15:33 - Division on Amendment 1 - Ayes: 216 / Noes: 193 - Amendment 1 agreed.
Lord Newby
My Lords, these amendments reflect an issue about which I know many noble Lords feel strongly. Before I address the amendments themselves, perhaps I may remind the House of the context and the background.
These forces are made up of civil servants directly employed by the Ministry of Defence. Although there are some similarities with their counterparts in the Home Office police and the local authority fire and rescue services, their terms and conditions of employment are set by the Ministry of Defence and are therefore materially different in many respects. As civil servants they benefit from provisions which are not available to their non-MoD counterparts, such as the Civil Service compensation scheme, injury benefit provisions, relocation and leave allowances. The amendments being suggested would fundamentally alter the status of these individuals and that should not be carried out lightly.
I should remind the House that, as civil servants, individuals joining these forces currently have access to the Principal Civil Service Pension Scheme. This means that since 2007 those joining these forces have had a normal pension age of 65. The amendment proposed by the noble Lord, Lord Eatwell, would reduce that pension age to 60. He has already referred to this argument, but I shall make it again. Such a reduction in pension age runs counter to the Government’s aim of managing the risks associated with increasing longevity. It would also make these workforces unique in seeing a five-year decrease in their pension age as a result of these reforms.
Furthermore, there are a number of problems associated with the specific amendments that have been proposed. First, it is not clear how the amendments proposed by the Opposition would be implemented. The institutional architecture required for these workforces to become part of the non-MoD fire and police schemes would need to be established, bringing with it additional cost. The non-MoD fire and police schemes are locally administered and early work suggests that in order to include the DFRS and MDP in these schemes, equivalents of elected police commissioners and fire authorities would need to be established for these forces. The schemes are also discussed and established through fora which the MoD forces do not participate in, and which are not designed to cater for them, such as the Police Negotiating Board.
The amendment would also split the remuneration of these individuals so that their pay and other conditions are controlled by the Ministry of Defence while their pension entitlement would be set by either the Department for Communities and Local Government or the Home Office. This will potentially place financial risks on the Ministry of Defence over which it has no control and, more importantly, would prohibit the MoD from taking a view on appropriate remuneration for these forces in the round.
However, the Government are not deaf to the concerns of the House. I have listened carefully to the arguments for providing these groups with additional protection. I have, as the noble Lord, Lord Eatwell, mentioned, also met representatives from the groups themselves to hear their concerns. One of the issues that they highlighted was that as SRA and NRA increases in the decades ahead, the disparity between their retirement age and that of their civilian counterparts would be increased and their retirement age would move towards 68. They believe that such further increases in retirement age would be unfair and unreasonable, and I agree. Therefore, I held discussions with colleagues in the Treasury and the Ministry of Defence. As a result, the Ministry of Defence pledged to look at appropriate ways in which the issue could be managed so that retirement at 65 could be maintained in the new pension schemes established by the Bill when they are implemented in 2015.
This is a sensible way for the issue to be resolved. The details of these changes should be discussed by the employer and their employees, and, for the MDP in particular, in conjunction with the consideration already under way of their wider terms and conditions. In the light of these arguments, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Newby
Lord Newby
My Lords, the amendments in this group bring the Bill into line with the Government’s announced policy on judicial pensions. They recognise the special constitutional position of the judiciary and have been tabled in response to the Delegated Powers Committee’s 10th report. The report identified that the Bill will move some features of judicial pensions, which are currently provided for in primary legislation, into secondary legislation. Under the amendments, the pensions of the judiciary will be separated from the Civil Service scheme, of which they were originally going to form part.
The regulations governing pensions for the judiciary will be made by the Lord Chancellor, in consultation with the Secretary of State for Scotland where this is appropriate. Scheme regulations will also require the consent of the Treasury. In addition, in order to recognise the move from a basis in primary legislation to one in secondary legislation for some elements of scheme design, scheme regulations will attract the affirmative procedure. The exception to this will be cases where the pension board for the scheme deems the regulations to have either a minor or a wholly beneficial effect. The judiciary will be represented on this board. As a final change, we have amended the Bill so that the Lord Chancellor’s role in making pension schemes for the judiciary becomes a protected function. This means that any future machinery of government changes will not change the fact that the responsibility for these pensions will remain with the Lord Chancellor.
