Clause 1 - Meaning of “remediable service”

Public Service Pensions and Judicial Offices Bill [Lords] – in a Public Bill Committee am 11:30 am ar 27 Ionawr 2022.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury 11:30, 27 Ionawr 2022

I beg to move amendment 2, in clause 1, page 2, line 3, leave out subsection (4) and insert—

“(4) The second condition is that the service in question is—

(a) pensionable service under a Chapter 1 legacy scheme,

(b) pensionable service under a Chapter 1 new scheme that would have been pensionable service under a Chapter 1 legacy scheme but for the person’s failure to meet a condition relating to the person’s attainment of normal pension age, or another specified age, by a specified date, or

(c) excess teacher service.

The second condition is met if all of the service in question falls within paragraphs (a) to (c) (even if it does not all fall within only one of those paragraphs).”.

This amendment updates the second condition in clause 1 so that it catches “excess teacher service” (a definition of which is inserted into clause 98 by a separate amendment) and clarifies that service meets that condition even if it falls within more than one of paragraphs (a) to (c).

Photo of Virendra Sharma Virendra Sharma Llafur, Ealing, Southall

With this it will be convenient to discuss the following:

Government amendments 3 and 4.

Clause stand part.

Government amendments 34, 36 and 38.

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

It is a pleasure to serve under your chairmanship, Mr Sharma. I thank colleagues on both sides and those in the other place for the constructive way in which we have proceeded with this Bill so far. I thank my officials, who have done an exemplary job on a complex piece of legislation.

At the heart of the Bill is fairness and equal treatment for the public servants on whom we all rely. To ensure we achieve that objective, the Bill is underpinned by the core principles of greater fairness between taxpayers, fairness for lower and higher earners, and the future sustainability and affordability of public sector pensions. I would like to take a moment to explain why the approach to bring forward a number of amendments at this stage has proved necessary—indeed, crucial—to provide a robust and effective remedy.

As I am sure Committee members will agree, this is a highly complex and technical matter. The Bill covers more than 40 schemes. Each, individually, has its own layers of detail and complexity. We are dealing with a somewhat unprecedented issue. Retrospective changes of this scale have not previously been required for occupational pension schemes. However, it is undoubtedly vital that we get it right. Since the Bill was introduced, the Government have continued to work with the individual schemes, stakeholders and Departments to check and recheck the Bill to ensure that it will deliver our commitments to remove the discrimination and offer a complete and effective remedy.

Clause 1 identifies periods of service that are in scope to be remedied under the Bill by placing a number of conditions that must be met. The first condition is that the service took place during the period that the discrimination arose. The second condition is that the service is pensionable under a public service scheme and would have been pensionable under a chapter 1 legacy scheme had the discrimination not occurred.

The third condition is that the person was, on or before 31 March 2012, a member of a legacy scheme or—in the case of certain schemes for firefighters—eligible to be a member of such a scheme. Members who first joined any public service pension scheme after that date were ineligible for transitional protection regardless of their age, and therefore were not subject to the discrimination identified by the court.

The fourth and final condition is that there is no disqualifying gap between the service to which the third condition relates and the period in question. For reference, a disqualifying break in service is defined as a period of more than five years, which reflects the rules of public service pension schemes but allows members who leave to subsequently rejoin when the gap between leaving and rejoining is five years or less.

Amendment 2 concerns an issue that is specific to the teachers’ pension scheme involving teachers with excess service. If a teacher with a full-time teaching contract has an additional part-time contract or contracts, the additional part-time contract constitutes the excess service. Excess service is pensionable in the new teachers’ pension scheme but not in the legacy scheme. However, where the relevant employer has an existing relationship with the local government pension scheme, the regulations of the LGPS provide that the excess service is pensionable in that scheme instead. The teacher will automatically be entitled to enrol into the LGPS in relation to their excess service, therefore providing a home for those accrued rights.

The amendment updates the second condition in chapter 1 to cover excess teacher service, meaning that excess teacher service is a remediable service and, therefore, subject to the provisions in clause 2(1). It will ensure that a member’s excess service can be rolled back to the appropriate scheme. Amendment 4 is consequential on amendment 2, and amendments 34 and 38 define excess teacher service.

Amendment 3 is designed to ensure that the remedy applies correctly to former local government staff who have compulsorily transferred from their employer as a result of outsourcing and were entitled to pensions protection. If such members subsequently became a member of a chapter 1 scheme, the amendment provides that the time they spent in a private sector pension scheme would not count towards the disqualifying gap in service when assessing their eligibility for remedy, which is consistent with the approach provided in respect of transfers and central Government fair deal arrangements.

