Clause 28 - Closure of certain existing public body pension schemes

Public Service Pensions Bill – in a Public Bill Committee at 4:00 pm on 20 November 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 4:00, 20 November 2012

I beg to move amendment 74, in clause 28, page 14, line 21, after ‘body’, insert ‘final salary’.

Photo of Annette Brooke Annette Brooke Liberal Democrat, Mid Dorset and North Poole

With this it will be convenient to discuss Government amendments 13 to 20.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

This is a moment of great triumph for the Opposition, as far as I can tell. Amendment 74 was intended to deal with the drafting changes necessary to ensure consistency in the Bill. However, it turns out that the Government amendments, particularly amendment 14, largely addresses the question that amendment 74 was designed to raise. Government amendment 14 broadly resolves the problem of ensuring that only final salary schemes will be closed by the clause.

We were concerned that, as currently drafted, the clause would have closed all schemes for employees of the public bodies listed in schedule 10, not only the final salary ones, which would have resulted in the unnecessary closure of some schemes. The Minister has addressed the problem in his amendments, but it would be useful if he assured us that none of the bodies listed in schedule 10 already has a career average scheme that should not be closed to future accrual. That was the specific point that I wanted to make.

The Government amendments, which have been grouped with amendment 74, remove references to closing schemes—for example, the words “must close the scheme” in subsection (2)—and replace them with references to amending schemes. Given our earlier debate about how, for local government pension schemes, there was a problem with the closing of schemes—we would have prefer them to be amended—that is probably a step in the right direction.

The Minister seems to think that, in respect of public body schemes, amending them is often preferable to closing them and opening others. We are slightly mystified about why he did not take a similar route in relation to local government pension schemes. That may be because the Government are relying on the provision he pointed out earlier in section 75 of the Pensions Act 1995, but I am not clear why he has not removed the word “closure” from the provisions on local government pension schemes.

That takes us back to the crystallisation of debts and how we can deal with such matters. It is, of course, more sensible to amend schemes. Even for unfunded schemes, where there cannot be a section 75 liability, closing schemes and opening others is much less efficient and more costly than simply providing for such schemes to be amended.

The fact that public body schemes can be amended rather than closed shows that there is no fundamental problem with amending schemes to achieve the necessary reforms. That should be borne in mind in relation to local government pension schemes. Perhaps it presages a change in attitude by the Treasury to such arrangements. There is no need for me to talk about all the Government amendments, as the Minister will no doubt do so.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I thank the hon. Gentleman for moving amendment 74, which gives us the opportunity to look at a smaller, but no less important element of the reforms. Lord Hutton’s interim report made it clear that the process of pension reform was equally applicable to public bodies. In his written ministerial statement on 16 July, the Chief Secretary provided the House with details of how such public body pension schemes would be reformed.

The Bill will close the existing unfunded defined benefit pension schemes relating to the public bodies listed in schedule 10 to future accrual. In their place, it will allow the major public service pension schemes to be extended to provide pension benefits to employees of new and existing public bodies, or, in compelling circumstances and provided they follow Lord Hutton’s design recommendations, new bespoke pension schemes for public bodies may be allowed.

The amendment would restrict reform to public body schemes that are final salary in design. Such a restriction would, for example, allow employees and office holders  of public bodies operating pension schemes that are analogous to the civil service Nuvos scheme to continue accruing benefits in those schemes while the Nuvos scheme is reformed. Although I can understand the amendment’s underlying intention, I fear that it may have unintended consequences by exempting schemes that offer a mix of benefits from reform. The process of reforming public body pension schemes is not as far advanced as the reforms to the major schemes, so we cannot say with any certainty that the schemes that need to be reformed are exclusively final salary schemes. That would be unfair and unjustifiable. No public body employees provide more vital a service to the public than, for example, nurses or the armed forces. The pension reforms recommended by Lord Hutton go further than simply reforms to final salary schemes.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I refer the Minister to the written submission from the PCS, which makes reference to the Commonwealth War Graves Commission and ongoing consultation about placing new staff into a defined contribution scheme. Will the Minister put something on record today to give comfort to those who share the concerns raised by the PCS?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

I have not seen that submission, but I will take a look and then perhaps come back to the hon. Lady.