The amendments that I have described represent a reasonable balance between the importance of recognising the judiciary as having a particular and special role within our constitution and ensuring that the Bill continues to provide a consistent and coherent framework for public service pensions. An independent judiciary is the cornerstone of any modern democracy. It must be able to carry out its role without interference from government. These wide-ranging reforms to all public service pensions, which will impact on judicial remuneration, in no way diminish that fundamental constitutional role. Judges will be as free to uphold the law, to interpret the will of Parliament and to rule against the Government of the day after these reforms as they were previously. Indeed, judges have the protection of the affirmative procedure, which means that Parliament, not government, will have the final say on any major changes.
Amendments 26 and 27 address a separate issue about some individuals who have worked for the residential property tribunal. It has emerged that some of them may be provided with pensions under the Rent Act 1977 and may not be covered by the provisions of the Bill. This amendment clarifies that these individuals should be included within the scope of the Bill. I beg to move.
Lord Newby
“1A (1) Scheme regulations for the judiciary may be made by the Lord Chancellor.
(2) Before making scheme regulations in relation to an office with a jurisdiction exercised exclusively in relation to Scotland, the Lord Chancellor must consult the Secretary of State.”
Lord Newby
Lord Newby
My Lords, the government amendments in this group concern powers, which have been previously debated at length, to amend primary legislation and to make retrospective changes. I am hopeful that both sets of amendments will be well received across the House.
The amendments on powers to amend legislation follow on in particular from the recommendations of the Delegated Powers Committee. As the Delegated Powers Committee noted, the Bill as drafted contains “unrestricted” powers to amend primary legislation. The committee did not see a justification for such a wide scope to make changes without full parliamentary scrutiny. It recommended that the powers be limited to being able to amend existing primary legislation for consequential and consistency purposes only. We have looked at this, and agree with the committee.
While the powers currently mimic those in the Superannuation Act 1972, the predecessor to this Bill, there is no evidence of the powers being used for anything beyond consequential amendments in the past. We do not envisage a scenario where wider use would be needed in the future. The amendments therefore reduce the scope in line with the Delegated Powers Committee’s recommendations. The powers can be used only for consequential changes to current Acts, including changes that are needed to achieve consistency.
I should make clear that the amendments do not remove the power to amend primary legislation completely, since such a power is essential to bridge any gaps between pre-existing primary legislation and the scheme regulations, but they significantly reduce the scope of the powers to be used in ways that the committee felt could not be justified. I hope that this strikes a balance that the House can support.
The powers to make retrospective changes were also mentioned in the Delegated Powers Committee’s report, although it did not make any specific recommendations in this case. However, we have discussed these retrospective powers in detail in your Lordships’ House on a number of occasions, and I hope we are approaching a resolution that everybody can support.
Our amendments take account of amendments tabled at earlier stages by the noble Lords, Lord Eatwell and Lord Whitty, both of whom also have amendments on the Marshalled List today. I hope they feel that we have been able to take account of their arguments as we work through the detail in this complicated but vital area. As I think we all agree, we must get this absolutely right and I hope the House will feel that our amendments achieve that.
As I have set out before, powers to make retrospective changes can be required for several reasons. Usually they are required to make minor or technical operational changes to allow the schemes to run efficiently, often for the benefit of members. They may also be used to make retrospective changes that are part of wider negotiations and which increase the likelihood of the Government and their employees reaching agreement on a package of reforms. Therefore, the Government firmly believe that such powers are necessary and should not be restricted.
However, the Government recognise that if there are insufficient protections against using these powers in an unfair way, even if we have no intention of doing so, this could damage members’ confidence in these reforms. That is why we have brought forward the new clause contained in Amendment 36 and the associated consequential amendments.
