Public Service Pensions Bill

Sheila Gilmore Excerpts

Tuesday 4th December 2012 Commons Chamber

[Chris Leslie]

Even though the quality of the scheme has been eroded, as we saw with the unilateral imposition of the average 3% increase in employee contributions—that might even have been before Lord Hutton reported—they are still good defined benefit schemes and we encourage public sector members to stay in them. We have debated our concerns elsewhere over whether the viability of the schemes will be jeopardised by employees being deterred from joining or deciding to opt out. However, we encourage members to stay in the schemes. Unfortunately, the 3% additional contribution is not part of this legislation, so it would be outwith the scope of the Bill to table amendments on that or to debate it. That is a great shame.

It is important that annual benefit statements include not only the employee’s contribution, but the employer’s contribution, as set out in the new clause. If the defined benefit schemes are good, there is no reason not to have that level of clarity and transparency. I have no problem with accepting that that should be part of the information that is given to scheme members. I hope that the Minister will accept that.

New clause 3 is one of the most important proposals in this group. The Government promised to implement what is known as the new fair deal, which is one of the most important aspects of the agreement that was reached in the negotiations between the employee side and Government or employer side of the scheme. The new fair deal would ensure that all public service workers who were compulsorily transferred to an independent contractor, be it a private company, a charity or another third sector body, would be entitled to remain an active member of their public service pension scheme. That is a basic requirement and it was a core part of the agreement. We were glad that the Government committed to it.

The Chief Secretary to the Treasury confirmed the Government’s commitment to the new fair deal in a written statement in July, which stated that

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

That is an improvement on the current fair deal arrangements, which ensure that outsourced staff receive broadly comparable arrangements to those under the public service schemes. The Government’s promise to implement the new fair deal was central to the rationale and at the heart of why many public service workers agreed to support the new proposed pensions reform, even though aspects of it were detrimental to them.

[Sheila Gilmore (Edinburgh East) (Lab)]

A few months ago in the Open Public Services White Paper, the Government expressed enthusiasm for transferring services to voluntary organisations and social enterprise—we have not heard so much about that recently. If that is to work, however, is it not particularly important to have the proposed provision on pensions?

[Chris Leslie]

Many public service workers whose services have been transferred to independent providers, whether they have been outsourced, find themselves in the voluntary sector or wherever, still want to ensure that their deferred wages—that is what pensions are—will be protected in a particular way. That was a positive development in the negotiations, but to what extent has such protection found its way into the Bill? That is why the Opposition are concerned and have tabled new clause 3.

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[Mr Gibb]

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

[Sheila Gilmore]

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

[Mr Gibb]

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

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

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[Mike Freer]

I am not sure what point the hon. Gentleman is making. After our debate, I may have to check whether I have said something that I cannot remember saying, and I apologise that I cannot respond to that point at present.

The House spends a huge amount of time regulating. The Food Labelling (Nutrition Information) (England) Regulations 2009 spell out in considerable detail the information that must be on food labels. The labels specify for consumers the fibre content, edible carbohydrate polymers, synthetic carbohydrates, salt content, kilojoules and calories, sugar content, fatty acids of trans fatty acids, yet when we ask people to make choices about their pensions, which is one of the biggest decisions of their life, we give them no information at all. I urge the Economic Secretary to go further by ensuring accurate information is included in our pension statements.

[Sheila Gilmore]

At least with regard to new clause 2 and the need for good communication and good information, it appears that there is a fair degree of cross-House agreement. Members may have different motives for wanting such information to be given, and may hold different views about what behavioural change that might drive. Some Members might also hint that they want this information to be given so that public sector workers are properly and humbly grateful for retaining better pensions than the absolutely dreadful pensions of many in the private sector. I hope the Economic Secretary will respond positively, however, and agree that this is an important step. It will be deeply ironic if better and more thorough information is given to people with private sector pensions than to those with public sector pensions.

We all want to avoid too much information being given, of course, with people receiving many pages of information, much of it hard to understand. We do not want to over-egg that pudding. There is a parallel debate happening in the world of private sector pensions on giving good, accurate but still efficient information, so that people can look at a single page of information—that is preferable—and understand what their likely pensions are going to be. On that matter I hope that the Minister, having heard the debate in Committee and again today, will be happy to make some changes to the provisions. I cannot see why new clause 2 should not be in the Bill, as it deals with such a major issue.

