Credit Unions

Lord Kennedy of Southwark Excerpts

Tuesday 3rd February 2015 Lords Chamber

Asked by

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government when they plan further reform of the law regarding Credit Unions.

[Lord Kennedy of Southwark (Lab)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as director of London Mutual Credit Union.

[Lord Newby (LD)]

My Lords, on 31 December 2014 the Government published a response to the call for evidence on credit unions. In this response, the Government committed to consider, in the next Parliament, potential changes to credit union legislation.

[Lord Kennedy of Southwark]

My Lords, it is important for credit unions to be able to grow on a solid base to deliver for their members. Whichever party or parties are in government after the general election, would the noble Lord agree that two of the most important areas for reform are reform of the 2 million cap on potential members—maybe change that to actual members—and removal of the legal barriers to enable credit unions to give other financial products to their members?

[Lord Newby]

Yes, I agree with the noble Lord that those are both important issues. In the response to the call for evidence, the Government have committed to considering changes to the common bond legislation. The noble Lord will be aware that credit unions maintain their exemption from the consumer credit directive only if they have a restricted potential market. It is important that we do not expand the definition of the common bond in ways that could jeopardise that exemption.

Mutuals’ Redeemable and Deferred Shares Bill [HL]

Lord Kennedy of Southwark Excerpts

Friday 21st November 2014 Lords Chamber

All the amendments before us are hugely helpful on the issue of deferred shares. They are not a panacea, but they are a very positive start. In accepting these amendments, I place on record my thanks to Her Majesty’s Treasury for its positive response to the Bill, and, in particular, to the legislative section of the Treasury for drafting these amendments. As a former chairman of Ways and Means who knows what it is like to have to handle a major finance Bill, I know that these things are not easy to do. The number of amendments that were necessary to make a very simple change is pretty indicative of that situation. Above all, I say a particular thank you to the two Ministers who have helped the Bill to progress this far. I hope once again that this positive response will lead to the Bill reaching the statute book this Session.

[Lord Kennedy of Southwark (Lab)]

My Lords, I am delighted to be able to speak on behalf of the Opposition, particularly as a Labour and Co-operative Member of your Lordships’ House, to these amendments moved by the noble Lord, Lord Deighton. This Bill was last considered by your Lordships’ House on 24 October when we had the Second Reading debate. Both the noble Lord, Lord Newby, who spoke for the Government, and I supported the aims of the Bill and what the noble Lord, Lord Naseby, was seeking to do and congratulated him on making substantial progress in persuading others of the importance of the measures and of the need for action to be taken to support and protect the mutual insurance sector which only 20 years ago accounted for 50% of the insurance market in the UK but today accounts for just 7.5% of the same market.

As the noble Lord, Lord Deighton, explained, the Government were not persuaded that the proposed redeemable shares instrument for co-operative and community benefit societies was necessary as societies already had a means of issuing redeemable shares. Discussions took place and with the agreement of the noble Lord, Lord Naseby, the Government proposed to bring amendments in Committee, and they are what we are discussing today. I am happy to support the amendments, as is the noble Lord, Lord Naseby, which remove the proposed redeemable shares element from the Bill and restructure it in a slightly different way which is more acceptable to the Government or parliamentary draftspersons or both. I hope that the noble Lord, Lord Deighton, can assure the House that the Government will keep this issue under review and if it is felt or shown that the proposed redeemable shares instrument may be beneficial to the mutual sector he will look at it again. Perhaps we can again call on the noble Lord, Lord Naseby, to bring such a measure in the next Session because it is important that the mutual sector as whole, not just the mutual insurance sector that the Bill seeks to protect, is protected and is allowed to flourish and grow in today’s modern world of business. It is a matter of great regret that the mutual insurance sector has shrunk so much in a relatively short period of time and that we have lost so many building societies that were once household names, which has been to the detriment of consumers.

I will not detain the House any longer than necessary. I am a supporter of the aims of the Bill and am content with the amendments moved by the noble Lord, Lord Deighton. I wish the Bill a smooth and speedy passage on to the statute book. It is an excellent example of what a good Private Member’s Bill can do, identifying a problem or issue that there is no great dispute about, and seeking to make improvements to the situation which will be beneficial to everyone. This House is very grateful to the noble Lord, Lord Naseby, who is my noble friend. I hope that there will be no amendments on Report and that the Bill can leave your Lordships’ House and be on its way to the other place before Christmas.

Amendment 1 agreed.

