Public Service Pensions Bill

Public Bill Committee, 6 November 2012.

Joe Benton (Labour, Bootle)

Before we begin, I have a few preliminary announcements. Members may, if they wish, remove their jackets during Committee sittings. Will all Members ensure that their mobile phones and pagers are turned off or switched to silent mode during sittings?

As a general rule, my fellow Chair and I do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days, so amendments should be tabled by the rise of the House on Mondays for consideration on Thursdays, and by the rise of the House on Thursdays for consideration on Tuesdays.

Not everyone is familiar with the process of taking oral evidence in Public Bill Committees, so it may be helpful if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion, for which debate is limited to half an hour. We will then deal with motions to report written evidence and to permit the Committee to deliberate in private in advance of the oral evidence sessions, which I hope that we can take formally.

Assuming that the last of those motions is agreed, the Committee will then move into private session. Once it has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will begin. If the Committee agrees to the programme motion, we will hear oral evidence this morning.

Joe Benton (Labour, Bootle)

Copies of memorandums received by the Committee will be made available in the Committee Room.

Examination of Witnesses

Joe Benton (Labour, Bootle)

Good morning. Thank you very much to the witnesses and to members of the public for attending. May I ask the witnesses to introduce themselves?

Joe Benton (Labour, Bootle)

Thank you. You are most welcome. We have until 9.45 am for questions.

Chris Leslie (Labour, Nottingham East)

Good morning, Mr Benton. First, without meaning any disrespect to the witnesses, may I pay tribute to you for giving us your guidance throughout our Committee proceedings? The Bill is complicated, so it will be important to have a firm hand on the tiller. I also welcome the witnesses and thank them for their time considering this complicated piece of reform.

I will start with a question to Mr Summers so that we can hear CIPFA’s perspective. I understand that you are treasurer of the Norfolk police authority and that you have experience of overseeing the Norfolk pension fund, which I know is quite considerable. I have several particular questions about the local government pension scheme. Obviously, the Bill provides for the closure of all public service pension schemes, including the funded local government schemes. What is your opinion about the closure of those funded schemes?

Chris Leslie (Labour, Nottingham East)

Some of our concerns are about how much thought has been given to the closure and reopening process. What is your understanding of the rules in respect of the crystallisation of any deficits that might occur at the point at which an existing funded scheme is closed before we move forward under the Bill? Could that pose a financial risk to those authorities concerned?

Chris Leslie (Labour, Nottingham East)

With regard to the general running costs of local government pension schemes—those funded schemes obviously have fund managers and administrative costs—what is your general opinion of the Bill as it stands? Will it improve or worsen the administration and cost-effectiveness of the local government pension schemes?

Chris Leslie (Labour, Nottingham East)

I have a final question for Mr Summers. Clause 12, in conjunction with clause 3, gives the Treasury control over the rate of employer contributions to funded local government pension schemes. Do you think that that rate-setting power should be removed from the managers of local government pension funds? Is it appropriate to have such centralisation?

Richard Fuller (Conservative, Bedford)

I have a question for Mr Hanton and Mr Johnson on the overall basis for the funding of public sector pensions, which at the moment is on a tax-as-you-go basis. Public sector pensions are the largest bill that we pass down to future generations. In your report, Mr Hanton, you estimate the liability at £1.2 trillion, which is even more than the country’s enormous public sector debt. The Government are trying to do something in the Bill to introduce an employer cost cap to ensure that there is true and fair accounting between generations. Does the panel believe that that goes far enough? What comments would you make about whether the Government should have considered the establishment of a future find—a fully-funded scheme—such as has been done in Australia for public sector pensions?

Alison McGovern (Labour, Wirral South)

Could I take us back to actuarial assessments? You mentioned that previous actuarial assessments had proved to be faulty in some way, and your suggestion was more frequent assessments. What is underlying that suggestion? Why do you think that increased frequency would lead to increased accuracy? Secondly, you mentioned the discount rate. Could you say a little more about that? Mr Hanton, what is your underlying concern about the discount rate?

Alison McGovern (Labour, Wirral South)

Just to follow up on the question I asked about actuarial assessment, you have flagged up some of the problems that we have had in the past. The suggestion was made that increased frequency of assessment would give a result that was more believable and more trustworthy. Why should you think that? Why should a person think that, if we go back through the same actuarial process, the future will prove better than the past?