I wish briefly to discuss new clause 3, which deals with the issue of a fair deal. Again, there would appear to be a substantial degree of agreement across the House on the substance of the issue. Nobody is saying, “We don’t think these should be the provisions.” The question that has been raised is whether they should be in the Bill. Some Government Members have suggested that accepting what the clearly stated view of Ministers has been at various points should be good enough, because it is on the record and we should be confident that that is sufficient. However, as far as I am aware, it is not possible to litigate on the basis of what people simply said, rather than what is in legislation. People have attempted to say in the past, “But that was the intention”, even doing so in respect of debates in this House. However, legal disputes about rights or obligations turn on the much narrower construction of what is written in the Bill.

I am not suggesting, in any way, that those who have spoken during our consideration of the Bill do not intend what they have said, but many public sector workers are genuinely concerned. As I said in my earlier intervention, the matter becomes a great deal more important if the Government continue, as they presumably will, over the next two years to do what they say they want to do: outsource more of what we would regard, or have traditionally regarded, as public sector activities. That has already happened to some extent. Some people have explained how this could be very positive, with employee mutuals and all kinds of social enterprises springing up to provide public services. If the Government are genuinely serious about wanting current public sector employees not just to have to do this, but to be enthusiastic about doing it, these safeguards have to be in place. If this is the road that is to be pursued, it is even more important to have these provisions than it may have been in the past. Saying, “You didn’t do it before so we don’t need to do it now” is not a particularly good argument; some of us might disagree about what had been done previously. Even if we do not, the argument is still not particularly good, as we have also to learn from experience. I hope that the Government will seriously consider legislation on this matter, because if they genuinely have no intention of departing from the promised arrangement I cannot see what the problem is. When people begin to say there is a problem, that is when those paying into these schemes—the employees likely to be affected—begin to smell a rat. There may be no rat there, but why not make things absolutely clear?

That is also true of what we are trying to achieve in amendment 12, which deals with an apparent possibility arising from clause 7. Again we were given assurances in Committee that we should not be reading into this something that the Government do not intend. Clause 7 says:

“Scheme regulations may establish a scheme…as

(a) a defined benefits scheme”.

It then goes on to talk about

“a scheme of any other description”.

It is not at all clear what is actually meant. We were told that one or two specialist defined contribution schemes are in existence, but people are clear that the promise that was made as part of this negotiation is that the defined benefits schemes would remain in place. They will, however, be changed, and during the negotiation employees in various parts of the public sector accepted substantial changes in the kind of pension because they accepted the imperatives. In moving from final salary pension schemes to career average schemes, changes are being made in accrual rates. All sorts of changes have been made—for example, the forthcoming changes to pension age—but they were made on the basis that the scheme will remain as a defined benefit scheme.

[John Healey]

My hon. Friend is making a powerful case and sounding a clear warning. She mentions that clause 7(1) refers to

“a defined contributions scheme, or

( c) a scheme of any other description.”

Would she like to point out to the House that this potential change in clause 7 could in theory, under subsection (5), be brought in by way of a negative resolution—by a statutory instrument that would not allow a debate in this Chamber or even a 90-minute debate in a Committee upstairs?

[Sheila Gilmore]

I thank my right hon. Friend for his intervention, because that is an important point. If the rest of the clause did not give rise to the possibility of substantial changes, that provision might be acceptable. However, where we are talking about much greater changes, it is particularly important that the full debate takes place.

Again, there appears to be a difference between giving an assurance and a reluctance to see that assurance embedded in the Bill. Various people have mentioned that the whole debate we have had, particularly since 2010, has eroded some of the public sector workers’ trust. I do not generally seek to be overly alarmist in these matters, but even in Committee—I am pleased to say that this has not happened today—there were points when we could see exactly why many public sector workers are apprehensive, There were those, admittedly not at ministerial level but on the Government Back Benches, who clearly still feel that public sector pensions are too generous. The underlying thinking is that at some point, perhaps in the not-too-distant future, further attempts will be made in that regard.

I fully accept that even with the changes that come through this Bill and through other negotiations that have taken place, public sector pensions remain far better than private sector pensions. However, we always have to remember that the comparator we now have is absolutely dreadful private sector pensions, regardless of where we place the blame and how that has happened. One thing that politicians should be doing in the next few months and years is trying to improve private sector pensions.

Finally, I wish to discuss amendment 11, which relates to the local government scheme in Scotland. Generally, the arrangements for many public sector schemes in Scotland have been that Scottish Ministers could make regulations, but that they were subject to Treasury approval. For the most part, whether because of that need for Treasury approval or because until relatively recently there has been no reason to depart from the UK-wide arrangements as doing so might create various anomalies that would not always be helpful, the regulations for schemes—all those that are not funded, at least—have lain with Scottish Ministers but have been made in the same way.