Mutuals’ Redeemable and Deferred Shares Bill [HL]

Lord Kennedy of Southwark Excerpts

Friday 24th October 2014 Lords Chamber

[Lord Kennedy of Southwark (Lab)]

My Lords, I thank the noble Lord, Lord Naseby, for bringing forward this Private Member’s Bill for consideration in your Lordships’ House. This is the second time that he has tried to deliver these reforms. I very much hope that his Bill has a smooth and easy passage through your Lordships’ House. The co-operative and mutual sectors in the United Kingdom are very grateful to the noble Lord for what he seeks to do. This is a good Bill for a Labour and Co-operative Peer to respond to, and I am delighted to do so.

As the noble Lord said, the Bill in its simplest form will allow mutual societies to raise additional funds while safeguarding their mutual status. Why is that important? As the noble Lord, Lord Naseby, has told the House, the mutual sector faces significant problems in raising additional capital. By their construction they do not have equity shareholders. They were established to serve their members, who would be customers, employees or particular communities. Mutual businesses are strong. They grow patiently over a long time. They are very stable, but can also be said to be a bit risk-averse. It can be said that in some circumstances they struggle to respond to the ever changing needs and demands of their customers.

In large part, mutual organisations have not made major changes to their structures and have quite properly stuck to their founding principles. The Bill will enable them to continue to do so, but also allow them to raise additional capital by creating optional new classes of share through which specified mutuals can raise additional funds, provide defined rights to specified mutual society members and restrict the voting rights of certain members who hold only such shares, so that they cannot participate in any decisions to transfer, merge or dissolve the mutual. That is why the Bill is so important: it modernises the mutual structure, but also safeguards it.

A lot of excellent work has gone on looking at the problems of the mutual sector and also its great strengths. In addition to the noble Lord, Lord Naseby, I pay tribute to my friend in the other place, the shadow Financial Secretary Cathy Jamieson MP, for the work she has done, along with the All Party Group for Mutuals mentioned by the noble Lord, Lord Naseby, which produced an excellent report in September. I also pay tribute to the think tank ResPublica, which, in its report Markets for the Many, looked at how we create financial services that support small business and truly serve the needs of our citizens and communities.

It will be useful to look at the financial services scene to see why the Bill is so important and welcome. As the noble Lord, Lord Naseby, said, we have to learn the lessons. Following the financial crash there have been significant turbulent times and significant legislation has been passed, not least the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013. These pieces of legislation are steps in the right direction, but we need diversity of ownership models in financial services to keep the sector healthy and encourage competition.

To diverge slightly, the rush to demutualise building societies in the late 1980s and early 1990s did not help consumers. All those former building societies either failed in their new-found status or were swallowed up by larger financial institutions. We know the names: Abbey National, The Woolwich, Halifax, Bradford & Bingley and many others. In the UK, building societies account for only 3% of banking assets; in many other parts of Europe co-operative and mutual banks have a much large share of the market.

There is a similar picture in our insurance sector. As the noble Lord, Lord Naseby, said, more than half of the UK insurance market was mutual in 1995, but since then, in fewer than 20 years, it has shrunk to 7.5%. In terms of our European neighbours, mutual insurers have a 50% market share in Holland and a 45% market share in Germany. The insurers demutualised in large part because they needed to raise additional capital and improve the products and services they offered to their customers. This process has not been beneficial to customers. ResPublica found in its research that policyholders often saw falling levels of customer service, higher levels of customer complaints and worse claims handling than was experienced prior to demutualisation. For example, Scottish Widows converted to a plc in 2000 and paid out a £6,000 windfall payment to each policyholder. However, prior to demutualisation it paid out £107,000 in 1998 for a 25 year with-profits policy based on premiums of £50 a month. From statistics posted in 2012, this had plummeted to £28,071, which was more than 34% less than the average mutual was paying out.

I do not intend to go on for much longer but I wish to say that this is a good Bill, a forward-thinking Bill and a Bill that seeks to protect our mutual societies, helping them to grow and compete on a more equal footing. It should have the support of the Government.

The Government should also do more to help the sector in general, as it has the potential to do real good in the UK. I like the suggestion that the Government should look at establishing a mutuals expansion project along the lines of the Credit Union Expansion Project. I think that there is a role for mutuals to help reduce financial exclusion, but they need the Government, the FCA and others to see that role for them and then enable them to deliver more financial products to those on lower incomes.