Mike Freer (Conservative, Finchley and Golders Green)

On the local government pension scheme, I want to follow up on what Mr Leslie said. I chaired a pension panel some years ago, so I might be a bit rusty. We are talking about closing the scheme to new entrants, but when councils did their triennial revaluation, they quite often had to top up the fund from the general fund. If, as Mr Leslie says, there is a crystallisation of the future liabilities—and from my latest reading, currently only 75% of future liabilities can be met—surely there is a great danger that, by crystallising that gap, we will have to call on the council tax payer to put money in today to close the gap. Therefore, although the Treasury is seeking to hold down council tax, it could be shooting itself in the foot by forcing council tax rises to be quite significant to top up the closed LGPS.

Mike Freer (Conservative, Finchley and Golders Green)

I am not going to go down the route of whether the pension panel should be demographically weighted for the work force and the local population; I think you would find that the whole system would freeze and grind to a halt. If I could go back to what Mr Summers said, my concern, from a localism point of view, is that when you get the valuations and interim valuations, the pension panel will take a view—certainly my pension panel, which had two very professional fund managers, took such a view, given our liabilities—about whether the performance will improve and whether the fund will continue to underperform or overperform, and will then take a balanced view, based on its own investment criteria, as to whether to top its own fund up from the council tax or not. If we go down the route of saying that it is all down to the Treasury, is there not a danger that we simply give the council tax payer no say, but a big bill?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Good morning to the panel. I have a brief question which is mainly aimed at Mr Johnson and Mr Summers, but I would be interested also to hear Mr Hanton’s views, should he wish to give them.

What is the likelihood of increased contributions leading to substantial numbers of people opting out from public service pension schemes, and what effect do you think that that may have on the long-term sustainability of the schemes?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

One reason why I am a fierce supporter of the Bill is that at the end of it people who work in the public sector will have a defined benefit scheme. That is an important scheme for public sector workers, and the Government should be congratulated on delivering it, notwithstanding the context in which we are all living. It is the context that I want to draw out from you if possible. Do either Paul or Bob know the number of active members in private sector defined benefit schemes, say in 1996, compared with the number of active members in defined benefit pension schemes today? How does that compare? Do you have comparisons on the public sector figures as well between those two dates? It need not be an exact figure.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

But what impact do you think the decision in 1997 to withdraw the repayment of dividend tax credits had on the decisions in the private sector to move away from defined benefit schemes? My understanding was that there were £650 billion of assets in private sector funds in 1996, and we were taking £3.5 billion a year out of those funds with that decision. Do people think that had an impact on the private sector decision to move away from defined benefit schemes?

Joe Benton (Labour, Bootle)

Two Members have indicated that they have questions. I propose to close the session promptly at 9.45 am because we cannot afford to fall behind, so please bear that in mind.

Andrea Leadsom (Conservative, South Northamptonshire)

Mr Johnson, you seem to be saying that the new scheme is far more generous than the previous one, and that it will take the public sector even further away from the private sector. Can you explain that a little further, and could you also explain whether you think certain public sector workers will be in a far better and stronger position than other public sector workers as a result?

Andrea Leadsom (Conservative, South Northamptonshire)

So you are saying that the private sector is worsening, that both schemes are getting less generous but the private sector more so, and at a faster rate.

Andrea Leadsom (Conservative, South Northamptonshire)

Finally, can you comment on different types of public sector workers? For example, police officers tell me that judges are getting a much better deal than they are.

Graham Evans (Conservative, Weaver Vale)

My question is on transparency. Lord Hutton recommends that the public sector pension scheme should be published as common data, so that we can compare performance like for like. I am interested in whether you think the Bill will enable that. Also, is it possible to compare private sector pension schemes with these new public sector schemes?

Joe Benton (Labour, Bootle)

Order. I am sorry, but that is the end of the session. On behalf of the Committee, I thank the witnesses for their attendance.

