this issue; why not clarify it and put it on the face of the Bill?
Sajid Javid
If the shadow Minister will allow me to continue my comments on this important issue, I shall, I hope, be able to give him some reassurance, but first I want to explain the reasons for the Government’s approach.
Since the courts could set aside unlawful scheme regulations, responsible authorities have strong reasons to respect pension protection rights.
There is a third reason for our approach. In order to provide the statutory protections that underpin our commitment on accrued rights, the Bill establishes a common set of member consent and consultation requirements. In the case of the new schemes set up under the Bill, any change in scheme regulations will require a prior, statutory consultation with all who are likely to be affected, or with their representatives.
Clause 20 provides that if any changes are made that could have “significant adverse effects” on members, consultation must be conducted with a view to the reaching of an agreement, and preceded by a report to Parliament or the relevant legislature. Any such changes will require explicit approval by that legislature under the affirmative procedure. They cannot simply be nodded through under the nose of Parliament. Taken together, the rule of law and the specific provisions in the Bill should give members the strong reassurance that there is already a very high hurdle against unlawful interference with pension benefits that have been built up.
As I have said, this is an important issue, and we must get it right. We are adamant that the application of universal consent locks is not an avenue that we intend to investigate. As a matter of principle, we do not believe that members, employers or anyone else should be given a ticket unreasonably to hold each other, or the Government, to ransom and to inhibit changes that are for the greater good. The Government feel strongly that it is right to prevent that scenario from occurring in the future, and that is why we cannot support the amendment.
Most retrospective changes in accrued rights are either minor and technical, or in the interests of the vast majority of scheme members. As I have said, however, it is vital that we strike the appropriate balance between member protections and the efficient operation of public service schemes. Although I firmly believe that the provisions in the Bill achieve that balance, I can tell the House that the Government do not have a closed mind on this serious issue, which has been raised thoughtfully by Members on both sides of the House, both today and in Committee. I can only reiterate that we are listening and do not have a closed mind. I am sure that the issue will be discussed in the other place, and we shall listen carefully then as well. I hope that, in the light of the reassurances that I have tried to give, the shadow Minister will consider withdrawing his amendment.
Amendment 3 would place a statutory requirement on the Government to seek the agreement of employee representatives when the data, methodology and assumptions to be used in pension scheme valuations is set. I agree that we must get those elements of the valuations right. We must be sure that a valuation accurately calculates the scheme’s costs. I understand that Members want to be certain that the Government will honour their commitment to ensure that stakeholders are involved in the process, and I can tell the House that they will be so involved.
I believe that the amendment is both unnecessary and unworkable. It is unnecessary because we have already made it clear that the Government will engage with stakeholders over the directions on valuations. Transparency and consultation are extremely important principles, and it is important for everyone to have a say in how the valuation process works, but that does not mean that we will allow the whole process to be stymied by a very small group of people. That would hardly be democratic, let alone a rational way in which to proceed, and it would mean that the employer contributions would not be set at the correct rate. I am sure that that was not the intention of Members when they tabled these amendments, but we think it right for discussions about the valuation process to take place within the normal scheme governance procedures. I am also sure that in the normal course of events the vast majority of the discussions will prove to be sensible and constructive, resulting in broad consensus between all parties. I hope Opposition Members recognise that if the worst happens and the talks break down without a full meeting of minds, it is important that, where necessary, the Government can make the final decisions.
On amendment 5, I understand why Opposition Members want to ensure there is meaningful consultation with scheme members before scheme regulations are made, and clause 19 requires precisely that. All scheme consultations on regulations will be conducted in line with the Government’s consultation principles, as set out by the Cabinet Office. As they make clear, the Government are committed to consulting on our proposals and to ensuring consultations are carried out proportionately. Clause 19 as currently drafted provides for a good and comprehensive consultation standard. It also recognises the genuine interests of the members and employers in how their scheme is run.