Amendment 36 implements a consent lock for any retrospective changes to pensions that have “significant adverse effects” on members. Members or their representatives would have to agree to such changes. Significance is a low but appropriate threshold—one that is on the whole favourable to members and not the responsible authority. It has already been used in the Bill and by some noble Lords in their own amendments. I note that the amendment tabled by the noble Lord, Lord Whitty, in this area refers similarly to “material” effects. If I may say so, he and I are talking about the same thing.
Indeed, our amendments mean that material or significant retrospective changes would require the consent of the members who are affected, or their representatives. Amendment 36 therefore provides an extremely strong form of protection against the unfair use of retrospective powers. It will give members who are significantly adversely affected, or their representatives, a veto on any such changes. The requirements to follow the affirmative procedure and to lay a report to Parliament will also continue to apply to safeguard wider interests, including those of the House.
The consent requirement will apply to changes that have a significant adverse effect on the pensions of all scheme members, whether active, deferred or pensioners. That means that they go further than the protections against retrospective changes in many existing schemes, including the NHS, local government and teachers’ schemes. They provide unambiguous protections for all members, not just deferred and pensioner members.
However, the consent lock will not apply to retrospective changes that have a significant adverse effect on non-pension benefits, such as injury and compensation schemes. Such benefits will continue to be protected instead by the enhanced consultation procedure of Clause 22. That clause requires consultation with a view to reaching agreement, a report to the appropriate legislature, and the affirmative procedure.
Injury and compensation schemes cover people by virtue of their particular employment, not whether they happen to be members of a public service pension scheme. The persons covered do not accrue an entitlement throughout their career in the same way as a pension, but rather receive benefits that are calculated at the point of claim. Moreover, those schemes are entirely funded by the employer with no employee contribution. We therefore think that a veto power over changes to injury and compensation schemes that might in some cases be regarded as retrospective would give disproportionate influence to members. None the less, I should make clear that reforms to current injury and compensation schemes are not contemplated by this Bill.
I therefore hope that the House will be able to support these amendments. I believe that they provide excellent reassurance to members that the retrospective powers will not, and indeed now cannot, be used in ways to which they do not consent.
I hope that the House will find it helpful if I speak to the other amendments in the group. The amendment of the noble Lord, Lord Whitty, would restrict the scope of powers to make retrospective changes such that they could make only non-material changes. As I have said, we believe that the scope of those powers should not be categorically restricted. Flexibility can be desirable—I mentioned the possibility of members consenting to significant changes if they are part of a wider negotiating package—and it is much more important that we give members a fair say in what affects them. Our amendments do that, with a veto power no less. So, in the light of our amendments, the amendment of the noble Lord, Lord Whitty, is unnecessary.
The amendments of the noble Lord, Lord Eatwell, and the noble and learned Lord, Lord Davidson, would take away the clear responsibility of the responsible authorities to make a judgment on the effect of retrospective changes. It is not entirely clear who would take a view instead, but it might well end up being the courts. The difficulty here is that these are decisions—what is significant and who is affected?—that require a clear decision in order to start the right consultative process. Someone has to take a view on the nature of the effects in good faith. In our view, the authority is best placed to do that, given that it operates the schemes and would initiate and implement any changes.
Public authorities should not be held to unrealistic standards of judgment. That is inefficient, encourages inaction or excessive litigation, and hampers their ability to deliver their public functions. Not all effects will be so clear cut as to leave no room for disagreement, so it is right to leave a small margin of safety.
If responsible authorities do not exercise their judgment reasonably, they do so at their own risk. Of course, members can always challenge the decisions of the responsible authority on this point as part of the consultation, or even in the courts. So there is no justification or incentive for the authority to act irresponsibly or without good faith. Although I can understand the reason why these amendments have been tabled, I fear that I cannot support them.
However, I hope that the House is reassured that just because there is a small element of subjectivity, that does not mean that the way is open for the responsible authority to act in an arbitrary manner. More importantly, I hope that the House will agree that the Government’s amendments on retrospection provide excellent protections to members.
