I thank the noble Baroness for her amendment. It is late but I will try to respond because the noble Baroness and her noble friend have both made important points about a key area. The amendment seeks to exclude any pension top-up element from the scope of a cap on exit payments. The Government do not believe that such an exclusion would be desirable for reasons that I will explain.
Let me be clear: the Government’s proposals, as I said at Second Reading, do not involve taking away people’s group pension rights, so the cap will not affect in any way an individual’s right to their earned pension, nor does it engage the 25-year guarantee on pension rights. It is focused on limiting the amount that a public sector worker can receive from an employer when leaving employment. The cap is intended to cover all the various types of payment that an employer may make, and the Government think it right that it should include payments made to a pension scheme to fund early access to that payment, otherwise you will have a different problem.
Noble Lords will be aware that where an individual takes early retirement, pension payments are normally reduced to reflect the expectation that they will be paid for longer, and the amount of the reduction is calculated by the scheme actuary to ensure that the consequences for the scheme and for the individual are cost-neutral. In cases where the individual is retiring early on the basis of ill-health or redundancy, certain pension and compensation schemes may allow an employer to make a payment into the pension scheme to buy out any reduction so that the individual can have immediate access to the unreduced pension. These additional costs to the scheme, those of providing a pension of greater value than the individual would otherwise be entitled to, are met by the employer and, ultimately of course, by the taxpayer.
I can make it clear that these provisions do not alter the position in relation to early retirement for ill-health and injury, but I am not sure about compassion, so I will have to look into that. As I alluded to earlier, it is only where such a payment forms part of a redundancy package in place of or additional to a lump sum redundancy payment that it will be within the scope of the cap. The Government do not accept that as a rationale for excluding this type of payment from the
cap. Payments of this type are sometimes some of the most expensive and place the greatest burden on employers and taxpayers. I would also like to reassure noble Lords that the Government believe that redundancy packages should still retain flexibility to allow early access to a pension where employers have the ability to top up an employee’s pension. These proposals will simply ensure that any top-up is within the limits of the cap, and Schedule 4 to the Bill gives a power whereby the employer can still make a payment into the pension scheme to reduce the actuarial reduction that would otherwise have been made.
I note the points that have been made and I understand the emotion behind and importance of this issue. It is serious, but the Government have brought forward a scheme. It involves picking up these extra payments that are made to top up pensions, and I hope that, in the interests of time, the noble Baroness will be prepared to withdraw her amendment.