My Lords, I thank the noble Lord, Lord Davies, once again and indeed the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Janke, for their valuable contributions and remarks. Given that the noble Baroness is right that this is an important part of the Bill, I wish to give a pretty full response, so I hope the Committee will indulge me as I want to go through in some detail the issues that have been raised and, of course, answer as many questions as I can.
I start by saying, just as a point of agreement, that this group of amendments seeks to ensure that members are correctly compensated for any detriment that they have suffered as a result of the discrimination that has arisen. I reassure this Committee that this is certainly a shared objective.
The noble Lord, Lord Davies, put forward three amendments to Clause 21. It may be helpful if I set out the intended purpose of this clause. It confers power on scheme managers to make payments in relation to compensatable losses. This is compensation in relation to losses incurred as a result of the discrimination, the remedy provided by the Bill, or in respect of certain tax losses. The clause allows for matters that are not directly remedied by the Bill or scheme regulations to be put right.
Amendment 14 would remove the requirement that losses may be compensated only where they are of a description specified in Treasury directions. However, in the Government’s response to the consultation on remedying the discrimination, we set out that some member representatives and employers considered that there would be a need for consistent treatment across and within schemes.
The Treasury directions are one way in which we intend to ensure that such consistency is achieved. The proposed amendment would remove the central consistency that we have committed to provide and would instead require scheme managers to determine all claims in an exercise of their own discretion alone, which could lead to inconsistent and potentially unequal treatment across schemes. I am sure this Committee would agree that we do not want that. That approach would give rise to the concerns that respondents to the consultation raised. We do not consider that is a responsible or appropriate approach. The Government
have committed to providing a consistent and full remedy to members and we believe that will be best achieved by the current drafting.
Amendment 15—which was spoken to eloquently by the noble Lords, Lord Davies and Lord Ponsonby—seeks to compensate members for the closure of the legacy pension schemes and for any contingent decisions taken where a member had a period of remediable service that was under a new scheme. Paragraphs (b) and (c) of the amendment from the noble Lord, Lord Davies, in particular, closely relate to an ongoing judicial review challenge before the courts—which the noble Lord alluded to—and it would be inappropriate to discuss in detail. However, the effect of the amendments would be to provide the substantive remedy that the claimants are seeking in the judicial review claim. It would compensate members who were in scope of transitional protection but have not yet retired and will now be in scope of the prospective measures set out in Clauses 76 and 77 of this Bill. Providing compensation in this circumstance would therefore be contrary to the intention of those clauses that all members are to be treated equally from 1 April 2022 by accruing service in the reformed schemes, regardless of their age.
It is important to stress that the Court of Appeal found in the McCloud and Sargeant case in 2018 that the transitional protections offered under the Public Service Pensions Act 2013 amounted to unlawful discrimination. Accordingly, offering compensation to transitionally protected members would effectively undermine the Court of Appeal judgment by perpetuating this unlawful discrimination through different means. The effect would be that instead of allowing transitionally protected members to continue in service in legacy schemes, they would now be receiving the benefit of financial compensation. Non-transitionally protected members would not receive such compensation, so there would still be an unfair difference in treatment.
I will pick up on a point made by the noble Lord, Lord Davies, to try to be helpful concerning police stakeholders. The Government really do understand the concern raised by stakeholders regarding the difference in when members can access their full pension in the 1987 and 2015 police pension schemes. I can reassure noble Lords that the Home Office is engaging with police stakeholders on these matters. However, it is the Government’s view that it will be appropriate for future pension accrual to occur in a scheme with different retirement provisions, for the reasons set out by the noble Lord, Lord Hutton, in his report. As set out in the consultation response regarding this specific issue, it is right that the Government be able to make changes when they judge it necessary to do so. The commission’s original objectives and recommendations, leading to the 2015 reforms and reform schemes, still hold. The Government therefore consider that this is not appropriate and that it is crucial to the effectiveness of the remedy that the discrimination is not perpetuated.
Returning to paragraph (a) of the amendment, this clause already makes provision for losses that arose as a result of the discrimination; that is covered by the first condition, contained in subsection (4). I hope that I can therefore reassure the noble Lord, Lord Davies, that the amendment is not needed.
The noble Lord has also put forward four amendments to Clause 23. Amendments 16 and 17 would require, rather than allow, scheme regulations to make provision under which interest is required to be calculated and paid on amounts owed to or by members under or by virtue of the Bill, and about the process by which amounts and any interest on them are to be paid; I know that this matter cropped up in debate slightly earlier. Where sums are owed to schemes or members, for example relating to contributions or benefits, Clause 23 provides powers for scheme regulations to make provision about the payment of interest on those amounts. Interest will be added to amounts payable by schemes or members. The Government consider that the addition of interest is necessary to ensure fairness between members. For example, where members owe contributions, their comparators in the scheme will have been paying the correct level of contributions throughout, so would not have had the benefit of the additional money over time. Interest will be paid on benefits or contributions owed to members to reflect that the payments relate to earlier periods of time.
