Public Service Pensions Bill

Debate between Baroness Donaghy and Lord Eatwell

Tuesday 15th January 2013 Lords Chamber

[Lord Eatwell]

My Lords, this is part of the deal that was made between the Government, the local authorities and the trade unions in putting together the agreement that was reached following the report by my noble friend Lord Hutton. It is a part on which the Government seem to be reneging. I really think that this is very important. This so-called fair deal amendment will ensure that a member of a public service pension scheme who is compulsorily transferred from his contract of employment to an independent contractor will be entitled to remain an active member of that scheme; and, indeed, if there is any subsequent compulsory transfer of his contract of employment, he could still remain a member of that scheme. This was a key part of the agreement reached with public sector employees and their representatives—this notion of a fair deal for outsourced workers. It would ensure that all public service workers compulsorily transferred would stay as active members.

As I say, the Chief Secretary to the Treasury confirmed the Government’s commitment to the new fair deal in July, in a Written Statement. He said:

“I can … confirm 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, Commons, 4/7/12; col. 54WS.]

Where is that promise on the face of the Bill? This is a promise that the Chief Secretary to the Treasury made, but it now seems to have evaporated. Where has it gone? As it stands, the Bill is very one-sided in how it reflects the negotiated agreement. The Government are happy to include the size of the agreement which suits them—for example, the requirement that no schemes are final salary schemes—but are not forthcoming with their corresponding promises made to public sector workers.

The Minister has repeatedly said that the Government’s word is adequate for protection of workers, and that government promises do not need to be enshrined in legislation. But if we take what the Chief Secretary to the Treasury said, surely the public would be rather bemused that that promise was made in terms and it has now evaporated. It is not there—where is it on the face of the Bill?

One issue to which we have continuously referred is that of the future-proofing of the Bill. Future-proofing does not mean not sticking to a deal or not making coherent commitments; it means having a degree of flexibility over major changes in circumstances discussed and agreed by the parties to the agreement. It does not mean just leaving part of the agreement out, as seems to be the case here.

Given the Statement from the Chief Secretary to the Treasury, I feel that this amendment could have been moved by him, and indeed I move it on his behalf.

[Baroness Donaghy]

My Lords, I support my noble friend Lord Eatwell on this important amendment. This was a key part of the national agreement between employers’ unions and the Government. In the local government scheme, which is a funded scheme, employers choosing to withdraw from that scheme could leave substantial costs relating to future fund income to be paid by the council tax payer. Information is already coming in that some higher and further education employers, and recently an academy school, are seeking to find ways in which to get around their obligations to provide the local government pension scheme for support staff. We should bear it in mind that those jobs are often low paid and part time. We should also remind ourselves that having an occupational pension will make sure that those people are self-sufficient when they retire and do not become dependent on the state. So it is in all our interest that these schemes are upheld.

The news that we are hearing is that shared services companies are being created, or that people are attempting to create them, as a way of getting round the obligations that they entered into by allowing their staff to remain in the local government pension scheme. I remind the Minister that, as I am sure he is aware, a big drift away by employers could undermine all the schemes.

--- Later in debate ---

[Baroness Donaghy]

My Lords, in moving Amendment 62, I wish to speak also to Amendment 65. Clause 10 sets the Treasury powers to dictate to the individual public service schemes how they are to conduct their valuations and the assumptions, data and methodology they should use. I seek to clarify two issues through amendment to the wording of this clause.

The first issue, contained in Amendment 62, is that the Local Government Pension Scheme in England and Wales consists of 89 funds. Each fund appoints its own actuary and agrees with that actuary the assumptions and methodology most appropriate to its specific fund. Funds vary significantly in their size, demographics and proportion of active contributing members to retirees and those who have left with deferred pensions. It would be unworkable for the Treasury simply to impose central assumptions on individual funds.

The Local Government Pension Scheme regulations already set out when funds have to undertake valuations, while control of fund valuations is set out in Clause 12. Therefore, I seek to amend Clause 10(2) to make clear that these valuations do not apply to the Local Government Pension Scheme, as the Government have already acknowledged. The Bill states:

“Such a valuation is to be carried out in accordance with Treasury directions”.

I want Amendment 62 to amend the subsection so that,

“Treasury directions would not apply to individual Local Government Pension … funds”.

The second issue, in Amendment 65, is that the assumptions, methodology and data used in scheme-wide valuations will determine the cost of the scheme. To ensure that the assumptions used in scheme valuations are robust and appropriate will require the input of scheme pension boards and scheme managers, which is why I seek to amend Clause 10(4). I beg to move.

[Lord Eatwell]

My Lords, my noble friend Lady Donaghy has identified a considerable problem with cost control as expressed in Clause 10—the valuations section of the cost control part of the Bill. My noble friend’s amendment is very direct and clear with respect to the Treasury directions that she would like to see. My Amendment 63 takes a somewhat more ameliorative and subdued approach to dealing with this problem. However, it would ensure that Treasury directions are tailored to each local government fund and would therefore be much more accurate, rather than the possibility of a single set of directions being expected to apply to 89 local government funds which have significantly different characteristics. After all, each local government fund has its own assets and investment strategy. Different employers are involved and, crucially, most of the funds have different demographics. This means that each valuation needs to take into account the individual characteristics of those funds.

Considerable concern has been expressed about Clause 10 by well informed persons who are much better informed than me. For example, Alison Hamilton, the chair of the local government committee of the Association of Consulting Actuaries, said:

“Clause 10 certainly gives me cause for concern. … It is very important that the valuation takes account of the local demographics, and the local investment of the assets backing those pension funds. I attended a meeting where the Bill team tried to give some sort of reassurance that the valuation would be carried out as a one-size-fits-all under Treasury directions. That was not intended for the local government pension scheme. I would like the Committee to explore that and get something drafted”.—[Official Report, Commons, Public Service Pensions Bill Committee, 6/11/12; col. 169.]

Similar concerns have been expressed by the National Association of Pension Funds. I will not repeat what it said as it echoes what was said by Ms Hamilton.

When faced with this argument in the other place, the Government acknowledged that there was merit in it and stated that the Treasury would,

“take into account the individual nuances and features of the various … schemes”,—[Official Report, Commons, Public Service Pensions Bill Committee, 13/11/12; col. 347.]

when setting directions. They felt that the clause already allows enough flexibility for directions to take account of the differences between schemes. However, our amendment simply states what the Government’s intention apparently is—that the Treasury directions should not be based on, or be rigidly bound by, but should take into account,

“the individual nature of each of the different funded schemes”.

That is in accord not only with what is obviously sensible practice, according to the views of experts, but with what Ministers claimed in another place was their intention.