There are in general some very good Private Members’ Bills before your Lordships’ House and it is disappointing how so few of them make any progress. They are all committed to a Committee of the whole House but they then struggle to compete with other Bills in making further progress. Therefore, I ask the noble Lord, Lord Newby, to have discussions with the usual channels and also with the Clerk of the Parliaments about points 8.29 and 8.44 of the Companion. On my reading of those two paragraphs, there is no distinction between government Bills and Private Members’ Bills, and some Private Members’ Bills could be referred to a Grand Committee to deal with technical issues and speed up their consideration by this House. Just because we have never done that before does not mean that it cannot be done.

I will leave that point there and conclude by again thanking the noble Lord, Lord Naseby, for bringing this Bill forward. We are all very grateful to him and I hope that the Government help it to get on to the statute book and become law in this Session of Parliament.

Credit Unions

Lord Kennedy of Southwark Excerpts

Thursday 16th October 2014 Lords Chamber

Asked by

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what plans they have to support credit unions in addition to the Credit Union Expansion Project.

[Lord Newby (LD)]

My Lords, the recent HM Treasury call for evidence sought views on how government and others could do more to support the development of the credit union movement. The call for evidence closed on 1 September. Responses are currently being considered by the Treasury and an announcement will be made in due course. We are also working with others, including the Church of England, the Ministry of Defence and banks, to facilitate increased access to credit unions.

[Lord Kennedy of Southwark (Lab)]

My Lords, I declare an interest as a director of London Mutual Credit Union. I am delighted to see the noble Lord, Lord Newby, here. I hope it is okay with the noble Lord, Lord Freud. Will the noble Lord join me in congratulating Her Royal Highness the Duchess of Cornwall on her work in support of the credit union sector? She is today hosting a reception at Clarence House to support International Credit Union Day. Will the noble Lord arrange for me to meet the relevant Minister in government to discuss how to get government departments to follow the example of Clarence House and this House and arrange for civil servants to be able to join a credit union using payroll deduction?

[Lord Newby]

My Lords, I would be happy to do that. The Government are keen that civil servants should join credit unions where possible. Some work has been undertaken on how we could do that at reasonable cost. In the mean time, civil servants are being encouraged both to join credit unions and to get involved as volunteers. For example, an accountant at DWP is the treasurer of a credit union in Sheffield. That is a good example of how civil servants can use their experience and benefit the credit union movement.

Debt Management Organisations

Lord Kennedy of Southwark Excerpts

Monday 28th July 2014 Lords Chamber

[Lord Newby]

On the second part of the noble Lord’s question, debt management companies will be required under the new rules to signpost consumers to free debt advice, which will be a major improvement. There are two elements of regulation of cold calling and unsolicited text messages. The ASA has some responsibility in that area and it has already taken action to ban payday lenders’ use of unsolicited text messages. As with its regulation of other financial services markets, the FCA is committed to ensuring that cold calling by phone, text or e-mail makes the identity of the firm and the purpose of the communication clear to those being called.

[Lord Kennedy of Southwark (Lab)]

In a recent Parliamentary Answer I found out that since 2005 companies in the financial services sector have been fined £1.2 billion. Will the Minister agree to look at the points made by the noble Lord, Lord Sharkey, and maybe use a small portion of those fines to fund good charities, good organisations and credit unions which actually help people who are in debt?

Pensions Advice

Lord Kennedy of Southwark Excerpts

Wednesday 23rd July 2014 Lords Chamber

Asked by

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what safeguards will be in place to ensure that people receive sound advice when seeking to access their pension funds.

[Lord Newby (LD)]

My Lords, every individual with defined contributions pension savings will on retirement have a new right to free and impartial guidance to help them make informed decisions about how they use their pension savings in retirement. The Government will legislate to give the Financial Conduct Authority responsibility for setting standards for guidance and monitoring compliance with those standards. The FCA has published a consultation paper alongside the Government’s response on its proposed standards.

[Lord Kennedy of Southwark (Lab)]

My Lords, what has been announced by the Government so far is wholly inadequate. We all remember the pensions mis-selling scandals of the 1980s when people were enticed out of SERPS and then fleeced. What qualifications will individuals need to have in order to be able to give this advice, and what guarantees will be put in place to ensure that people do not see their pension pots go in fees, charges and wholly inappropriate products?