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[John Healey]

My hon. Friend is making another powerful point about amendment 11. She is right that the Scottish Government are not normally backward in coming forward to demand new powers and for decisions to be taken in Scotland for Scotland. Would she care to speculate about why they have not chosen to apply for a legislative consent motion that would allow them to make these decisions in Scotland? Could it be that they are looking to allow the broad shoulders of the Economic Secretary to take the blame and responsibility for the changes to the local government pension scheme in Scotland?

[Sheila Gilmore]

I was going to come to that point, because I am surprised that that opportunity has not been taken, given the context. As my right hon. Friend will know, this is a difficult and sensitive subject, but—this point might well be speculative and I am sure that people will wish to deny that it is the case—it is no secret that we are in a particular stage of politics in Scotland, and it would—

[Dr Whiteford]

I think I might be rescuing the hon. Lady from the point she was trying to make. Earlier, she stressed the importance of considering what is actually in the legislation rather than the world as we would like it to be. Does she welcome the fact that John Swinney has not exercised his flexibility to increase contributions to the local government pension scheme?

[Madam Deputy Speaker (Dawn Primarolo)]

Order. The hon. Member for Edinburgh East (Sheila Gilmore) will comment on that point only if it is relevant to the amendments we are considering. I remind hon. Members that we are not yet on Third Reading. The debate is going rather wide of the new clauses and amendments, so perhaps the hon. Lady could return to them.

[Sheila Gilmore]

I am more than happy to do so, Madam Deputy Speaker. Perhaps we will have further debate on that topic.

If amendment 11 were agreed to, considerable and greater power would be available for the Scottish Parliament than the current Scottish Government appear to want. Within the context of the politics at present, I do not think it would be idle speculation to suggest that that might be convenient.

[Cathy Jamieson]

With reference to the amendment mentioned by the hon. Member for Banff and Buchan (Dr Whiteford) earlier, notwithstanding the comments I made at that stage, does my hon. Friend agree that it is rather strange that the Cabinet Secretary for Finance, Employment and Sustainable Growth in the Scottish Government is complaining that there are only some 28 months to conclude negotiations on pensions when a great deal of the Scottish Government’s effort appears to be going on other things at the moment? Perhaps some of that resource could be used to resolve these issues.

[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.

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[Dr Whiteford]

I am glad to have an opportunity to speak briefly about amendments 29, 30 and 31, which stand in my name and which would exempt Scottish schemes from the requirement that new schemes should link pension age with state pension age. Amendment 33 is simply a definition of what is meant by “Scottish scheme”—namely a scheme relating to those in local government, teachers, NHS workers, firefighters or the police—for the purpose of clarifying the other amendments.

On Second Reading, it was clear that the linking of normal pension age to state pension age was a central bone of contention. It has certainly been the main topic of concern mentioned to me by constituents who will be affected by the proposed changes, including teachers, NHS workers and prison officers. It has also been the top priority for unions and other staff representatives taking part in negotiations. It has been the key sticking point in those negotiations, and has caused a great deal of anxiety and uncertainty among employers.

As has been pointed out by other Members, many people who do physically demanding and stressful jobs will struggle to work into their late 60s. The change will create real difficulties and hardships for those who develop health conditions as they age. It will also make life much more complicated for employers who will have to work around and adapt to the physical limitations of employees who should really have retired.

The reason this is such an acute issue in Scotland is very simple: our life expectancy is almost two years lower than the UK average. In fact, ours is among the lowest life expectancy levels in Europe. Even given recent improvements and an upward trajectory, male life expectancy in Scotland is only 76 years and female life expectancy just over 80. We also have an unenviable health record. I have previously referred to the widening gap between rising life expectancy and what is defined as “healthy life expectancy”—the years before the average age at which people develop serious physical health problems that impair their normal day-to-day life. At present, women in Scotland have a healthy life expectancy of only 61.9 years, while for men the figure drops to 59.5. In other words, people are already having to work beyond the age at which they can expect to be in reasonably good health.

[Sheila Gilmore]

Will the hon. Lady give way?

[Dr Whiteford]

I am sorry, but Mr. Speaker has asked me to keep my remarks brief. I hope that the hon. Lady will bear with me.

A large number of people end up taking early retirement or receiving disability benefit in later middle age. The TUC has done some sterling work in highlighting the large proportion of people who are in that position. Many are having to retire early on reduced pensions, in some cases at a significant cost to their employers. When workplace pressures have contributed to the premature collapse of an employee’s health, that becomes a very costly exercise for everyone involved. I am thinking particularly of prison officers.