Joe Benton (Labour, Bootle)

Good morning. Welcome. I thank you for your attendance. The Committee will ask questions, so without further ado, perhaps you would like to say a couple of words to introduce yourselves before we kick off.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Welcome to the Committee. Thank you very much for giving evidence. I do not know whether you heard the previous session, when concerns were expressed about the costs of public sector pensions compared with what is happening in the private sector. There has been a fall in the number of active members of private sector defined benefit schemes, from five-point-something million to less than 1 million today. I wonder whether the view of the two unions that you represent is that the deal that has been negotiated with the Government is good for all the different schemes, given that it is a defined benefit scheme at a time when the private sector is moving wholesale away from them. What is the view of the two unions about the negotiated settlement in public sector pensions, given what is happening in the private sector?

Chris Leslie (Labour, Nottingham East)

Thank you, witnesses, for attending this morning. Following those answers, I want to ask whether the Bill reflects the agreements that were struck in the negotiations between the employees and the employer side of the discussion. Obviously, there was an agreement between your two unions and the Government that has manifested itself in the Bill. What concerns do you have, if any, about the difference between the agreement and the legislation?

Chris Leslie (Labour, Nottingham East)

What about the point about retrospectivity? Normally it is assumed that accrued benefits are sacrosanct, and it is not possible to go back and unpick benefits if people have been paid in good faith along the way. Do you believe that there is sufficient protection against retrospective decisions by the Treasury?

Richard Fuller (Conservative, Bedford)

You made some comments about the comparison with the private sector. Of course, when it comes to the affordability of pensions, there is a direct link in the private sector between shareholders and management in the negotiations. In public sector pensions, however, the cost of that is being paid for by our children and our grandchildren. They do not have a voice, and they do not have a vote, so the management of the cost of pensions in public service is important.

As participants in that, perhaps you could tell me what the unions’ position has been on two of the main drivers of the cost for our children and grandchildren of the pension provision over the past 10 years: the increase in numbers of people in the schemes, in the parts that you are involved with, and the average pay over those periods of time. In your discussions about the increase in participation in the fund and average salaries, what consideration have the unions paid to the bill that is being passed on to future generations?

Richard Fuller (Conservative, Bedford)

I have a question about that, because it gets to the core of my point. Under that system, there is always pressure on the Government, wanting to provide public services that we all cherish and want to be able to afford, to increase the number of people who will then subsequently claim because they are part of a public sector pension scheme. In the debate about the role and extent of public services and the number of people that the public sector can afford, if you do not have a fully funded scheme, how do you ensure that you are not passing a large bill on to the people who have no voice and no vote?

Alison McGovern (Labour, Wirral South)

Mr Jenkins, do feel free to answer the previous question in response to what I am about to say, which is hopefully not unrelated.

I asked the previous panel about actuarial assessments of valuations. Mr Johnson from the IFS mentioned two important factors that had contributed to the situation that was just mentioned, which were the missing of the increase in longevity and the fact that investments had not performed in the way that they were expected to. The suggestion was that more frequent and more integrated assessment would resolve those problems. What changes might we put in place as part of the Bill to enable our understanding of schemes, and the future performance of schemes, to be better than it has been? I would be grateful for your comments on that, particularly in relation to governance, as was just mentioned.

Ian Paisley Jnr (DUP, North Antrim)

May I bring you back to the design in terms of pension age issues? Clause 9(2)(a) indicates that the normal pensions age, 65, does not apply in relation to firefighters, whose normal pensions age is 60. Obviously there are good occupational reasons why a firefighter retires at age 55. Do you foresee any significant problems to the structure and working of the new scheme if the age retirement limit of 55 was reinserted and maintained?

Ian Paisley Jnr (DUP, North Antrim)

May I come back on that? Could you give us a little more on the scale of the numbers of the unmentioned—not the unmentionable, but the unmentioned?

Ian Paisley Jnr (DUP, North Antrim)

So at the very least you want clause 9(2) increased to accommodate those numbers?

Joe Benton (Labour, Bootle)

Two people want to ask questions, but we will close promptly at 10.15 am.

Marcus Jones (Conservative, Nuneaton)

Thank you, Mr Benton. I will be as quick as possible.

You have mentioned low-paid workers on a number of occasions, and low-paid workers are an extremely important group in the reforms. The representatives on the previous panel, particularly the representatives from the IFS and the Intergenerational Foundation, said that in their view the Bill’s package for low-paid workers is comparatively more generous than the previous scheme. In light of those comments, what is your view of that? Do you agree with the IFS and the Intergenerational Foundation? If not, why do you disagree with them?