For the reasons that I have set out, I hope that the hon. Member for Nottingham East will consider withdrawing amendment 74.

I shall now speak to the Government amendments. Amendments 13, 15, 16 and 18 clarify that it is the public authority responsible for the public body schemes relating to the public bodies listed in schedule 10 that must apply the provisions of clause 28 to those schemes and reform them in line with reforms to the major schemes. The amendments will ensure that there is no ambiguity about who is responsible for ensuring that benefit schemes relating to the public bodies listed in schedule 10 are reformed.

Amendment 14 ensures that defined contribution schemes and injury and compensation schemes relating to the public bodies listed in schedule 10 are not to be closed to future accrual by the Bill. Amendment 17 clarifies that closures of defined benefit public body schemes to future accrual, and exceptions to those closures to allow for transitional protection, might be achieved by reforming the existing schemes. It also ensures that death in service benefits in existing public body defined benefit schemes relating to the public bodies listed in schedule 10 are restricted by clause 28.

Amendments 19 and 20 provide greater clarity on the limits placed on powers that have been used to create the existing public body schemes that are closed to future accrual by subsection (2). Amendment 19 clarifies that the powers used to create the public body schemes closed to future accrual by subsection (2) cannot be exercised to create new schemes once the Bill is enacted. Amendment 20 makes it clear that that limit on the exercise of such powers only prevents their use to create new defined benefit schemes. Any future defined benefit schemes relating to public bodies listed in schedule 10 must be made using the powers in clause 1 or, if members are not eligible to join a clause 1 scheme, in clause 28(4).

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I think that we have debated the issue sufficiently, so I do not wish to press the matter any further. It was important to have the debate and to get the Minister’s words on the record.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

May I answer the question posed by the hon. Member for Kilmarnock and Loudoun about the Commonwealth War Graves Commission? Those schemes are funded, and they are not included in schedule 10.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

My hon. Friend seems satisfied with that helpful response from the Minister. I do not wish to detain the Committee any further, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 13, in clause 28, page 14, line 23, leave out from ‘authority’ to ‘service’ and insert

‘responsible for the scheme must make provision to secure that no benefits are provided under the scheme to or in respect of a person in relation to the person’s’.

Amendment 14, in clause 28, page 14, line 24, at end insert—

‘( ) Subsection (2) does not apply—

(a) in relation to a public body pension scheme which is a defined contributions scheme, or

(b) to injury or compensation benefits.’.

Amendment 15, in clause 28, page 14, line 25, after ‘authority’, insert ‘responsible for the scheme’.

Amendment 16, in clause 28, page 14, line 25, leave out ‘closure’ and insert

‘provision made under subsection (2)’.

Amendment 17, in clause 28, page 14, line 27, at end insert—

‘( ) Provision made under subsection (2) or (3) may in particular be made by amending the public body pension scheme.

( ) In subsection (2), the reference to benefits in relation to a person’s service includes benefits relating to the person’s death in service.’.

Amendment 18, in clause 28, page 14, line 29, after ‘authority’, insert ‘responsible for the scheme’.

Amendment 19, in clause 28, page 14, line 32, leave out

‘the scheme closed under subsection (2)’

and insert

‘a scheme to which this section applies’.

Amendment 20, in clause 28, page 14, line 34, leave out ‘a new scheme’ and insert

‘a new defined benefits scheme in relation to the body or office’.—(Sajid Javid.)

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I beg to move amendment 75, in clause 28, page 14, line 39, leave out subsection (7)(b).

This is a simple amendment. Hon. Members will see that there are provisions in the clause for the closure of certain existing public body pension schemes. The Treasury is allowed by order—in other words by the Minister signing a piece of paper—to amend schedule 10 to

“remove any body or office specified there”.

I suppose that that is okay, but the Treasury can also

“add any body or office to it (by name or description).”

