I shall speak also to Amendments 20 and 21, 24, and 41 to 43. We are now moving to a different implication of the Bill. The strategic objective of the Bill to simplify the state pension system is broadly recognised, but, of course, the state pension is only part of the pension scheme. To some extent, the relatively low expenditure on state pensions in this country compared with some others is due to what was a very healthy occupational pension system covering a significant proportion of the population, although by no means everyone. Those occupational pension schemes will seriously be hit by the Bill.
That impact has not been highlighted in the Government’s public presentation of the Bill. You have to get to page 39 of the impact assessment before
it is mentioned. Page 39 clearly states that the net impact on occupational pension schemes will be £5 billion a year.
I shall speak generally about public sector schemes, and most of these amendments relate primarily to them. I declare a non-pecuniary interest as a vice-president of the Local Government Association and a member of the GMB. I was also, until relatively recently, chair of one of the funds in the local government scheme, the Environment Agency scheme.
As I mentioned at Second Reading, I have a longer historic interest in this, but not quite as far back as 1966—I was at the cup final, by the way, and have not had such a high point since. In the early 1970s, I was instrumental in setting up an occupational pension service in my union, now the GMB, to establish in the private sector schemes which covered manual workers for the first time and to make improvements in public sector schemes to allow, in particular, part-time women workers into them for the first time. Those who were in their 30s and 40s at that time retired on a pretty decent pension. As has been in the headlines over the past few days, it is clear that those who retire in a few years’ time—those who are in their 40s and 50s now—will have less good pensions and a less good life in retirement than their parents.
There are many reasons for the withdrawal of occupational pensions, particularly defined benefit pensions in the private sector, and their dilution in the public sector, including the recession, the fall of asset values and, I would argue, the rather overrigorous way in which we judge the assets of pension schemes. They have also been affected by this Government’s activity, particularly the Public Service Pensions Act, which had a direct effect on public sector pensions, and the very significant indirect effect of this Bill.
This arises at various points in the Bill. Schedule 1 and Clause 4 deal with the ending of contracting out. Aspects of this are covered in Clause 24, Schedule 13 and Schedule 14. The net result is that, as a result of the withdrawal of the rebate arising from the ending of contracting out, employees in such schemes on between £109 and £770 a week—in other words, the vast majority—will have to increase their contribution as employees by 1.4% and employers will have to increase their contribution by 3.4%. In the case of the LGPS, this means an increase for employers of £700 million a year, plus £300 million for employees, or £25 per month for the average employee member of the scheme. Equivalent levels will arise in other public service schemes. It will be £0.9 million for employers in the National Health Service, for example.
It will have a very significant impact on the viability of these schemes. It is a logical effect of the Bill, and there is a real dichotomy at the heart of the Bill which by simplifying one part of the pension system is undermining the other. There is no obvious solution. These costs of £4.2 million in the public sector and £0.7 million per annum in the private sector will somehow have to be compensated for, either by the Treasury—I assume that, as of today, the Minister has no agreement to that, but one of my amendments addresses that situation—or by those who are in charge of the governance of such schemes. In the private
sector, many such schemes have already been forced to reduce benefits, and to some degree that has applied to the public sector as well. In the public sector, it took a lot of negotiation between employers and the unions to ensure that we are now in the process of implementing the changes due to the Act earlier this year.
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In relation to private sector schemes, this Bill goes on to do something that is quite outrageous, frankly, in allowing employers unilaterally to change the terms of schemes to compensate for the cost. That overrides any decisions of trustees, who by law have a fiduciary duty for the schemes, any previously negotiated settlements and any previous statutory guarantees, such as those given post-privatisation in areas such as the railways, water and electricity supply. These can all be overridden by fiat as a result of this part of the Bill. I have very serious reservations about that override, and I am quite interested in how the Government reached those conclusions. Page 37 of the impact assessment says:
“DWP sought the views of sponsoring employers”,
and that, as a result of those discussions, has,
“assumed that the cost”,
of the lost rebate,
“is passed on to employees in the private sector immediately and in full”.
It did not discuss it with the members of the scheme or their representatives, just with the employers, and they gave a view. The Profumo affair has been in the papers recently, and Mandy Rice-Davies would probably have a comment on that conclusion. It is pretty inadequate for a consultation that affects the lives of contributing members of the scheme and pensioners. I shall come back to that when we get to Clause 24.
The amendments are primarily in relation to public sector pensions. There are a number of potential partial solutions to this. We could cushion the impact by a clear commitment from the Treasury to compensate for these schemes. The word on the grapevine is that some representatives of workers in the Civil Service have been given the nod and wink by officials in their departments that departmental budgets will be adjusted to compensate for them. I find that difficult to believe in the present climate, and no doubt the Minister can tell me whether that is true and, if so, to any degree, how that applies to the rather different circumstances of the local government settlement. My Amendment 41 would give statutory provision for the Treasury to do just that. Therefore, I hope that if those rumours are right, the Minister will simply accept that, in which case, the rest of my amendments will not be relevant, but they give the Government a partial alternative.
Amendments 19 to 21 and Amendment 43 suggest that in relation to public service pensions, we should delay implementation until 2018. That is not because in the long run there will not be a problem but because we have only just dealt with the last effects of government intervention in this area under the Public Service Pensions Act. Indeed, the full regulations in the Local Government Pension Scheme and, I think, the other schemes are yet to be finally in place; in the case of the LGPS and others, they will run from April 2014.
Those settlements were very difficult to reach and were subsequently endorsed by votes of the trade union members in those services. After some bitter internal wrangling within the unions, ultimately the members went along with it. My amendments would allow that settlement to run for four years and, in the mean time, allow the employers and unions within those schemes to look at what we need to do post-2018 to change the position. In relation to the LGPS, the situation is slightly more acute than in other schemes in that it is a fully funded scheme, so there is not a lot of leeway for the governors of that scheme compared to some other public service schemes.
It is worth remembering that the Local Government Pension Scheme is not simply about public service employers. Hundreds of other bodies participate in the local government scheme as admitted members covering a lot of those who were TUPEd over as a result of outsourcing, some local charities that have become part of their local fund and some bodies, such as the local museum or sports centre, whose full-time employees have become members of the LGPS. So this is not just a problem for public service employers; it is a problem for a whole range of private sector employers, going from very small local charities to companies such as Sodexo, which has contracting-out provisions from local government.
The public service basis of the scheme conceals a much more complicated picture, which again takes time to sort out. To engage all of those employers and their staff in this scheme takes a lot longer than a few months. This is a fairly minimalist request given the enormity of what is actually happening to these schemes, but if we could have another couple of years over and above what the Bill provides, it would allow four years between one settlement and the other. This is really a modest amelioration of what could be an extremely damaging effect on public service pension schemes with an increase on individuals to opt out and an increase on those who run the schemes to devalue those schemes in terms of their ultimate benefits.
The amendments are not a complete solution and are probably not the only solution either. I hope that the Government can come up with a better one, but I see no sign of anyone near government thinking along these lines. At the moment, we are on course to drive occupational pension schemes for future generations out of the picture almost entirely in the private sector and to a significantly greater extent in the public sector as well, as a result of what, when the Government first came up with the concept of a single-tier state pension, would have been seen as an unintended consequence.
I have one other amendment in this group, Amendment 42, which I am sure the Government can accept completely because it simply suggests that we have some consistency of definition with their previous legislation. We should use that definition for public service pension schemes. I am sure that the Government will welcome that. My other amendments, however, raise a serious position for the Government and one that will come to haunt them if they do not do anything about it. I beg to move.