Joe Benton (Labour, Bootle)

I am afraid that brings us to the close of this session. I thank the witnesses on behalf of the Committee.

Joe Benton (Labour, Bootle)

Welcome, and thank you for your attendance. Would each of you please introduce yourselves briefly?

Joe Benton (Labour, Bootle)

Thank you very much. We have until 11 am for questions.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

May I ask your view of the agreement that was negotiated? We heard earlier that, due to longevity and poor performance of the stock exchange over the past decade, as well as other changes, the number of active members of private sector defined benefit schemes has fallen from over 5 million to under 1 million, yet you have managed to negotiate with the Government a defined benefit scheme for all public sector workers. Do you think that that is a good negotiation? Are you pleased for your members that that has been negotiated, given the context?

Could you also say something about some of the other reforms, such as the fact that no one within 10 years of retirement will see any change to their scheme and that those earning under £15,000 will see no increase in their contribution? Will you comment on the outcome of the negotiations, given the context in which they took place?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

You seem to be taking a more militant approach than the TUC, the GMB, Unison and Unite, which is surprising given that you represent the medical profession. Do you not agree that the annual accrual rate that you have negotiated—or that has been negotiated against your will, apparently—for NHS employees is one fifty-fourths in a career average scheme with revaluation rates for active members of CPI plus 1.5%? Given the earlier evidence about the imposition that that CPI plus 1.5% represents in terms of the public sector funding of that career average scheme in the future, do you not think that your stance is unreasonable, given the context of the economic circumstances with which we are living today, as well as intergenerational issues and the disparity between the public sector and the private sector? Would you not be better as an organisation to adopt the more moderate view that the TUC, the GMB and the other trade unions are taking?

Chris Leslie (Labour, Nottingham East)

I have a similar question to one that I asked in the previous session about the fit between the agreements that the TUC-affiliated organisations and others negotiated, and how the Bill has actually manifested. It is quite important that if you strike an agreement, it can somehow be fulfilled through to legislation. Can you explain whether you have any particular thoughts about how accurately the Bill reflects those agreements? In particular, I wanted to ask about the design of the local government pension scheme and the ability of some schemes to be delegated and to be designed by stakeholders in the schemes as they go forward. Do you have any thoughts about clause 11 in respect of the employer cost cap or the cost control mechanism, and whether that reflects the discussions and agreements that had been reached.

Chris Leslie (Labour, Nottingham East)

I wanted to pick up the earlier thread of this crystallisation of deficits with the closure of local government pension schemes, which I know is a very particular question. We heard earlier that myriad organisations and institutions are members of local government pension schemes. Can you elaborate on—just put it in real terms—the sorts of organisations that might face a major financial shock? As I understand it, colleges and academy schools are members of local government pension schemes and would have to find great lumps of money to cope with crystallisation. Are we talking about that level of potential risk?

Ian Paisley Jnr (DUP, North Antrim)

I want to go back to the issue of age, specifically for the BMA. Our previous witnesses said that they would like to see the provisions in clause 9 expanded to include, for example, nursing staff and specifically intensive care nursing staff. You heard that evidence. Is there anyone else you would like to see on that list?

Mike Freer (Conservative, Finchley and Golders Green)

I would like to ask two very quick questions, first to Mr Strutton. I have to say that I found myself, oddly, agreeing with a lot of the GMB submission, so I had to read it twice. In terms of the negative valuations and the technical potential of cutting a pension benefit, would you therefore be happy if the Bill said that the increase would be not less than zero, if it was linked to CPI, to create that floor?

Mike Freer (Conservative, Finchley and Golders Green)

Thank you. Dr Porter, having read your submission, it is clear that you disagree with the new tiering, but the IFS has clearly said that the new scheme is more generous to the lower paid and less generous to the higher paid. Is it genuinely the BMA’s position that the higher paid should pay less and that the lower paid should pay more, which is what your submission seemed to suggest?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I have a couple of questions, the first of which is in relation to the local government pension scheme. I am referring back to the agreements made in December 2011 with the Government that the LGPS stakeholders could, subject to consent, design their own reforms to the local government pension scheme and, of course, further work has been done on that.