Photo of Chris Stephens Chris Stephens Shadow SNP Spokesperson (Fair Work and Employment)

I am speaking as someone who was a local government employee in Glasgow before I came to this place. Is the Minister saying that, as a consequence of this amendment, if an employee working for the local authority finds that their service is outsourced by a decision of the local authority, that employee would not have pension rights as a result of the service that they would have if they transferred to that outsourced company? Could he clarify that?

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

To reassure the hon. Gentleman, the amendment is designed to prevent that from occurring. In other words, the fact that their employment was outsourced during that period would not constitute a gap of longer than five years, which would put that out of the scope of remedy. It is designed precisely to ensure that they do have protection, rather than that they do not.

Finally, amendment 36 defines a local government contracting-out transfer for the purposes of what I was just alluding to.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

It is a pleasure to serve under your chairmanship, Mr Sharma. I will start by talking about our public sector workforce and the service they give to this country. The pandemic has highlighted how much we depend on the NHS and on teachers, police and other frontline professionals who keep us and our loved ones safe. It is only right that the state ensures that our public servants are secure in retirement by providing a decent pension on a fair and equal basis.

Labour therefore welcomes the main provisions in clause 1, in particular the attempt to introduce a remedy for the discrimination of younger members in the new pension schemes established by the coalition Government between 2014 and 2016. I recognise that the remedy the Government have opted to include in the Bill—the deferred choice underpin, or DCU—was the preferred option of the overwhelming majority of respondents to the Government’s consultation, including Unison and GMB—my trade union. However, I want to draw the Minister’s attention to the fact that trade unions continue to have concerns about the lack of clarity on how the remedy, expected to cost around £17 billion, will impact the future value of members’ pension schemes.

On Second Reading on 5 January, the Under-Secretary of State for Justice, James Cartlidge said

“liability…will fall on the Exchequer.”—[Official Report, 5 January 2022; Vol. 706, c. 112.]

That is an important commitment, but as Lord Davies of Brixton, a Member of the other place and one of the country’s foremost pension experts, has said, it does not address the question of whether the remedy will be included in the cost control mechanism at a later date. If this cost were to be included in a future cost control mechanism valuation, it would result in members receiving lower benefits and having to make higher contributions to their pension schemes. As the Public Accounts Committee has warned, this would, in effect, be unfairly penalising our public sector workforce for the Government’s economic incompetence by passing on some of the cost of the Treasury’s £17 billion mistake to members.

Can I ask the Minister to confirm, once and for all, whether the estimated £17 billion cost of the remedy will be included in future valuations of the pension schemes under the cost-control mechanism? If it is to be included, can he please set out how that will impact on the future value of members’ benefits and contribution rates? I think he will agree with me that our public servants deserve better than to be left in the dark, so I hope he will clarify this in detail.

Today, the Government have failed to address concerns about how pension scheme members will be protected from unscrupulous advisers. I know that Minsters have been reluctant to include pension scams in the draft Online Safety Bill, despite the spiralling costs of pension fraud and mis-selling. I would like the Minister to set out what steps he is taking to protect members from scammers, who may try to exploit the greater choice that this Bill provides by getting people to transfer out of the pension schemes in a way that is not in their best interest.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

It is a great pleasure to serve under your chairmanship, Mr Sharma. Some of the comments that I will make today will repeat the assurances I asked for on Second Reading. Looking back over the Hansard record, I think I was the only Member who spoke in that debate who did not have their queries addressed in the Minister’s summing up—not that I was keeping track or feeling got at, at all.

I am grateful to the Minister for clarifying the query from my hon. Friend the Member for Glasgow South West; it should concern all of us that such a massive injustice almost slipped through the net. There have been dozens of chances for amendments to be made and for this Bill to be got right. I said on Second Reading that I was concerned that the number of very late amendments that the Government tabled in the Lords was an indication that there were still big gaps. Something as vital as not denying a public service worker their pension rights was missed because, as a result of a dreadful piece of legislation, their job was sold off to the private sector and then brought back in house again. For that potential injustice to have got this far, until the Government spotted it and brought them in, will leave us all at the end of today’s proceedings—and Tuesday’s if we sit then—still wondering what else is left that has not been picked up.