We know that people in physically demanding occupations and those on lower incomes die significantly earlier than affluent people in white-collar jobs. The new hon. Member for Corby (Andy Sawford) mentioned that earlier. Our public sector encompasses a range of occupations, from civil service desk and office jobs to the work done by people such as prison officers, paramedics and nurses, which places intense physical demands on them.

Although the Bill has acknowledged the physical strain that is placed on some workers, such as firefighters and police officers, it does not take proper account of the human limitations of our work force as a whole. In applying such a broad brush to changing demographics, it takes no account of occupational and geographic variances that cut across other aspects of social class. We can legislate on paper as much as we like, but forcing people to work until their health caves in is not a sustainable long-term solution for pensioners. A little more pragmatism from the Government would go a long way, not only in enabling meaningful negotiations to progress, but in designing genuinely sustainable public sector pension provision in the Scottish context for the longer term. If we do not get the design of schemes right, public sector employees are likely to lose confidence in the process, and we will run the risk of individuals choosing to opt out, with all the negative unintended consequences that entails, with additional cost to the state through means-tested benefits.

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[John McDonnell]

I wish to speak in support of amendments 1, 2 and 9. Amendment 2 is straightforward: it seeks to ensure that people are not forced to retire beyond the age of 65, as most of our work force have planned to retire then. On the argument that the amendment is unaffordable, let me remind hon. Members of what Hutton said about the 2007-08 changes. He said that they are likely to reduce costs to taxpayers of the pension schemes by £67 billion over 50 years, with costs stabilising at around 1% of GDP or 2% of public expenditure.

The other issue involved here is what our priorities are. The last figure I had for how much the unfunded public sector pension schemes were costing us was for 2009-10, when it was less than £4 billion. Some 60% of gross tax relief on pensions goes to higher rate taxpayers—that is £22 billion. The cost of providing tax relief to the 1% of our population who earn more than £150,000 was double the amount we are funding with regard to the public sector unfunded pensions—that is £8 billion. So the fact that we are willing to subsidise the higher paid—the rich—while forcing others to work longer and cutting their pensions at the same time reflects our priorities. That is why I have tabled the amendment: I do not accept the settlement or the Government’s rationale for these proposals.

Amendment 1 was eloquently discussed by my hon. Friend the Member for Wansbeck (Ian Lavery), and I must declare an interest at this point: I am an honorary life member of the Prison Officers Association. One point that the POA made, which we made on Second Reading, is that if we increase the pension age for prison officers, we lose money because more of them will become injured and more will go off sick, and more cost will be incurred in compensation. The actuarial figures are there almost to prove it, so it is anomalous not to include prison officers. The point about psychiatric nurses is the role they play, particularly in institutions such as Broadmoor, where they are dealing with the most difficult cases—physical challenges—within the NHS. I find it bizarre that we are expecting police officers to retire “early” at 60—I hope we do not go to that—because of the physical nature of their jobs in dealing with criminals, yet when those criminals go into prison it appears that they no longer provide a physical challenge to the officers dealing with them then. The situation is anomalous, which is why I support the amendment to include psychiatric nurses.

I also tabled amendment 9, and this is specifically for the Fire Brigades Union. As my hon. Friend the Member for Nottingham East (Chris Leslie) has said from the Front Bench, the Government have set up, in agreement with the unions, the working longer review in the NHS and the physical assessment in respect of the fire service. Evidence is piling in to those reviews—independent academic evidence, and details of physical tests that have been undertaken—to demonstrate that it is tough to do the job at 55, let alone at 60. I have seen some of the evidence put forward in the fire service review. When the previous Government increased the retirement age to 55 it was on the basis that there would be more firefighters doing preventive work and people could be redeployed into that work. This year, only 15 posts nationally have been available for redeployment, so redeployment is not an option. These people are still out there doing that physical job, and it is unacceptable to push the retirement age to 60. That is why amendment 9 would ensure that the pension schemes would be able to take into account the reviews currently taking place and that we would be able to adhere to a lower retirement age, particularly for firefighters and others as they are justified.

I am interested to hear what the Government’s responses will be, so I shall finish on this next point. Overall we seek to ensure that there is justice in the Bill, and that is certainly not the case at the moment. I reiterate that the Bill is increasing the contributions and increasing the length of time that people will be working. Given the life expectancy in my constituency, a large number of my constituents will not reach retirement age. Already, a third of all members across the schemes retire within three years of when they should normally do so because they cannot physically continue in the job. They therefore live on reduced pensions and in some poverty. My constituents will contribute more, work longer, most probably have a reduced pension at the end of it and have to retire early. That is an unjust deal when we are subsidising the wealthy through tax relief on their pensions.

[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.