For the record, can people say whether they believe that the Bill is consistent with that agreement on what needs to change? Secondly, in relation to clause 21 and the parliamentary scrutiny process, with the retrospective amendments to schemes that are proposed, how would members of the panel like to see that amended?

Graham Evans (Conservative, Weaver Vale)

May I ask the BMA what percentage of its 150,000 members are members of the NHS pension scheme? What retirement age do you think is reasonable for you and your members? I ask the TUC and GMB what percentage of their members—I know you are the public sector side—are members of pension schemes compared with your colleagues who represent the GMB private sector members. How many of them, in the private sector, are members of a pension scheme?

Graham Evans (Conservative, Weaver Vale)

What do you think is a reasonable retirement age for doctors?

Andrea Leadsom (Conservative, South Northamptonshire)

Dr Porter, I think you do the BMA a great disservice in suggesting that, in effect, just because previously the lower-paid received a lower pension and the higher-paid a higher pension it should always remain thus. Since you have given the example of your own personal situation, perhaps you could tell us what a doctor of your seniority might roughly expect to retire on at your normal retirement age.

Andrea Leadsom (Conservative, South Northamptonshire)

But you do not accept the principle that those on lower pay should get a relatively more generous pension than those on higher pay. There is obviously a general absolute cost of living, and it is the desire of this Government to ensure that all NHS workers retire on a living income. Effectively, you are saying that in the interests of retaining the higher retirement earnings for the higher-paid you would sacrifice the higher retirement earnings for the lower-paid. I think that is what you said earlier.

Andrea Leadsom (Conservative, South Northamptonshire)

To the higher-paid.

Andrea Leadsom (Conservative, South Northamptonshire)

Would you then answer the second question, which is what would a doctor of your seniority expect to retire on, per annum, as an absolute sum, at your normal retirement age?

Andrea Leadsom (Conservative, South Northamptonshire)

Within the nearest £10,000 a year.

Andrea Leadsom (Conservative, South Northamptonshire)

Okay, if somebody at your level of seniority retired last year, what sort of pension would they have retired on, year on year?

Andrea Leadsom (Conservative, South Northamptonshire)

It is helpful, in the context.

Joe Benton (Labour, Bootle)

Order. The witnesses must be allowed to answer. I will be as flexible as possible, but they must be allowed to answer.

Andrea Leadsom (Conservative, South Northamptonshire)

Apologies.

Andrea Leadsom (Conservative, South Northamptonshire)

My final question is for Dr Porter. You mentioned that you might not enjoy rushing around for 12 hours a day in 10 or 15 years’ time. Do you accept, for the record, that you would not have to do that? You could retire earlier and take a reduction in your pension. My reason for asking you about that was that I wanted the Committee to be able to assess whether you could retire on a living income if you were to decide to retire, perhaps, five years early.

Chris Leslie (Labour, Nottingham East)

I want to turn to some other aspects of the Bill. In clause 7 there are a series of provisions in respect of new types of schemes. Obviously an agreement has been reached about defined benefit schemes going forward, but do you think that there are sufficient protections in clause 7 to ensure that, if an old defined benefit scheme is closed down, you will definitely see a new defined benefit scheme opened up? Are there loopholes in the Bill as it is currently drafted, such that you could find that a defined benefit scheme closes and you end up with a defined contribution scheme?

Chris Leslie (Labour, Nottingham East)

Those are interesting points. May I ask about the employer cost cap provisions under clause 11? Are you content with the provisions in respect of consultation with scheme members that are set out? As far as I can see, there is no real guarantee on consultation. In a sense, I cannot really quite see what the harm would be in having a consultative requirement in the Bill, as employer cost cap arrangements are proposed. What is your view about how the Bill might be improved there?

Joe Benton (Labour, Bootle)

The session will end promptly at 11 o’clock, so this will be the last question.

Mike Freer (Conservative, Finchley and Golders Green)

I want to understand the fairness of the tiering that the BMA talks about, because I cannot find it in your submission. Dr Porter, what is the percentage of final salary the average doctor will retire on? Is it 45% or 50% of the final salary?

Mike Freer (Conservative, Finchley and Golders Green)

But on average.