[Lord Newby]

My Lords, the key innovation in the way we are planning to introduce this change is that of giving every individual coming up to retirement an entitlement to free guidance. To ensure that the guidance is impartial, we have decided that it will be provided by independent organisations which have no actual or potential conflicts of interest; it is not going to be the pension companies providing that guidance. A team has been established within the Treasury to lead on service design and implementation, bringing together expertise from across government, the Pensions Advisory Service and the Money Advice Service. The FCA will be the ultimate backstop in terms of the quality of the advice given and the monitoring of it. We will legislate to give the authority that explicit power in the Pension Schemes Bill later in this Session.

Northern Ireland: Illegal Petrol and Diesel

Lord Kennedy of Southwark Excerpts

Tuesday 15th July 2014 Lords Chamber

[Lord Newby]

My Lords, there is a lot of data published about the duty rates. Noble Lords can see those. What is extremely difficult to do is to demonstrate with any great degree of precision exactly how much of a product crosses a border without a customs post. That is obviously a challenge between the Republic and Northern Ireland, as well as more generally within the EU.

[Lord Kennedy of Southwark (Lab)]

My Lords, there is also, of course, a problem of smuggling from mainland Europe into the UK. I went down to Dover a couple of years ago and was shocked to see how porous our borders are. We spoke to the customs officer there; in terms of illegal alcohol and tobacco, there just were not the staff to stop the vehicles to check them.

[Lord Newby]

My Lords, tobacco smuggling has been a problem for some time. The additional resources that have gone into HMRC over the course of this Parliament, which amount to about £1 billion, have among other things enabled more to be put into that area also.

Payday Loans: Debt Collection

Lord Kennedy of Southwark Excerpts

Tuesday 1st July 2014 Lords Chamber

Asked by

[Lord Kennedy of Southwark]

To ask Her Majesty’s Government what action they propose to take in respect of Wonga.com and other financial sector companies which have employed misleading debt collection practices.

[Lord Kennedy of Southwark (Lab)]

I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as a director of London Mutual Credit Union.

[Lord Newby (LD)]

My Lords, the Government are determined that abuse in the payday lending market should be tackled wherever it occurs. That is why we gave the Financial Conduct Authority strong powers to regulate the payday lending industry and legislated to require the FCA to introduce a cap on the cost of payday loans. The FCA asked Wonga to make redress to customers, which Wonga has agreed to. Wonga will pay compensation totalling more than £2.6 million to around 45,000 customers.

[Lord Kennedy of Southwark]

Will the Minister join me today in condemning the disgusting activities of Wonga.com? Will he arrange for me, faith groups and other campaigners to meet a Treasury Minister to look at the idea of putting the fines imposed on companies in the financial services sector into a separate fund and using them to support the credit union movement, financial charities that work with adults and children, and similar organisations? Enabling people to make better-informed financial choices and to understand their options is a much better way forward.

[Lord Newby]

My Lords, I agree with the noble Lord on his first point and I am happy to arrange a meeting. I remind the House that the Government are putting £38 million into the credit union expansion plan and we strongly support the expansion of credit unions.

Barnett Formula

Lord Kennedy of Southwark Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Kennedy of Southwark (Lab)]

My Lords, like other noble Lords who have spoken, I place on record my thanks to the noble Lord, Lord Shipley, for initiating this Question for Short Debate in the light of the Local Government Association’s recommendation that the Barnett formula is replaced with a new needs-based funding model.

The Barnett formula is often discussed in your Lordships’ House and I hope that, in his response to the debate, the noble Lord, Lord Newby, will give us a bit more information than we were able to get in an exchange at Question Time, and address some of the points I am going to make about the funding of local government in England and Wales. Like all noble Lords, I am aware that the formula which bears the name of my noble friend Lord Barnett was devised when he was Chief Secretary to the Treasury and has been used for more than 30 years to allocate more than half of total public expenditure in Scotland, Wales and Northern Ireland.

The Barnett formula has been criticised on a number of grounds. It has been argued, among other things, that, because of its focus on population, it fails to recognise higher levels of poverty. In this debate it is useful to look at what has happened to local government in England and Wales in recent years, and in particular since 2010. We have a picture of local government that has been described by the Prime Minister as,

“officially the most efficient part of the public sector”.