In other words, the Treasury has the power drastically to amend any career average or other defined benefits scheme relating to a public body simply by adding that public body to the list in schedule 10.

Changes of such a magnitude should normally be made in primary legislation, and certainly not under the negative procedure. Such a provision should at the very least be subject to the affirmative procedure. I am quite surprised that the Minister has drafted the Bill in such a draconian way that public body pension schemes can be closed down or amended significantly simply by virtue of the flick of a pen, without parliamentary scrutiny. Obviously we wanted to pick up on this power that the Minister seeks to take for himself, and I hope that he will reflect on whether this strikes the right balance of protections for members of public body pension schemes.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

Schedule 10 lists the public bodies whose defined benefit pension schemes will be closed to future accrual. However, there are very good reasons why the list is not comprehensive at this time. Public body pension reform is not as advanced as the reforms to the major schemes. We had to concentrate our efforts on dealing with the major schemes first before turning to smaller public bodies operating schemes. The Bill therefore needs to be flexible enough to be able to admit new bodies into schedule 10 for reform as and when such schemes that are ready for reform are identified.

We are waiting to hear whether the Scottish Parliament or the Northern Ireland Assembly wish to use the powers in the Bill to reform their devolved public body pension schemes. If they do—and it is a decision for them—some of those public bodies may need to be added to the schedule. Furthermore, the arrangements surrounding some public body pension schemes mean that it would not be appropriate to include them until proper arrangements have been made with other relevant authorities. There are a number of public bodies in Northern Ireland that afford pension provision to staff through the north/south pension scheme. Any changes to that scheme require the consent of the pension committee of the North/South Ministerial Council, and the Finance Minister in Northern Ireland and the Republic of Ireland.

When it becomes appropriate for such public bodies to be added to schedule 10, it will be important that the Treasury has the power to do that.

The affirmative procedure is unnecessary because any changes to schedule 10 are likely to be technical and, secondly, because the Government have been very clear about how these pension schemes will be reformed, so members of the schemes should be well aware that their pensions are in scope for reform. In any event, hon. Members will be aware that any instrument subject to the negative procedure could still be debated by the House if hon. Members feel that the subject matter merits wider discussion. I therefore urge the hon. Gentleman to withdraw the amendment.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 4:15, 20 November 2012

I am grateful to the Minister for at least addressing the issue, but it is a pity that he is unable to accept the amendment. It is important that we stand up for those who might be members of these schemes in future. I remain of the view that such an important measure should have the protection of at least the affirmative procedure. However, we will no doubt return  to some of these questions, so I will not press the matter any further for the time being. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

The clause requires the closure to future accrual of defined benefit pension schemes relating to public bodies listed in schedule 10. Unlike under clause 16, no closing date is specified, but we anticipate that action should nevertheless be taken by April 2018.

A number of bespoke defined benefit pension schemes exist for the payment of pensions to employees of public bodies, such as non-departmental public bodies, arm’s length bodies and other statutory offices. Our reforms apply to those schemes in exactly the same way as they apply to other parts of the public service.

In future, we will avoid recreating that proliferation of small schemes. Most existing schemes mirror the arrangements of one or other of the schemes for civil servants. Historically, staff of public bodies have not been eligible for access to civil service or other public service pension schemes, which has led to the creation of schemes by analogy, or analogous public body schemes. That is unnecessary, cumbersome and inefficient. In future, the default position will be that if there is a need to create a new public body, the staff of that body will be eligible to join one of the major public service schemes established under clause 1.

Existing employees and office holders will in most cases accrue future benefits under one of the new public service schemes established under clause 1. In exceptional circumstances, the Treasury—or the Department of Finance and Personnel in respect of Northern Ireland public bodies—may consent to the establishment of a new public body scheme for members of a scheme that is closed under this clause. Our reforms should apply to all pensions in respect of holders of public office. It would be inappropriate for any part of the public service to be treated differently.

Question put and agreed to.

Clause 28, as amended, accordingly ordered to stand part of the Bill.