Mike Freer (Conservative, Finchley and Golders Green)

It is roughly 50%.

Mike Freer (Conservative, Finchley and Golders Green)

What is the highest tier of contribution rate for a doctor?

Mike Freer (Conservative, Finchley and Golders Green)

So 14.5% in and 50% out.

Mike Freer (Conservative, Finchley and Golders Green)

I understand how it works.

Joe Benton (Labour, Bootle)

Order. I thank the witnesses for their attendance and for answering the questions.

Examination of Witness

Joe Benton (Labour, Bootle)

Welcome, Lord Hutton. We have only 20 minutes because some Members will want to leave early for Treasury questions, which will be taking place on the Floor of the House. Needless to say, you are very welcome. I do not think that you need to introduce yourself, so we shall go directly to questions.

Chris Leslie (Labour, Nottingham East)

My apologies for the short time we have, especially given the valuable and comprehensive report that you have produced. I want to cut straight to the issue about the local government pension scheme. Do you have any particular concerns about the way in which the Bill has framed the provisions in respect of the LGPS, in particular because funded schemes are different from unfunded schemes? There are also issues to do with the fact that LGPS schemes will have to close and restart. Could you elaborate on some of your thoughts about the Bill’s provisions in respect of the LGPS?

Chris Leslie (Labour, Nottingham East)

I have only one more question because time is limited. You picked up a number of points in respect of the crystallisation of closed LGPS schemes, which is really important, but I want to ask about the issue of retrospectivity. I think that you mention this in your opening evidence. Clause 3 could have a detrimental effect on the accrued benefits that many people assume are sacrosanct. Clause 11 also allows for a reduction of accrued benefits through some of the employer cost cap mechanisms. Do you have concerns about the potential for retrospectivity in the Bill? What is your understanding of how that cuts across the protections that are supposed to be in the European convention on human rights?

Richard Fuller (Conservative, Bedford)

We have heard some robust observations by the BMA on behalf of the fairly wealthy—I would guess relatively high-paid public sector workers—and, before that, we heard concerns from Unite and Unison about how the pensions of public sector workers on lower pay could be £4,000 or £5,000 a year. In that context, the Government have set out proposals for a career average pension instead of a final salary pension, which will go some way towards achieving an aspect of fairness. Do you think they could have gone further and put a cap on the total amount that an individual could take in their public sector pension? Average earnings in Bedford are about £24,000 a year. Why should we not have tried to limit the pension that someone could take from the public purse to, say, 1.5 times average earnings?

Ian Paisley Jnr (DUP, North Antrim)

In your opinion, Lord Hutton, would any violence be done to the principles, workings and values of the work that you carried out—and indeed to the Bill—if a retirement age below 60 was reintroduced for certain physical occupations?

Graham Evans (Conservative, Weaver Vale)

I welcome the Bill and I think that you have done a fantastic job. Your name will be mentioned by future generations, and I am sure that everybody is most grateful.

After listening to the evidence from some of our witnesses, we have to wonder whether they think that you should be doing this at all. With the DB scheme, if we take a 21-year-old graduate looking at career paths, he could, even with your reforms, look at a 45-year career in the public sector and work out what sort of pension he would get at the end of it. What would you say to a 21-year-old who was thinking of going into the private sector and who, after 45 years working there, would ironically be paying for the 21-year-old graduate in the public sector through taxation and so on? What would you say to graduates thinking now about which career path to take, in terms of going for the public sector or private sector?

Alison McGovern (Labour, Wirral South)

Thank you for giving us evidence, Lord Hutton. You made several recommendations on governance in your report, and several of the Bill’s provisions address such issues and make changes. Bearing in mind the point about trust that you mentioned, as well as successive Governments’ problems getting people to engage with how trusted pension schemes are, do you think that the Bill addresses such issues sufficiently?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

May I add my congratulations to those of my colleagues on your interim and final reports? They accurately reflected the challenges of longevity, increasing costs, poor investment returns, the fairness of a career average scheme versus a final salary scheme, and fairness to the taxpayer. Nevertheless, you rejected the notion of a race to the bottom. As a consequence, we are continuing to provide defined benefit schemes for those working in the public sector. Given that some compromises were made in the negotiations, are you satisfied that the proposed final settlement reflects what you had in mind as the outcome of the recommendations of your report?