However, his Government have made bigger and earlier cuts to local government than to any other part of the public sector. Their actions have been criticised right across local government and real inequalities and unfairness have crept into the system. I still find it shocking, when I look at the figures, to see that they highlight the West Oxfordshire District Council, the local authority that covers the Prime Minister’s constituency, which is ranked in the multiple indices of deprivation at 316—with one being the most deprived and 325 being the least deprived—and which is actually getting an increase of 3.1% in its spending power. Meanwhile, other local authorities such as Hastings on the south coast and Burnley in the north-west, which are ranked 19th and 11th respectively in the same indices, are facing the maximum cut in their spending power in 2013-14, which equates to a reduction of 8.8%. I agree very much with the comments made by the noble Lord, Lord Shipley, regarding the difficulties in which some local authorities find themselves.

It is also shocking to note that the 10 most deprived local authorities in England will lose six times the amount of spending power per head of the population when compared with the 10 least deprived local authorities by 2014-15, when compared with 2010-11. The noble Lord, Lord Shipley, also referred to the calls for further devolution of powers and fiscal reforms in England. I very much agree with his comments about the core cities.

Will the noble Lord, Lord Newby, address in his response the points that the Local Government Association is calling for, to which the noble Baroness, Lady Eaton, referred, including five-year funding settlements across the public sector to give more certainty to local government? That is a sensible idea. Will he also address the point about the distribution of funds in England being taken out of the hands of Ministers and replaced with an agreement across English local government? The current arrangements are opaque and, as with the figures I highlighted earlier, people struggle to understand them and how they are arrived at. They just demonstrate unfairness in the process—a process which disadvantages people living in our most deprived areas and communities. I very much agree with the noble Baroness, Lady Eaton, that the devolution of further power to local government in England is a good thing. Like her, I have also noted the MORI polling which shows that 79% of people trust their local council, whereas only 11% trust central government. I shall not comment further on that; I leave it there.

This debate has to address the issues around spending in our most deprived communities. How do we ensure that no matter whether you are living in a deprived part of Glasgow, a deprived mining village in south Wales or on a council estate in Southwark, central, devolved and local government provide the funding that helps you improve the situation in which you and your community find yourselves, whether through the provision of better housing, better schools, the means to get the skills and training you need to get a job to provide for your family, or to look after yourself in your old age as your needs change?

The noble Duke, the Duke of Montrose, made a number of important points to which I hope the noble Lord, Lord Newby, will respond. I again thank the noble Lord, Lord Shipley, for initiating this debate and look forward to the response of the noble Lord, Lord Newby.

--- Later in debate ---

[Lord Kennedy of Southwark]

My Lords, in response to the point about the funding formulas in West Oxfordshire, I agree that it is very complicated stuff. Is there anything that the Minister or his department could provide to Members so that we may understand it further? If we have debates saying that this council got this and that council got that, it makes it more complicated. Some of the figures seem very unfair. If we understood how it was funded and more of what was behind that, maybe we would see a different picture.

Public Service Pensions Bill

Lord Kennedy of Southwark Excerpts

Tuesday 12th February 2013 Lords Chamber

Moved by

[Lord Kennedy of Southwark]

18: Clause 10, page 6, line 2, after “be” insert “set in scheme regulations but must be no more than”

[Lord Kennedy of Southwark]

My Lords, Clause 10 imposes a normal pension age of 60 on firefighters as well as on police and members of the Armed Forces. My amendment would build some flexibility into that but does not rule out 60 in respect of firefighters.

The Government, under the previous Fire Minister in the other place, set up a review, chaired by Dr Tony Williams. It published its report in January, just a couple of weeks ago. I think it is at best odd, and perhaps even outrageous, that the Government are pressing ahead here and are not taking the review properly into account. The report does not recommend a normal pension age of 60; nor does it make the case for firefighters working to 60. The review was set up to assess the appropriate normal pension age. Nowhere in the review does it say that 60 is appropriate. At most, the review’s recommendations establish a set of conditions —such as national firefighter fitness standards, fitness entry standards at recruitment, fitness training throughout careers, and an accepted testing regime—that would have to be met before working to 60 was possible.

The report provides medical evidence that working beyond 55 is not attainable by most current firefighters. Between half and two-thirds of current firefighters would not be fit enough to work beyond 55. Other figures in the report suggest that more like four out of five firefighters would not be fit enough to work beyond 55. The Government seem intent on imposing a national pension age of 60 despite the medical evidence against that. I hope that in his response today the Minister will explain fully why that is the case.

A national pension age of 60 will hugely disrupt the fire and rescue services. There is also a danger that it will not only discriminate against women but will drive out most women firefighters, undermining decades of equality work. A national pension age of 60 will not just remove the link to the occupational nature of the pension scheme; it will also risk making it unsustainable. With higher contributions, it will take a drop-out rate of only 7% to do so.

