Amendments made: 40, page 57, line 20, at the beginning insert ‘Subject to sub-paragraph (2)’.
Amendment 41, page 57, line 23, at end insert—
‘(2) In relation to a term of service as Lord Chancellor beginning on or after
(a) the day on which section 30 comes into force, or
(b) if later, the day after that on which the term of service ceases.’.—(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.
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?
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.
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.
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?
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.
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?
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.
Further to the point made by 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.
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 towards 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.
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 not only important in ensuring 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.
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,
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.
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?
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 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.
In an era of increasing life expectancy, it is right and necessary to reform public service pensions in order to ensure that they are affordable and sustainable in the long term. That is why Labour made significant changes to public service provisions when in office, including through increasing the normal pension age from 60 to 65, introducing a cap-and-share mechanism to protect taxpayers from increasing costs and reforming contribution levels. According to the Public Accounts Committee, those reforms, implemented by the previous Government, will save the taxpayer £67 billion over 50 years.
Unfortunately, instead of building on those reforms, the Government ripped up many of them, making sensible reform harder: they have imposed, without negotiation, a steep 3% rise in contributions and a permanent switch in the indexation of future pension income from RPI to CPI. Announcing those changes before the Hutton report on pensions was even published was unfair and needlessly provocative. Those changes are not in the Bill, however, so we did not have a chance to address them in amendments and in Committee and on Report.
Conversely, the main aims of the Hutton reforms in the Bill are ones with which we broadly agree, most notably the shift from final salary to career average defined benefit schemes, the increase in pension age to take account of increasing longevity, and a mechanism to ensure that increasing costs are contained within schemes and do not fall squarely on the taxpayer. It is important for the sustainability of public service pension schemes that those changes are implemented properly, which is why we do not wish to oppose the Bill this evening. However, as we said on Second Reading, we have serious concerns about the detail of the Bill. We said that we hoped the Government would work constructively with us in Committee and the other place to improve it. There was some movement from the Government, but in our view it was not sufficient.
I do not think it would be sensible to make a permanent “no review” announcement when it comes to indexation, particularly when some of the projections have been showing that the future burden on the taxpayer might not be as great as the Government have made out. For the time being, we have not been able to make propositions on that, because the scope of the Bill did not allow it.
However, we proposed amendments in a number of other crucial areas in seeking to improve the Bill, focusing particularly on the questions of trust and confidence. We sought to improve the Government’s proposals in a number of ways, most notably in implementing the fair deal—a commitment that was integral to the agreements that had been reached. I am glad that the Minister had the opportunity to correct his words on the local government pension scheme aspect of that, because there were some ripples emanating through the Chamber from some of the previous words he uttered. There is also the question of the Government’s ability to reduce accrued benefits retrospectively. They should have been stronger on that and firmer commitments should have been given as guarantees on replacing defined benefit schemes with new career average defined benefit schemes.
There is one other amendment, which I tabled in Committee, but which we did not push to a vote. Perhaps the shadow Minister can say whether he would be interested in having it proposed in another place. Constituents of mine in Bedford and Kempston are being asked to cough up to pay for the pensions of judges and others on salaries of £150,000. It seems particularly unfair that those on £24,000, which is the average income in Bedford—they are also on a pretty high tax rate—should be asked to contribute to a pension scheme for a judge who will retire on a pension that is two or three times larger than such an income. That has not been changed in the Bill so far. I was not sure in Committee whether the Labour party thought it was fair for my constituents to pay for judges’ pensions. Perhaps the shadow Minister can clarify whether he would like that amendment to be moved in another place.
We did not table any amendments on judicial pensions. I suspect that the question of relative taxpayer support for private pensions might come up tomorrow in the autumn statement. I am intrigued that hon. Members have castigated previous Governments for changes that have affected private sector schemes. It will be interesting to see what the effect will be on the sustainability of some of those pension pots, but we can only speculate at this stage and see what happens. However, this question is certainly of the moment. It is only a matter of hours before the Chancellor stands up and—undoubtedly—makes his announcement on pensions tax relief. We will see what happens at that point, but we felt that some significant proposals needed to be made.
I am conscious of the time. I would be grateful if the hon. Lady let me conclude my remarks.
It was argued that we must not bind future Governments by amending the Bill. That was not a very strong argument, given that legislation can be introduced at any time. We also felt that safeguards were needed to address people’s concerns about the effective sequestration of their deferred wages—their pension savings—by retrospective changes. At no point did we propose amendments that contradicted the Hutton principles. We sought to be constructive, and I am grateful that the Minister recognised the constructive changes that we proposed.
We had some significant victories, and I am grateful to the Minister for at least keeping an open mind on some of these points. In particular, I am pleased that we managed to get a guarantee—it is due in the other place—that future members of defined benefit schemes will receive an annual benefits statement setting out full information on changes to their pensions. That is a big step forward, and I am grateful that the Minister moved on that point.
We will want to come back to some of those questions in the other place, particularly those on scheme capability reviews and the working longer review in the NHS, and to ask why the Government are irrationally not letting those arrangements come to fruition in the drafting of legislation. I am still not fully convinced that the issue of the closure of local government pension schemes has been adequately dealt with, but I know that the Minister has said that he is happy to look into it.
Many colleagues will naturally have serious doubts about the Bill. That is entirely understandable, given the differences between it and the Hutton proposals. However, pensions reform is important both for the taxpayer and for scheme members themselves. Our hope is that the other place will see the strength of our arguments and make the changes that this House has been unable to secure. We hope that their lordships will appreciate that only through changes to the Bill will we achieve successful and sustainable pension reform. It is with that hope in mind that we shall not oppose the Bill at this stage, but we hope for further improvements in the other place.
