Pensions Bill

My Lords, we have debated this topic before, as the noble Lord, Lord Kirkwood, and others have acknowledged. We recognise the importance of the issues raised by the noble Lord and I am happy to try once again to reassure him about our intentions. Much of the previous debate perhaps was less about the relevance of a commission—I understand that the proposition is for a standing commission rather than an ad hoc commission—and more focused on the position of public sector pensions as portrayed. Our opposition to the amendment is not an attempt to avoid discussion of these important issues; nor does it reflect any reservations as to the usefulness of a commission in subjecting fundamental issues to rigorous scrutiny and establishing consensus on the way forward. As I have made clear, we are enormously indebted to the noble Lord, Lord Turner, and his colleagues for the work of his commission. However, that work having been completed, we feel the priority now is to implement the reforms to pension arrangements in both the public and private sectors that have been agreed in the light of the Turner commission’s findings. Noble Lords should note that public sector pension schemes have been undergoing major reforms. This was referred to in a somewhat dismissive way. The reforms already agreed or in train should mean that these schemes remain affordable. I shall outline some of the changes that have taken and are taking place. All major public sector pension schemes have been under review since the 2002 pensions Green Paper and, as a result of these reviews, reforms in these schemes are now well under way. These reforms aim to ensure the long-term sustainability of the schemes. Thus far, agreement was reached in May 2006 with teaching unions on a set of reform proposals for the teachers’ pension scheme, and a new scheme has been operating since January 2007. Cost sharing with employees and capping of the employer contribution rates form a part of the scheme rules laid down in legislation. The Cabinet Office announced a new Civil Service scheme which has operated since July 2007 and which also included in amendments to the scheme rules laid before Parliament in September 2008 cost sharing and capping. The NHS employers implemented new arrangements for the NHS pension scheme which are also inclusive of cost sharing and capping from April 2008. The new local government pension scheme has been operating since April 2008 and is also due to incorporate cost sharing and capping arrangements. These reforms to the NHS, teacher, local government and Civil Service pension schemes ensure that any future increases in costs will be fairly shared between employers and employees. In addition, the cost capping mechanism will ensure that there will be an upper limit on the cost to the taxpayer should costs increase. Eighty-two per cent of public sector workers are now covered by cost sharing and cost capping. Reforms also include increases in normal pension age for new entrants from 60 to 65 for the three main central government schemes, and the local government scheme includes arrangements to phase out the rule that has enabled scheme members to retire without a reduction in pension before reaching that scheme’s normal pension age of 65. New schemes for the Armed Forces, police officers and fire fighters have already been introduced in 2005 and 2006. So there has been a significant change. It is suggested also that there is a lack of information about public sector pensions. A large amount of information is already publicly available on the terms, benefits and affordability of schemes. Public service pension schemes are monitored on a regular basis through built-in mechanisms such as the annual resource accounts and evaluation reports on the majority of schemes. Alongside these, in 2004 the Government introduced an annual evaluation of the financial sustainability of spending on unfunded public service pensions as part of a long-term public finance report published by the Treasury. The latest report, published alongside the Budget Report 2008, makes it clear that the long-term spending on unfunded public service pensions is affordable and sustainable. I say to the noble Baroness, Lady Noakes, that one can come up with all kinds of figures depending on what discount rates you apply to projected streams of figures, but the real test for unfunded schemes should surely be the Government’s ability to fund them year by year on a long-term basis. That is exactly what the long-term financial report seeks to address. I do not believe it is necessary to establish a commission further to review or evaluate these schemes. Indeed, we fear that such a body, which could not come free of charge, would act as a destabilising influence, a point made by my noble friend Lady Turner, compromising the successful implementation of reforms that are starting to deliver better value for taxpayers. I hope that the noble Lord is reassured by what I have said and will feel able to withdraw his amendment. I suspect not.