The Williams report recommended that firefighters over the age of 55 who can no longer meet the fitness requirement should be allowed to leave early on an actuarially reduced pension, calculated so there is no overall financial advantage or disadvantage to the firefighter. This means that most firefighters will get a reduced pension because the national pension age is wrong.

I want to move on to make some remarks about fitness. Aerobic fitness, one of the core components of fitness—along with anaerobic/high-intensity fitness and strength—is often measured using the rates of oxygen uptake, or VO2. The Williams report suggests that at least 42 VO2 is necessary for firefighting. This is the level recommended by experts in the field and is the level that the majority of fire services are using today. The report admits that at 50 to 54 years of age, 51% of firefighters are below the figure of 42 VO2. At the age of 55 to 60, that rises to 66%: two-thirds of firefighters are below that standard. The report suggests that if 42 is the standard, then by 60 years of age up to 92% of present firefighters could be below the minimum standard for operational duty. To push ahead with this is risky and dangerous.

The report suggests that, even in a best case scenario, where firefighters maintain their physical activity status, their body mass index and their smoking status as they age, at 55 years of age approximately 15% of firefighters would be below the minimum standard required for operational duty. By 60 years of age, this percentage would rise to 23%. However, this best case scenario model uses a higher entry standard than the one currently in force. It assumes that firefighters are recruited at 47 VO2, whereas actually the recruitment standard is much lower at 42. This means that the best case scenario is flawed as it assumes a much higher fitness level on recruitment than is in fact the case.

Will the noble Lord spell out clearly what kind of fitness regime and lifestyle changes will be necessary to meet this best case scenario? Most firefighters are likely to do fitness training at work of at least 30 minutes per shift; some do up to four hours a week. Does the noble Lord accept that what may be possible in the future, with new recruits and different standards, is fundamentally different from expecting people now in service to reach these service levels at ages between 55 and 60? It is risky and dangerous. If the noble Lord is not prepared to accept the amendment, can he tell the House why? The amendment commits the Government to do nothing other than accept that the national pension age must be set in scheme regulations and must be no more than 60. It allows for further discussions to take place, and if the Government are not persuaded, they can set the level at 60.

I had a meeting with the noble Lord. He very kindly met me and representatives of the Fire Brigades Union and I thank him very much for that. It was a very useful meeting and people put their case across very well. I appreciate that he did that. I hope that the Government will come back today with something positive.

[Lord King of Bridgwater]

I think that probably all noble Lords have had a most interesting letter from the general secretary of the Fire Brigades Union setting out the union’s case on this matter. I do not know whether I read it wrong, but I got the impression from the letter that there are safeguards to protect those who are approaching retirement age at the present time and that the issue arises much more for firefighters who are now 40 to 45. In those cases, when it is recognised that people are going to live longer and when the pension age may rise to 67 or higher, it seems that we are going to be looking for a different standard of fitness. It is quite difficult to argue in your Lordships’ House that nobody is fit any longer at 55.

[Lord Kennedy of Southwark]

I think the noble Lord is absolutely right that there is a difference in fitness. That is the problem. A regime could be put in place for people when they first come as recruits. By accepting my amendment, the Government could set the age in scheme regulations, whereas at the moment the age would normally be 60. I beg to move.

[Lord Eatwell]

My Lords, there are also in this group a pair of amendments in my name and that of my noble and learned friend Lord Davidson, both of which seek to add flexibility and that famous characteristic, future-proofing, to the Bill. It is a laudable objective of the Government to have a common movement—a standard process—that can be seen as fair and generally acceptable across the entire structure of public service pensions. However, it is an objective which will, inevitably, from time to time, run up against reality. We have already seen it run up against reality in the case of the uniformed services, which we discussed earlier. It could also run up against reality in a whole series of other circumstances where the best would be the enemy of the good. In other words, the commitment to uniformity would produce elements of unfairness and, perhaps, elements of unsatisfactory performance because individuals were staying in employment longer than they ought to in some circumstances.

We need a degree of flexibility and Amendment 19 relates flexibility to a scheme-specific capability review. These reviews are now becoming quite common within public services, as they already are in private industry. They are designed in some circumstances to relate to the capabilities of individuals with respect to age. If there were to be a thorough review which a Government at the time accepted, this amendment would give the Government the flexibility to amend the pension ages set out in Clause 10(1) and (2). This would provide a degree of flexibility and that is all it is intended to do.