I support the Bill, because I want to see good-quality defined benefit pensions maintained in the public sector, even at a time when the private sector is experiencing a wholesale shift away from final salary and defined benefit schemes. In the mid-1990s, 5.5 million private sector employees were in some form of defined benefit scheme, yet membership of such schemes had fallen to 2.1 million by 2010, with only 1 million in schemes that were still open to the public. Longevity, low stock market returns and accounting rules have been blamed for the switch, but the last Labour Government’s decision to end the repayment of dividend tax credits also had a huge impact, taking £3.5 billion a year from the income of the pension funds. From a total asset value of £650 billion, that represents a significant drop in income.
Treasury papers from 1997 that were published in 2007 under the Freedom of Information Act revealed civil service concerns about the impact of that decision on private sector pensions and a fear that it might accelerate the shift towards defined contribution schemes. The Labour Government believed that the stock market would continue to rise, and therefore make up any loss to pension funds caused by the loss of the dividend tax credits. The FTSE index stood at 6,900 in 1999, whereas last night it stood at 5,876. It is still more than 1,000 points below its peak in 1999.
I believe that the proposed final agreement negotiated by the Government will result in public service pensions that are still the best available. They will be defined benefit pensions and will still be regarded as good schemes by the trade unions, even those that have still to accept the negotiated settlement. Chris Keates, the general secretary of NASUWT, has said:
“Our advice to our members…has to be that they must opt into the scheme.”
This is a very good Bill. It reflects a good outcome to the negotiations on the reform of public service pensions, and it means that the public sector can be assured of good-quality defined benefit pension schemes that are sustainable in the long run and that address the main concerns raised in Lord Hutton’s report.
Most people in Scotland, whether they work in the public sector or not, recognise that these pension reforms—particularly the increase in contributions and the requirement to work for longer—have little to do with designing better pension schemes and everything to do with the short-term aim of deficit reduction. I do not think that public sector employees should be picking up that tab.
Ministers have relentlessly pursued affordability while abandoning sustainability and fairness. That is the wrong approach at this time. Most public sector workers have faced a pay freeze for the past three years. Their wages have fallen in real terms while they have experienced substantial increases in their cost of living, through increases in the price of food, petrol and domestic heating bills. They are being asked to pay more, to work longer and to accept significantly lower pensions thereafter. To me, that is just not a reasonable proposition. Public sector employees do demanding jobs, often under pressure and in difficult circumstances.
I will not; I am conscious that other Members want to speak.
Many of those public sector workers are already on quite modest wages, and they deserve measured and proportionate schemes that will give them confidence that they are saving adequately for their old age. They want to know that the goalposts will not be shifted yet again as they approach an ever-increasing retirement age. The Bill fails those tests, which is why I will oppose it this evening.
I welcome this Bill for three particular reasons. First, I welcome the move to career average rather than final salary, which is absolutely key. Secondly, linking eligibility to normal pension age to the state pension age is very important. Thirdly, transitional relief for people with 10 years to go before they retire is vital. I commend the Government for their work.
I have two further points. First, it is a shocking indictment of the last Government that in 1995 there were 4.1 million public sector workers in a defined benefit scheme, while in 2011 there were 5.3 million—an increase of more than a million public sector workers on defined benefit schemes. Surely it is the legacy of the last Government’s spending money we simply could not afford that has put us in a position where we have had severely to curtail some of the benefits that public sector workers enjoyed in the past.
Finally, 79% of workers in the public sector have defined benefit pensions as against 9.4% in the private sector. Again, it is a complete indictment of the last Government that they have taken what was one of the best private sector pension arrangements in Europe and made it one of the worst. It will be a great pity if the Opposition do not welcome the attempt in this Bill to sort out the mess that they left us.
On Second Reading, I fully recognised the views expressed on the Opposition Benches about public sector pensions being some of the poorest pensions, but I want to return briefly to the point I made about police pensions.
There will be some bitterly disappointed police officers out there this evening. We have heard in the past few minutes about goalposts shifting, while we have also heard about the physically demanding work of prison officers, but it is the exactly the same for our police officers and firefighters. On Second Reading, I commented on the massive changes and pointed out that there is no time for some police officers to recover when the computation is reduced to something like a 30% figure and they are having to work an extra seven years. The projected pension when they first joined the force is now reduced to around 70%. The decisions made in this House have been life-changing ones.
On the subject of the implications of pension changes for the police, does my hon. Friend recognise that a far bigger cohort of the Police Service in Northern Ireland is affected, because there has been such a turnover since the Patten commission? These people and their families are still facing targeting by dissidents, and they feel mugged by the Government.
I shall finish now because I know my hon. Friend Gregg McClymont wants to contribute to the debate. As I was saying, what has been determined in this place this evening and over the past few weeks amounts to life-changing issues. Let us hope that there is a chance for some of it to be corrected in the other place.
I want to make a couple of points about pensions in the round as we come to the end of the debate. We are talking about public sector pensions, but it is worth remembering that our state pension is one of the lowest in Europe; the replacement rate it provides is very low by European standards, so we cannot talk about public sector pensions on their own in that context.
Equally, we have to be very careful that we do not get into a race to the bottom in respect of private sector pensions. There are real problems with private provision in the UK—not caused, of course, by the previous Government. I had to laugh at some of the contributions from Government Members. The single biggest negative impact on private sector pensions in the UK was the Thatcher Government’s removal of employers’ ability to mandate the work force to be in an occupational pension scheme. That was the beginning of the slippery slope, alongside holidays in pension contributions taken by employers. This rewriting of history by Government Members is ludicrous.