It is quite clear that, with some of the later amendments, the Government did not identify issues for teachers, whose length of service provision and their age sometimes will not fall into line with each other in a way that would be expected. Some of the later amendments suggest that the Government forgot that sometimes the Treasury does not decide things in Northern Ireland, but rather, it is the Northern Ireland Department of Finance that decides. How could such a crucially important piece of legislation have got to that stage without basic facts of the UK constitution having been picked up somewhere within Government?

I hope that when we come to those sections that the Minister will have the good grace to admit that sometimes there have been simple blunders by the Government, that mean we will have to consider these things as amendments rather than them being part of the substantive Bill.

Photo of Chris Stephens Chris Stephens Shadow SNP Spokesperson (Fair Work and Employment)

Does my hon. Friend agree that we are taking about deferred pay for public sector workers, and therefore we should be treating this Bill with a great deal of care and attention?

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

I absolutely agree. I made it clear during my comments on Second Reading that I do not doubt the sincerity of the Minister’s and the Government’s intention to do the right thing. However, I believe it is a fundamental principle that if someone signs up to a pension scheme, they get what they were promised, even if it becomes inconvenient or the Government discover afterwards that it is going to cost more than they expected. That is why it is important we get clarity on who is going to pick up the tab for the £17 billion, for example. It concerns me that a group of workers who were very badly treated by legislation in the past would have lost even more than they thought they had done if the Bill had not been amended at such a late stage.

I hope that these will be the last substantive amendments that we need to see, but I suspect that on Report the Government will have another raft of big amendments for things that nobody spotted until now.

Photo of Matt Rodda Matt Rodda Shadow Minister (Work and Pensions) (Pensions) 11:45, 27 Ionawr 2022

It is a pleasure to serve under your chairmanship, Mr Sharma. I also declare an interest: there are members of my family who may be affected by the Bill. I am not entirely sure, but I believe that they may be affected.

I also pay tribute to our public sector workers. As my hon. Friend the Member for Hampstead and Kilburn said earlier, and colleagues across the House have mentioned, we owe an enormous debt of gratitude to our public sector workers. We are talking about hard-working police officers, firefighters, teachers, local government workers and many others who have been at the forefront of the country’s efforts during the pandemic—and, indeed, over many years—and offer so much to our community. We need to treat the Bill with the utmost gravity, and I am grateful for the tone of the debate overall.

I would like to point out the importance of intergenerational fairness. I appreciate that the Government and the Minister have quite rightly highlighted the importance of the remedy. The Government lost a court case and are now seeking to remedy that significant mistake by the Treasury. However, the risk in the Bill is that inadvertently the Government may impose another unfairness on a younger group of workers. Later on in the course of today’s proceedings, could the Minister reassure those younger workers once again? It is really important for them to have clarity and reassurance about their pensions—that they will not have to pay far greater sums to receive the pensions that they rightly deserve. As part of that reassurance, it is very important that the Government address the issue of the cost control mechanism and are absolutely clear about how it will work. We hope that they will provide further reassurance and information on that matter during the course of today’s discussions.

Finally, I reassure members of the public that these schemes are by and large pay-as-you-go pension schemes, to which teachers, police officers and others make significant contributions during the course of their service. They are not wholly underwritten by the Government. That is a very important point for people who do not work in public services to remember and be reassured by: as another hon. Member mentioned, we are talking about deferred payments to public servants and ensuring that they receive the pensions that they rightly deserve, to which they have contributed over many years of service to our community.

Photo of David Simmonds David Simmonds Ceidwadwyr, Ruislip, Northwood and Pinner

I want to put on the record my interest in the matter before us: I am a member in scope of one of the pension schemes, I am married to a member in scope of one of the others, and a former scheme board member of another of the schemes.

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

I thank all hon. Members for their contributions. It is important to clarify one of the misapprehensions about what has happened over the course of the passage of this legislation to the issue that we are working to address. The Government did not, as it has been described, make a mistake. We inserted transitional protections into the scheme after the recommendations of Lord Hutton, expressly at the request of the trade union movement. It is important to establish that the request for transitional protections to be inserted was a trade union-led request. That is what triggered the discrimination action against the Government, which we are now working to address. I would defend the Government’s record here quite strongly; this is not something that we have brought about. None the less, we are obviously working in good faith to seek to address it.

Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary)

It just will not wash for the Minister to blame the trade unions. If this Government were in the habit of paying a blind bit of attention to anything else the trade unions say, that might be credible. But the trade unions did not make the regulations that were proved to be unlawful; the Government made them. Why can the Minister not accept that the Government took the decision and got it wrong?

Photo of Simon Clarke Simon Clarke The Chief Secretary to the Treasury

The Government obviously take responsibility for all of those things, but it is important to establish the full context. We inserted the changes at the request of the trade union movement, and they were found to be discriminatory in a way that could not have realistically been anticipated at the time that the legislation was brought forward. None the less, we are where we are, and I want to address some of the substantive concerns raised in particular about the cost of remedy. We will come back to this later as well in the course of the Committee, because it will arise again in the context of some of the other clauses.

It is really worth clarifying definitively that the Exchequer is responsible for paying out pensions due from unfunded public service pension schemes, to which this relates. This works in practice by current employer and member contribution incomes being used to meet the costs of paying current pensioners. Where contribution income does not match the cost of pensions in payments in any given year, the Treasury has to make the balancing payment. In this way, the Exchequer guarantees the benefit that members worked so hard to earn, as the hon. Member for Glenrothes rightly said, during their time in service.

Remedy increases the pension rights of eligible members over the period in question—2015 to 2022. As the hon. Member for Hampstead and Kilburn said, the estimated cost of this remedy for unfunded schemes is in the region of £17 billion, in terms of long-term liabilities for the Exchequer. The Exchequer will therefore pay out these increased pension benefits due to members over several decades as members retire. There should be no doubt that the ultimately liability sits with the Exchequer, rather than scheme members. It is worth noting that, overall, these reforms are estimated to save the Exchequer some £400 billion in long-term liabilities, which is important for the long-term sustainability of our public service pension schemes in an age of rising life expectancy.

On the question of remedy, which is really important in the cost control mechanism, I should be clear that member benefit levels and contribution rates are set out in individual scheme rules and can be adjusted through the cost control mechanism at scheme valuations. The cost control mechanism—again, I will expand on this later—is designed to both protect the value of schemes to members and to protect the Exchequer from unforeseen costs.

At each scheme valuation, the mechanism assesses the benefits that have accrued and are accruing to members to determine whether future benefit levels of member contribution rates need to be adjusted to manage the cost of the scheme. By increasing the pension rights of eligible members, the remedy we are talking about today increases the value of those schemes to members, which is why it is right that it is reflected in the cost control mechanism for the 2016 valuations.

However, because we are waiving the ceiling breaches while honouring floor breaches of the mechanism, it is vital that we establish now, for the avoidance of any doubt, that no member benefits will be cut and no member contribution rates will increase as a result of the 2016 valuations. Any benefit improvements due will be honoured, but no additional costs will be imposed. I reassure the hon. Lady, on her important question, that the costs of our remedy genuinely sit with the Exchequer, not scheme members.

I entirely agree with the hon. Lady’s important point regarding people not being caught up by pension fraud. Public service pensions schemes do not allow members to transfer to such arrangements, only to equivalent defined-benefit schemes, so there is a degree of protection against the most egregious fraud, but we are always happy to work with individual schemes and the industry to try to promote best practice and make sure that people do not fall victim to any form of mis-selling.

As I set out, this is a highly complex and technical Bill. The amendments in this group, and some we will come on to discuss, are crucial to ensuring that a robust remedy is in place—in this particular instance, for teachers with excess service and those who have a period of service that was subject to a local government contracting-out transfer. On the point that the hon. Member for Glenrothes raised, it is important to note that many of these amendments result from close discussion with individual schemes and stakeholders right up until this moment, not because we had not anticipated many of these questions but because, in truth, how best to resolve them—there are sometimes multiple ways—has been a matter for close discussion. We are confident that the remedies we are bringing forward and the amendments that fall within the scope of today’s proceedings are the optimal way of making sure that we have a new system that is fair and, crucially, provides the most robust possible remedy to the concerns being raised.

Amendment 2 agreed to.

Amendments made: 3, in clause 1, page 2, line 37, at end insert

“, or

(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”.

This amendment amends the definition of “disqualifying gap in service” so that it includes a period during which the person was transferred to a private sector employer under local government contracting out arrangements.

Amendment 4, in clause 1, page 3, line 3, after “scheme” insert “or excess teacher service”.—(Mr Clarke.)

This amendment is consequential on the amendment of the second condition in this clause made by separate government amendment.

Clause 1, as amended, ordered to stand part of the Bill.