I questioned the noble Lord in Committee about a number of reviews that are currently under way. He pointed out to me that those reviews were not considering issues of pension age and I accept that entirely. However, this does not mean that considering pension age relative to capability will not occur or is not likely to occur. On the contrary, it is highly likely to occur over the next 10 years or so. Amendment 19, therefore, provides the Government with the necessary flexibility to respond to scheme-specific capability reviews.

Amendment 20 would incorporate into the Bill a proposition directly taken from my noble friend Lord Hutton’s excellent report. He argued at the time that the relationship between the state pension age, which is the sort of anchor of the whole structure, and the structure of pension ages in the public sector should be reviewed from time to time. This amendment incorporates my noble friend’s proposition.

In Committee, the Minister said:

“The DWP White Paper published yesterday says that we intend to hold a review every five years, so the link will be reviewed when a review is announced”.—[Official Report, 15/1/2013; col. 621.]

He got a bit muddled there but we know what he meant. That is fine, but could he tell us what is going to happen to this DWP White Paper? Is it the forerunner of some legislation? If so, when will that legislative proposition appear? Would it not be comfortable, given the structure of this Bill, to include Amendment 20, taken from the Hutton report, to achieve the goal he declares to be the Government’s goal, as set out in that DWP document?

I entirely understand the commitment to having a standardised, clear, comprehensible system, but there will always be anomalies which have to be appropriately addressed. I believe that these two amendments provide flexibility and would ensure that the Government could do exactly that.

--- Later in debate ---

[Lord Newby]

My Lords, as regards Amendment 18, we are aware of, and greatly respect, the hard work done by the police, firefighters and the Armed Forces. But the noble Lord, Lord Hutton, was clear that the normal pension age for these schemes should be equal to 60, subject to regular review. As we know, this fixed age is already significantly different from the position for all other public service workers. A pension age of 60 for police and firefighters is in line with the reforms implemented by the previous Administration. We are not, and nor should we be, in the business of reducing pension ages given the longevity challenges we face. To do so would go against all that the Bill is designed to achieve.

We already have made a commitment to review these provisions as and when future changes to the state pension age are announced. Those reviews will be separate from the state pension age reviews to ensure that the specific impacts on public service schemes are taken into account. The noble Lord, Lord Eatwell, asked about where we would legislate for the DWP White Paper more generally. We will legislate separately for that. Obviously, it is not appropriate to do that in this Bill. It is a much wider issue and we will deal with the question of reviews in the context of the rest of the White Paper.

I firmly believe that the drafting of the Bill is correct on this issue and that the pension age provisions, including the link to state pension age for other schemes, are rightly the cornerstone of the legislation. It is also worth remembering that setting a normal pension age of 60 does not prevent people retiring before 60 if they wish. Early retirement factors can be taken within the scheme rules and added pension can be bought. Both of those allow for more flexibility over when people can access their pension. All three schemes captured by this amendment already allow people to take benefits from the age of 55 if they wish.

However, I will attempt to respond briefly to the points raised concerning the firefighters and the review by Dr Williams, about which the noble Lord spoke. I should start by making it clear that it is not the case that the review found evidence that a very large proportion of firefighters would not be fit enough to work to 60. The report finds that the average serving firefighter is already beyond the required fitness levels at the age of 35 to maintain operational fitness until the age of 60, if those individuals maintain their physical activity levels and BMI.

In our meeting, I discussed with the union that there is an argument for more structured and formal procedures to be in place to help people keep fit. People may spend time on physical activity but quite a lot of it might generously be called pretty informal. Getting a more formal and rigorous fitness regime in place, which would help individuals more generally as well as in their ability to work to the age of 60, falls outside the scope of the Bill and is something that the FBU no doubt will want to discuss further with its employers.

The report projects that in circumstances where people maintain their physical activity levels and BMI, individuals could maintain operational fitness in many cases until their mid-60s. We simply do not believe that it is necessary to make an amendment which enables a lower pension age than 60 for members of the firefighters’ scheme, or for the police and Armed Forces schemes.

The difference from Amendment 19 is that it would allow for exemptions to any of the normal pension age provisions currently set out, should a capability review make such a recommendation. We are not talking about just the police, firefighters and Armed Forces but all other public servants who will have their normal pension age linked to the state pension age.