The clause ensures that whenever a change is proposed to the scheme regulations, the responsible authority must consult everyone whom the authority considers to be affected. Since this will be a statutory consultation, the authority must set out clearly on each occasion the matters on which it is consulting. It must provide enough information and time to allow for considered responses. The authority also needs to keep an open mind until the consultation has closed, and must give fair and proper consideration to those responses before making its final decision. It is worth setting all of that out in detail in order to reassure those who might feel clause 19 does not provide for meaningful consultation; on the contrary, it does precisely that.
Moreover, there are many reasons why the Government may wish to consult scheme members and other stakeholders when making scheme regulations. In many cases the Government will consult with a view to reaching an agreement for proposed changes. Clause 19 as drafted does not prevent that. As the Government have made clear, the enhanced consultation standard should apply to some elements of the scheme, and they are specified in clause 20. It is not necessary to extend this provision to cover every other possible element of scheme design.
John McDonnell
I am not trying to be obstreperous, but in a former life I drafted this stuff, so I would be grateful if the Economic Secretary clarified why the phrase
“with a view to reaching agreement”
is in clause 20 but not in clause 19, because I consider the scheme regulations and the aspects addressed in clause 20 to be of equal importance?
Sajid Javid
The hon. Gentleman has approached this issue in a very thoughtful way. We consider that the high hurdle of
“with a view to reaching agreement”
should not apply to every scheme change that might need to be made. I appreciate that the hon. Gentleman has a different view about when it should apply, but I think I have made the Government’s case clear.
Lady Hermon
The Economic Secretary has elaborated at great length on clause 19. My concern, however, is that clause 20 refers to consultation
“with a view to reaching agreement”,
rather than until consultation is reached. If agreement is not reached, what will happen? Will the changes be imposed on workers, in which case consultation will merely be an exercise and a formality?
Sajid Javid
The requirement of
“with a view to reaching agreement”
is a high hurdle. I cannot remember the phrase the hon. Lady used, but I can say that the requirement is not a tokenism of any kind—it is a genuine commitment. It is in clause 20, so where this is required it is a clear commitment that the Government will have to honour. The second part of her question was about what would happen if an agreement was not reached. I hope that such situations would be rare, but it is clear that if an agreement could not be reached the Government would have to make the final decision, as is absolutely right.
Sheila Gilmore
I want to address a couple of issues and reinforce some of the points made in Committee. It is not good enough to say that the normal retirement age does not matter because people can retire early if they need to, as they will retire on much lower pensions—that is what actuarial reduction means. Those with many chronic conditions might have several years of suffering with the condition that has made them retire. That is not good enough.
The way in which the Bill is formulated fixes the retirement age in a way that makes it very difficult to introduce the flexibility that might be required by some scheme reviews. There will be a battle every time a review shows that there should be a lower retirement age, as the Government will be able to point to the Bill and say that that age cannot be moved as that is what Parliament voted for. However, amendment 16, for example, would allow the degree of flexibility required. Many people already do not work in the years running up to the normal retirement ages, not just across the public sector but in the private sector, too. As many are living on reduced incomes and having to dip into any savings they might have put aside for retirement, they are much more likely to become dependent on other state support in older age.
We have the big issue of longevity, but underneath that lies the fact that a substantial proportion of the population cannot even work until the normal retirement age, particularly men between 60 and 65 in many private sector jobs. Those people are already living on reduced incomes, so if we keep increasing the retirement age more and more people will be in that position.
Sajid Javid
We have had a good debate on this set of amendments, but I am afraid that for reasons of time that are beyond my control I will not have an opportunity to respond on all of them. The main theme in this group is the link between the new normal and deferred pension ages and the members’ state pension age. That will help manage the financial uncertainties associated with longevity changes over the long term. It was a key recommendation of Lord Hutton’s report and is one of the foundations of the Bill.
The average 60-year-old is now living 10 years longer than in the 1970s. Although that is to be celebrated, it would be irresponsible not to react accordingly to ensure that pension provision is sustainable. Clearly, no Government can allow such a trend to continue unchecked.