Clause 23 also provides that scheme regulations may make provision about the process by which amounts due to and from schemes are to be paid. This includes matters such as providing for when amounts are to be paid, allowing for those to be paid by instalments if appropriate, netting off amounts owed by a person against amounts owed to a person, and conferring rights of appeal against a decision taken under the regulations. The amendments would require scheme regulations to make such provision. However, the Government do not consider that imposing a duty on schemes to make such regulations would be appropriate. Doing so could lead to vexatious claims that schemes have not made regulations to deal with obscure situations that could arise. Rather, the Government consider that granting schemes a broad power, exercisable in accordance with Treasury directions, is the right approach to ensure that schemes can make all the necessary and appropriate provision in scheme regulations, while providing sufficient flexibility to account for the differences in the public service pension schemes that I referred to earlier.
The noble Lord’s third amendment, Amendment 18, would remove provision for schemes to make a payment only on the making of an application. This provision is there for the benefit of members: for example, members may not wish to receive amounts that they are owed. This could arise if they are an active or deferred member and intend to choose reformed scheme benefits upon retirement in order to avoid double corrections, as envisaged by Clause 16(8).
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In addition, the contents of the application may be necessary in order to provide the scheme manager with all the information it needs to calculate properly the amounts to be paid. Accordingly, the amendment is not appropriate since it would unduly restrict schemes in making the provision they need to make in scheme regulations to ensure the smooth operation of the processes for making corrections and paying compensation. I hope that the Committee will forgive me for getting into quite a lot of technical processing issues here.
Amendment 19 requires that compensation payable under Clause 21 must be paid “within 28 days” of approval or after an appeal has been determined. The intention of the amendment—to ensure that compensation is paid promptly—is clear, and I hope that I can reassure the noble Lord that schemes will be settling amounts due without unreasonable delay and that schemes already operate within a broader regulatory landscape to ensure proper administration; I shall return to this issue in more detail in responding to Amendment 28. However, it may encourage vexatious claims if the primary legislation is overly prescriptive about the timeframe for payments of compensation to be made, so the Government do not consider the amendment to be appropriate for that reason.
The noble Lord, Lord Ponsonby, has proposed Amendment 20 to Clause 24, which would require the Treasury to consult affected parties before issuing Treasury directions—this is a fair question. Treasury directions are intended to set out to schemes how they should exercise a particular power, rather than creating a new power. They ensure that, where Treasury Ministers who are responsible for public service pensions policy in England, Scotland and Wales consider that a consistent approach is necessary or desirable, the Treasury may give direction to schemes. In Northern Ireland, the directions will be made by the Department of Finance, which is responsible for public service pensions policy there. Since those regulations are subject to Treasury consent, the directions bring transparency and efficiency to the process of preparing scheme regulations.
The Treasury has already undertaken informal and formal consultation with employee representatives on the changes made by the Bill. Many respondents made the case that consistency is needed in delivering the remedy.
As I have set out, the purpose of the Bill is to remedy the discrimination that arose when transitional arrangements were implemented alongside the new pension schemes. That means placing members in the position they would have been in, had the discrimination not arisen. Were the directions to fall short of that aim they could, of course, be subject to further challenge by judicial review.
I highlight that the Bill has been considered by the Delegated Powers and Regulatory Reform Committee, which reported that there is nothing in it that they would wish to draw to the attention of the House regarding the use of either regulations or Treasury directions.
Five amendments to Clause 84 have been put forward by the noble Lord, Lord Ponsonby of Shulbrede, and the noble Baroness, Lady Janke. Clause 84 allows the Treasury to create a compensation scheme to pay compensation in respect of “compensatable” losses under Clauses 21 and 56 of the Bill. An equivalent provision in relation to the Department of Finance in Northern Ireland is contained in Clause 85. There is no current intention to create such a scheme. Rather, scheme managers, who are responsible for administering the schemes, will provide compensation to members through the power in Clause 21. However, this clause provides the Treasury with powers to create a scheme if that is later considered appropriate or necessary. I hope that that gives some reassurance.
Amendment 27 would require, rather than allow, the Treasury to make regulations providing details of a compensation scheme. However, as the Government currently have no intention to create such a scheme, a blanket requirement to do this would not be appropriate.
Amendment 28 concerns a right of appeal by members against compensation decisions made by the body administering the compensation scheme. It would help to explain that scheme managers of public service pension schemes are already required by the Pensions Act 1995 to provide internal dispute resolution procedures; indeed, all occupational pension schemes are. As such, the decisions taken by scheme managers on compensation will therefore be in scope of this existing, established procedure. Further, there is already provision in Clause 23(2)(d) that allows scheme regulations to make provision conferring rights of appeal against decisions taken under the regulations. Accordingly, no further provision is necessary or appropriate in this Bill.
Amendment 29 concerns the body appointed to run a compensation scheme and would require it to consist of an independent chair and members appointed on the recommendation of a relevant scheme’s advisory board or equivalent.
These amendments are of course being raised by the noble Lord, Lord Ponsonby. His Amendment 30 concerns the power for the Treasury to make regulations to establish a scheme under Clause 84. This would require the Treasury to consult members or their representatives and such other persons that it considers appropriate before making regulations.
Finally, Amendment 31 would require the regulations to be subject to the affirmative procedure and, therefore, automatically subject to debate before they could come into force. If a scheme were established using the powers in Clause 84, its function would be limited to the management and administration of the compensation arrangements in Clauses 21 and 56. I hope that the noble Lord, Lord Ponsonby, agrees that Amendments 29, 30 and 31 would not be appropriate, given this rather narrow function.
I hope your Lordships are satisfied with my rather full explanation of the intention behind the relevant clauses and the compensation provisions more generally, and that the noble Lord withdraws his amendment.