I should briefly remind the House of the reason for the state pension age link in the first place. To get a grip on public finances, we were faced with a choice. We could either significantly reduce the value of scheme benefits or ask people to work slightly longer before they can receive their pension. We decided that the latter approach is best. Scheme benefits will be marginally less generous in the new schemes but only by a small amount. Instead, we are asking people to wait until their state pension age before becoming eligible for their pension. We think that this is preferable to significantly reducing benefits and increasing hard-working public servants’ reliance on means-tested benefits in their retirement.

We should remember what this state pension age link really means. For those retiring in the near future, it means waiting until the age of 66. When people talk about waiting until 67 or 68 and beyond, they are talking about several decades’ time from now. We are not talking about extending people’s working lives overnight. Instead, we have a lot of time to assess how best to adapt to extended longevity and how to ensure that employers provide the right working conditions to allow people to work up to the state pension age. That is why the NHS working longer review—to which the noble Baroness, Lady Hollins, referred—is so important.

I think everyone recognises—I made this point in Committee—that it is not just in the public sector that there are a range of occupations which people cannot do as well at the age of 67 as they can at 27. It is a challenge across society to find methods of working which reflect that so that people can carry on working to a later retirement age without being faced with undue stress during their latter years. The review is looking not at the link with retirement age but at how best to deliver NHS services with a workforce who is living longer. I am sure that other workforces in the public sector will need to follow the lead of the NHS in looking at how they can achieve that.

What we should not do is seek to make exceptions to the state pension age link. As I have outlined, the link has very little effect in the short to medium term, but it is a crucial part of the solution to the long-term problem. While we should not dig our heads in the sand, there comes a time when it is best to accept the reality of the situation: people are living longer and the public service workforce must and will adapt to that. The previous Administration recognised that when they asked all public servants—barring those whom we have identified—to work to the age of 65. We are simply future-proofing that approach by tracking the state pension age as it moves beyond 65. If we do not face up to the challenge of increases in longevity now, we would only have to do so in the near future when there will be less resource available. For those reasons, I cannot support this amendment. The universal state pension link is absolutely vital to putting public service pensions on a fair and sustainable footing. I have complete confidence that, with the appropriate foresight and common sense from employers, it will be deliverable across all the relevant public service workforces.

Finally, Amendment 20 seeks to provide for an independent review of the pension age mechanisms in this Bill. I reiterate that the Government are totally committed to reviewing the pension age, as and when future changes to the state pension age are announced. This was one of the recommendations of the noble Lord, Lord Hutton, and we are sticking to it. I add that the House should be reassured that, when coming to decisions on any changes to the state pension age, Ministers will bear in mind the consequences for public servants. We would also expect member representatives to feed into this separate process. None the less, there are good reasons why this Bill does not provide for the review to the normal pension age provisions, which would follow any state pension age reviews that result in a change to the state pension age. For a start, public service pensions link to the state pension age, not vice versa, so given that work on the state pension age reviews is still in its early stages, and we do not know exactly how it will consider public service schemes, it would be premature to lock down details of the normal pension age provisions at this stage.

More importantly, we have not yet even developed those details—and that is sensible. We should not be determining the parameters for such reviews so far in advance, nor should we be trying to do so. It would be for the Government of the day to consider what is appropriate, beyond of course taking into account any changes in longevity. If that were to involve an independent assessment, so be it. However, again, it would be for the Government of the day to decide if that were appropriate. The Government may already have had all the independent advice that they require on longevity from the wider state pension age review, depending on the final details of that process. If, during the course of that review, there was no representation from the public sector that it wished to be treated any differently from anyone else, the scope of a review would be rather less than if there was a lot of independent evidence and representations being made from the public sector that it was in a different situation from the rest of the workforce—and not just a different situation, but a worse situation. Of course, nobody is going to argue that the public sector should have a differentially higher retirement age. While we could put a bland commitment into the Bill just to review the provisions from time to time, that would not be worth while without being able to include any details. It would carry very little weight and give no more assurance on this matter than the public statements that we have made on our intentions on a number of occasions. I therefore urge the noble Lords to withdraw their amendments.

[Lord Kennedy of Southwark]

I thank the Minister for his response. I am happy to withdraw the amendment, but it is a bit odd and not really joined-up government to have the previous Fire Service Minister, Mr Bob Neill —I think I am right, but correct me if I am wrong—commissioning a report on firefighters’ pensions for 12 January, less than a month ago, when this Bill is going through. It is not very well organised and I think it should have been done better. However, I hear what the Minister says and, with that, am happy to withdraw the amendment.

Amendment 18 withdrawn.