The Government have listened carefully on this topic and have brought forward sensible amendments inspired by previous amendments tabled by Members on the other side of the House, and I urge noble Lords to support them.
Lord Newby
My Lords, I am pleased that I am moving in the right direction, at least as far as the noble Lord, Lord Whitty, is concerned.
On the amendments of the noble Lord, Lord Eatwell, there are two differences between the Alex Ferguson situation and the one that we are discussing. First, while he could of course be relied upon to act impartially in every circumstance, he is not given that freedom. There are a referee and various other officials on the pitch, taking decisions on a second-by-second basis. There is an authority; it is just not him. The noble Lord is concerned about what happens if that authority then acts improperly or unreasonably—if, say, the referee blatantly misses a series of handballs in the penalty area. The answer is that if there is a sense that the authority is behaving improperly, it has an oversight body: the courts. The authorities cannot just make arbitrary decisions, let alone unfair ones, without acting in good faith. If they do act unreasonably, they are also acting unlawfully. It is right that the responsibility lies with them, as they operate the schemes. Somebody has to make an initial decision. The underlying implication of what the noble Lord is saying is that the authorities will act in a malevolent way to do down scheme members. I do not believe that they will, or that that is the history.
Lord Whitty
My Lords, on a point of information, in the LGPS we make a clear distinction between an employing authority and an administering authority, the latter being the equivalent of a quasi-trustee body, whereas this seems to imply the employing authority— that is, the local authority. If it were the administering authority, I think that we would be slightly more reassured.
Lord Newby
My Lords, I simply do not know the answer to that question. I will have to write to the noble Lord. I hope that, in doing so, I will be able to reassure him.
I turn to the amendment of the noble Lord, Lord Eatwell, on the cost cap. Its operation has been extensively discussed here and I hope that noble Lords were reassured that we will not seek to use it to reduce accrued benefits. If noble Lords have not been reassured, I hope I can reassure them now by setting out the Government’s own detailed amendments on retrospective provisions and protections.
As I have stated, the new clause on retrospective protections will require that retrospective changes to pension benefits with significant adverse effects be subject to the consent of members or their representatives. This would include changes made as a result of the operation of the cost cap. I have already made clear that adjustments to benefits or contributions under the cost cap would not be retrospective. The new clause, set out in Amendment 36, also provides protections to this effect. First, there would be the procedure set out in Clause 12(6) for reaching agreement on changes that are contingent on the operation of that mechanism. Then, when scheme regulations were made to give effect to those agreed changes, those regulations would require consent for any provisions that were retrospective and had significant adverse effects on pensions.
Given this, I hope that noble Lords are convinced that Amendment 23 is not necessary either. As the noble Lord, Lord Eatwell, himself said in previous debates, this would be a belt-and-braces provision to provide further protection to members in the event that the cost cap is triggered. There is no need for this additional protection because the response to the cost cap calls for the approval of the members themselves. If that response were to involve a retrospective change with a serious adverse effect, the implementing provisions in scheme regulations would also require consent. So the belt and braces are already in the Bill, were that extremely unlikely scenario ever to happen. In these circumstances and with these reassurances, I hope noble Lords will not press their amendments.
The noble Lord, Lord Flight, asked a couple of questions about whether the changes relating to restricting retrospection would reduce the Government’s ability retrospectively to reduce provisions and thus make it easier, in his view, to get the costs under control. The problem about that from a legal point of view—leaving aside whether it is desirable in practice—is that tinkering with accrued rights falls foul of human rights legislation and the Government have made it absolutely clear that they have no intention of going down that road. On the question of figures in Michael Johnson’s report, the Government simply do not recognise them. The House should be reassured that the costings for these reforms and the single tier have been fully worked through. If, at some stage in the future, the schemes appear unfinanceable, we have the cost cap; that is the whole purpose of having a cost cap. If his worse fears were borne out—and, as I say, we do not recognise the figures that Michael Johnson has produced—
Baroness Noakes
I thank the Minister for giving way. He says that the Treasury does not recognise the figures in Michael Johnson’s helpful report, mentioned by my noble friend Lord Flight. Could he say what figures it does recognise because, clearly, the proposals for the single tier pension and the impact on contracted-out contributions came after the development of the public sector pensions and after the OBR report? There has to be a figure, given that he does not recognise that quoted by my noble friend, so what figure do the Government estimate it to be?