In the short time I have, I shall deal with the amendments in the order in which they have been selected and I will start with 13, 14 and 15. The deferred pension age in the new schemes is vital given the vast number of public servants who claim deferred pensions. That is why the Bill sets the deferred pension age in all schemes as equal to the state pension age, including in the police, firefighters and armed forces schemes. As Members are aware, a normal pension age of 60 in the police, firefighters and armed forces schemes is in line with Lord Hutton’s recommendations and recognises the unique nature of the work involved.
The amendments proposed by the hon. Member for Nottingham East (Chris Leslie) cannot be accepted by the Government, for two reasons. First, it would be unfair to other hard-working public servants, both those in active service and deferred members whose pension ages would be the state pension age. Of course we value the work of all our police, firefighters and armed forces, but once those people stop doing those jobs, there is no reason for them to be able to take their deferred benefits earlier than everyone else.
Sajid Javid
I am sorry, I do not have time.
There is no reason for those workers to be able to take their deferred benefits earlier than everyone else because they are no longer exposed to the unique characteristics of their former employment and no longer need an earlier pension age in respect of them.
Secondly, we must consider the cost. As we are all aware, the costs of pensions are increasing owing to increases in life expectancy. The state pension age link for deferred benefits is a crucial means of getting those costs under control. For example, if a firefighter leaves service at the age of 30 to work, say, as a civil servant in an office for the rest of his career, should his pension still be available unreduced at the age of 60?
Sajid Javid
I beg to move, That the Bill be now read the Third time.
I would like to reflect on the importance of this Bill. First, I reiterate the debt of gratitude that this House owes to Lord Hutton of Furness for his comprehensive and adept work with the independent public service pensions commission. The consensus that his report and recommendations have engendered is testament to the care and thoroughness with which he and his team carried out that critical work.
For decades, successive Governments have failed to address the fact that the existing framework for public service pensions is unresponsive to work force and demographic changes. The simple and fundamental truth is that current schemes are not fit for purpose, and they have not responded effectively to the unprecedented improvements in longevity that we have seen over the last 50 years. Largely as a result of people living longer, the cost of providing public service pensions has increased by 40% over that period. At the same time, the number of active, deferred and pensioner members of schemes has risen significantly.
Since 1971 the number of active members has increased by 23% to 5.3 million. At the same time, pensioner member numbers increased by more than 260%, from 1.6 million to 4.2 million. Deferred member data are available only from 1991, when there were 1.2 million preserved public service pensions. There are 3.4 million today. Most of the people who entered public service when the schemes were last fundamentally assessed have now retired.
Mike Freer
I apologise for interrupting my hon. Friend’s flow, but will he clarify the application of the fair deal policy to the local government pension scheme?
Sajid Javid
We discussed that earlier. Transfers from local government are currently covered by an equivalent policy to fair deal. The Government are considering how most appropriately to apply the principles of the new fair deal policy to the LGPS, but our commitment on fair access to transferred staff stands and applies, including to members of the LGPS.
People are now expected to live significantly longer than the generation that went before them—an average of 10 years more than someone retiring in the 1970s. The increasing numbers of people with public service pensions and improvements in longevity have led to significant increases in the number of pensions that are being paid. Consequently, the cost of paying pensions has increased to £32 billion per year—an increase of a third in the past decade.
Kelvin Hopkins (Luton North) (Lab)
Other, similar European countries have a younger retirement age and more generous pensions. Why are we so different?
Sajid Javid
The hon. Gentleman perhaps has Greece in mind. Many countries that fit his description are suffering significant problems. To take another example, retirement ages in Germany, which is one of the largest countries in Europe, are in many cases higher than those in Britain.
The employer, and therefore the taxpayer, has borne nearly all the additional cost, which has led to an imbalance in the sharing of costs between members and other taxpayers. The imbalance will be corrected only by the reforms we have introduced.
Richard Fuller
The Minister makes an important point on tax, but this is the largest bill for the taxpayer that this Parliament will pass—we are passing a £1 trillion bill on to current and future taxpayers. I applaud him and the Government for protecting lower-paid public sector workers from pension changes, for protecting the retirement age, and for career-average schemes, but does he accept that we are still asking taxpayers working in both the public and private sectors to pay an enormous bill for public sector pensions?
