My Lords, I shall speak also to Amendments 14 to 19, so it is a bumper bundle. Again, we have the “may/must” issues, and I assume the same position will apply.
Amendment 14 brings us to the issue of Treasury directions, on which we will probably have a more substantive debate in a later group of amendments. There is a general argument about Treasury directions being used in this context—it will be useful to have that debate. The issue raised here is whether it is appropriate to have any directions at all; the issue elsewhere is whether we have directions or regulations. The Bill appears to say that these unknown Treasury directions will lay down how the compensation will be made and the parameters set. I think the strong view here is that it should be in the Bill rather than in directions.
Amendment 15 would add a new subsection setting out where compensation would be paid. I readily admit that it probably needs tighter wording, but it raises the three areas that are of concern to scheme members. Again, I have to mention that the lead here has been taken by the Police Superintendents’ Association.
The first circumstance is where individual scheme members would have made other decisions had they been in another scheme and, because of that, have encountered some financial loss; that is, had they known they were really in scheme B rather than thinking they were in scheme A, their decisions would have been different and, because of that, they have incurred some financial loss. I do not envy the job of working out how to assess losses in these circumstances, but they can be real and important, so the issue needs to be addressed. The example we have been given is where, because of the fall in their income, members have incurred loss in selling and buying a house; they incurred financial charges because they thought their income would be lower as a result of being in a different scheme. However, they were not in a different scheme so they did not need to incur that expenditure.
The second area set out in the amendment again affects the police service in particular and concerns where a scheme member genuinely thought that a binding commitment had been given by the Government on the nature of the scheme to which they belong, and they believe that that binding promise has been broken. This is the subject of legal action at the moment. There is no doubt that it is a real concern; it is going through a legal process. We should recognise the level of concern among members about the losses they have incurred because the Government are resiling from promises which they reasonably thought had been made.
The third area of loss is what is called the pensions trap. I will spend a bit of time talking about that because it has gained considerable traction. The first point to make is that, although the uniformed services—the fire service, firefighters and the police—have made most of the running on this issue, it affects all schemes; well, I have not checked them all, but it affects all the major schemes. It is just that, in the case of firefighters and the police, it is of much greater salience. That is why those services have raised this issue most strongly. I think we would admit that there are also areas of employment where we would be particularly concerned because of what we owe to our uniformed services.
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The background to this is that quite different schemes are involved. The old schemes and the new schemes are different and do not play well together. When you try to put part of people’s work in one scheme and another part in another, it is not as simple as adding them together. They work against each other in ways that are relatively technical but which I hope to explain.
The fundamental issue, which is why this affects the uniformed services more than other areas of employment, is the change in the retirement age. In a scheme where someone expected to be able to retire at 50, they may be told, “Well, you’re not actually going to receive your pension until you’re 60”—even 67 in some circumstances. The impact of doing that for different sorts of schemes is quite different.
There is no doubt that the original agreement, going back to Warwick, was to extend working life. It has been a key element of the Government’s reforms of public service pensions throughout. Perhaps all of us—that may include me—should have been clearer about the unintended consequences. It cannot have been the Government’s intention that accrued rights in the first scheme would de facto be significantly cut. We should have paid more attention to the effects. My excuse is that I was working mainly with the Civil Service scheme and the teachers’ scheme, where this issue is not so great; it is still there but it is not as significant.
When the police first raised this issue—again, the Police Superintendents’ Association has made the running on this—I rolled my eyes and thought, “Well, they’ve got equality and the courts accepted their case, so what more are they asking for?” However, the more I looked into this issue, the clearer it became to me that it is real. People are suffering a loss.
The underlying problem is that the new combined benefits, with one set of benefits in the old scheme and one set in the new one, do not accurately reflect the benefits that the member loses by having a later retirement age. In most private sector schemes, if you take your pension late, it is increased because you lose those payments. For reasons lost in the depths of history, most public service schemes do not do that. For example, if you retire two years later, you lose two years’ worth of pension. Normally, the expectation is that you are getting two years’ worth of pay during that period so you are not really losing anything, but the result is real enough.
The problem—I hope I can explain this clearly—is that to accrue benefits in the new CARE scheme, you have to effectively give up your benefits from the predecessor scheme, and the amounts involved can be substantial. Looking at a not atypical case—and though I refer to “he”, it is really “he or she”; it affects men and women—let us take someone who entered the police scheme aged 21 in 2003. At that time, they still had the reasonable expectation of retiring at 51, after 30 years of service, with a full pension. That was their scheme, that is what they could reasonably expect; this was before the discussion about extending the retirement age in public service schemes.
If we assume that this person’s final pay would be something like £42,000 at current terms—if this was someone who had had a fairly standard progression
through the police service—they would get two-thirds of that at 51, which would be £28,000 a year. However, in 2022, when they are 40, they are told, “No, you can’t retire, you have to work until you are 60, because you are now in the CARE scheme and your benefits are not payable from that scheme until you are 60.” At age 51, when he expected to retire, he could take his 1987 scheme benefits unreduced, but only by retiring, and he could then have his CARE benefits, but they would be very significantly reduced. So, when he thought he was going to retire, he is faced with having a significantly lower pension; he cannot afford to retire, so he has to go on working. Each extra year that he works, he loses the money he would have got and he expected to get from the 1987 scheme, which will be about £18,000 a year. He is losing £18,000 a year by maintaining his service in the police, even though, on the face of it, he could have taken that pension at 51.
This person is accruing CARE benefits in the new scheme as well, but the value of those CARE benefits, I calculate, is less significant than the money he is losing from the 1987 scheme benefits: he is a net loser by working another year, and this is before allowing for the extra contributions that the member is having to pay to belong—these are not trivial contributions the member is having to pay for being in the CARE scheme. It cannot be right that a member is placed in the situation that the benefits they reasonably expected are lost and, overall, the value of their pension benefits is declining rather than increasing, even though they are continuing to work and continuing to pay contributions. That is the third area that is covered in Amendment 15.
These are all important issues and I hope the Minister will give some indication that the Government are prepared to consider these issues and find ways of addressing the problems. To repeat, the decisions people took because they thought they were in a scheme that they were not in, the decisions where the Government have made a promise—I think there is some evidence that at least some limited promises were made—and where the member, by deferring their retirement, is losing significant sums from their 1987 scheme pension are real issues that need to be addressed and I hope some positive response will be made.
Those are the amendments to Clause 21; I think we are also considering Clause 23 in this group. Again, we have the “may” and “must” issues. The specific issue picked up in Amendment 18—these words appear in the Bill—is about the process of being paid compensation. The Bill deals elsewhere, in the previous clause, with the circumstances in which compensation is paid. Clause 23 deals with the process of obtaining compensation, and Amendment 18 deals with the specific issue of when this compensation will be paid. Clause 23 says that it will be paid
“only on the making of an application”.
The word “only” is particularly problematic, because in many cases people will just not know that they are entitled to compensation. We need to know from the Government—in a sense this is a probing amendment—how people will be told that they are entitled to compensation. What steps will be made to ensure that there is full awareness of the process and procedure for
receiving compensation? Again, this point applies to all the public service schemes; it is not one that applies only to the police or fire service.
Finally, Amendment 19 suggests some time limits being placed on the process. Again, I think this reflects some sort of lack of faith in the Government and, whether true or not, they should seek to address this issue. I beg to move Amendment 13.