Lord Newby
The best way of dealing with this is by writing to the noble Baroness to explain how the Government believe that the proposals for the single-tier pension can be accommodated within the finances we think are available. I do not believe that a single figure here deals adequately with it, but we will write to her. We have not had a huge amount of time to analyse Michael Johnson’s figures, but on first sight, they do not look like ones that we can follow.
As regards the amendments in the name of the noble Lord, Lord Whitty, and whether “material” is different from “significant”, is one a higher bar than the other? As I said earlier, we believe that they are virtually synonymous. We do not believe that material is of a lesser or greater value than significant. Therefore, we do not think that there needs to be any concern in that respect.
Amendment 31 would require that any change to scheme regulations undergoes consultation with a view to reaching agreement. I understand why the noble Lord is concerned that there should be meaningful consultation with scheme members and their representatives when scheme regulations are made. The Government carry out consultations for a number of reasons. While it is always good to have agreement, this will not always be the appropriate focus. Pensions are complex issues and regulatory changes may often be needed for minor and technical reasons. It surely would be impractical for the Government to undergo a more onerous consultation process every time a minor change was made. Moreover, this amendment is not necessary to ensure that this consultation is meaningful. This already is a mandatory requirement of any consultation process. If any stakeholder felt that a consultation was not meaningful or fair they could challenge this in court.
Amendment 35 goes somewhat further than Amendment 36. It would require that any change to scheme regulations after the first set of regulations has been made should follow the higher standard of consultation and reporting requirements set out in Clause 22. As I have said previously, this would be simply impractical. Amendments to scheme regulations can be made for a wide range of reasons down to the most minor of changes. It cannot be right that the more extensive provisions in Clause 22 should apply to every circumstance. Very often these changes are to the benefit of members and I am sure that any delay in implementing such beneficial changes because of the legal requirement to carry out the kinds of consultation set out in Clause 22 would not be seen by members in a positive light. I hope that noble Lords can understand why such a blanket requirement would not be in anyone’s interest. The Government already are committed to proportionate levels of consultation on all scheme regulations, which is the appropriate and responsible course of action.
Amendment 35 would also change Clause 22 so that, instead of setting a high bar for changing the protected elements, it would be illegal to make any such change unless the members or their representatives consent. I fully understand the concerns of some members and their representatives around these issues but, again, such a blunt instrument does not seem to me to be a particularly sensible way forward.
The Government have committed themselves to the reformed schemes as they have been negotiated and they are even now working hard with members and their representatives to ensure that these are implemented by 2015. The Government believe that the deal which has been put in place is one which should stand for 25 years, perhaps longer. It is an arrangement which represents a good outcome for both individual members and the taxpayer. The provisions of this clause are intended to reflect that commitment. The amendment in the name of the noble Lord, Lord Whitty, would go far beyond that and would seek to bind all future Governments over the next 25 years in a way that this House does not tend to endorse.
None of us can foresee the future. I will reiterate again that the Government see no reason why these pensions should not still be fit for purpose in a quarter of a century from now. However, the responsible course of action is to ensure that, if any future Government were to take a different view, for whatever reason, strong but appropriate processes are put in place to protect scheme members and to scrutinise the rationale for any changes they might seek to make. But the protections must strike a fair balance between the interests of the taxpayer and members. The Government do not believe that this can be achieved by allowing members to veto any change to scheme design, contribution rates and benefits. On that basis, I hope that the noble Lord will feel able not to move his amendment.
Lord Newby
Lord Newby
“( ) The consequential provision referred to in subsection (2)(b) includes consequential provision amending any primary legislation passed before or in the same session as this Act (as well as consequential provision amending any secondary legislation).”