Sajid Javid
My hon. Friend made passionate contributions in Committee, where he made that same point. I will say the same thing in reply. The Bill and other changes we have made to public sector pensions deliver significant cost savings for the Government and future taxpayers, but maintain our commitment to generous, fair pensions that are sustainable in the long term for people who serve in the public sector.
The Bill is not simply about bringing costs under control and ensuring that schemes are sustainable. We are also seeking to address issues of unfairness that exist within the current scheme designs.
Andrea Leadsom (South Northamptonshire) (Con)
The Minister mentions unfairness. Does he agree that one of the greatest unfairnesses was when the previous Government got rid of advance corporation tax relief on pension funds, which destroyed the private sector pensions industry and left many private sector workers much worse off than this excellent Bill?
Sajid Javid
My hon. Friend is absolutely right—the change to which she refers had a dramatically negative impact on private sector pensions.
The benefit structure of many existing schemes has led to benefits being disproportionately directed towards higher earners.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Further to the point made by the hon. Member for South Northamptonshire (Andrea Leadsom) on previous Governments, is the Minister aware that the previous Conservative Government’s decision to ensure that employers could no longer mandate their employees to be in occupational schemes had one of the single biggest impacts on the quality of occupational pensions in the round in this country? The Thatcher Government put that measure through in the 1980s.
Sajid Javid
The hon. Gentleman will know that this Government have introduced changes to private sector pensions that will help to increase take-up. I am glad that he has raised the policies of previous Governments, because I was about to come on to them.
Belated changes by the previous Government in the previous decade exacerbated the unequal treatment of members within schemes by introducing reforms that only applied to those who joined from a given date. Those same belated and limited changes also sought to limit costs increasing further in the future. It has often been stated—without foundation, I may add—that those reforms were sufficient to return public pensions to a sustainable footing. They were not. The reforms did not address the historic increases in the cost of providing public service pensions that had taken place in the preceding decades. Instead, they provided for any further increases from that point to be shared between employees and employers. That was simply not enough, and is why Lord Hutton concluded that the status quo is not tenable. His report states:
“Future costs are inherently uncertain”
and that
“the general public cannot be sure that schemes will remain sustainable in the future.”
Through the Bill, our reforms to public service pensions will make a difference. Through the framework we have set out, we will ensure that public service workers get a good quality pension that is among the very best available. Members will continue to receive guaranteed benefits with no exposure to investment risk or fluctuating annuity rates, unlike in many private sector schemes. We will also ensure that the taxpayer gets a fair deal by rebalancing the costs between the beneficiaries and other taxpayers, and by capping their contribution to the schemes, so that costs cannot again spiral out of control.
Until now, pensions have failed to keep pace with changes in longevity. This is without doubt the single greatest risk to the affordability of schemes in the future. The Bill will ensure that members continue to receive defined benefit pensions, and we will ensure that longevity changes are managed by linking scheme retirement ages to the state pension age.
Lady Hermon
Will the Minister give a commitment to revisit clause 9(2) to ensure that prison officers do not have to work to 65, particularly in the light of the brutal murder of prison officer David Black by dissident republicans on 1 November in Northern Ireland? Will he give that commitment this evening?
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.
Katy Clark (North Ayrshire and Arran) (Lab)
Given that these changes will reduce the average value of the benefit for all scheme members by more than one third and that many individuals’ contributions will increase, is he not concerned that many will consider opting out, whatever the advice given by people here and by trade unions?
Sajid Javid
As I said, in many cases, increased contributions have already taken place, and there is no evidence of increased opting out. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr Gibb) said, one very good reason given for that in the evidence session was that, despite the changes the Government have had to make in order to put public sector pensions on a sustainable footing, they remain among the best pensions available. That will ensure that people continue to take part.
Although we have not managed to reach a shared view on the exact protections that should be extended to members’ rights, all sides have recognised the common objective that rights should not be allowed to be unlawfully eroded. I strongly believe that the Bill we are sending to the other place is in very good shape. I give a commitment that the Government will return to each of the issues on which I have given assurances, and I commend the Bill to the House.