Debbie Abrahams (Labour, Oldham East and Saddleworth)

My question builds on the points about the cherry-picking of your recommendations, as a previous witness put it. Will you comment further on that in the light of what you think the unintended consequences of that cherry-picking might be?

Joe Benton (Labour, Bootle)

Order. We have to call a halt. Apologies to those Members we did not get around to.

Lord Hutton, on behalf of the Committee, thank you very much for your attendance. It was most appreciated.

Examination of Witnesses

Joe Benton (Labour, Bootle)

We will now hear oral evidence from the Association of Consulting Actuaries, the National Association of Pension Funds and the Pension Policy Institute. Just for the record, could the witnesses introduce themselves to the Committee please?

Joe Benton (Labour, Bootle)

Thank you very much. You are all welcome.

Chris Leslie (Labour, Nottingham East)

Thank you very much for your time in coming to give evidence to us today. There are a number of different angles that Members will no doubt want to take in looking at the Bill. I want to pick up on a couple of specific areas. The first is in regard to the governance arrangements for some of the pension schemes. Obviously Lord Hutton made a number of detailed proposals about pension boards, pension policy groups and so forth. Do you have any opinions about the Bill as it is currently formed versus Lord Hutton’s recommendations? Do you feel that this is an opportunity to ensure that we enshrine a high standard of governance arrangements? For example, on the composition of some of those pension boards, might it be preferable if we ensured that a certain number of board members were nominated from among the membership of the schemes themselves? Are independent voices sufficiently represented on those pension boards?

Chris Leslie (Labour, Nottingham East)

I suppose the next set of issues might be to do with the transparency of those governance arrangements and the information that might be available for underpinning how those pension boards are put together. One point I wanted to ask you about was whether you felt it would be important for the Treasury and the schemes themselves to publish clear policies on how those boards are composed and how they are drawn together. Instead of just ad hoc arrangements for the composition of the boards, it is important to have a constitution that is visible and transparent for everyone to see.

That was one point on transparency. If I could segue into the wider issue of communication more generally for members, how important is it to take this opportunity to enshrine stronger communications with members generally? In particular, that could include the provision of annual benefits statements to members of the scheme, information about members’ pension benefits earned to date, projected annual pensions, lump sum arrangements, and members’ and employers’ current contribution rates. Is this not an opportunity to modernise, have best practice and include some of those changes in the Bill?

Chris Leslie (Labour, Nottingham East)

My final question is on valuation issues, and is perhaps directed more at you, Alison. I understand that there is a possibility that there could be a single template approach to valuation, especially of local government pension schemes. Is it not important to make sure that we take some care about a one-size-fits-all approach to valuations, particularly in funded LGPS schemes, given that each of those schemes might have different demographic issues, which come through into their membership? How does the Bill address that? Is it something that we should be wary of as we look at the clauses?

Richard Fuller (Conservative, Bedford)

I shall be brief, as I only have two questions. In our earlier session we were talking about the increase in contribution rates and expectations of change, and what the impact of that may be on people making rational decisions. For example, a young firefighter’s contributions will go up three percentage points. He or she could be putting money aside for a deposit on a house. From our conversations, I have been left thinking, what if it changes again? How would you assess the risk of increasing contribution rates and rational expectations of future change, in terms of how they are handled in the Bill?

Richard Fuller (Conservative, Bedford)

Naturally, there will be a risk because you are increasing the contribution rate—I understand that there will be a risk—but did you assess, even within the local government fund, the quantum of that likely change? Was the drop-out 1% to 2% or 15% to 20%, or do you not have that to hand?

Richard Fuller (Conservative, Bedford)

Essentially, in your modelling, you made assumptions about what you thought the drop-out and the consequential impact on financing would be. There was no data from asking people their thoughts.

Richard Fuller (Conservative, Bedford)

One of the topics we have talked about is intergenerational fairness. In the tax-as-you-go method that we currently have for public sector pensions, a lot of the actuarial risk or the assumption risks fall on future taxpayers—both public sector and private sector taxpayers, and taxpayers yet to be born. Even on the Government’s own numbers, in the public expenditure statistical analyses, that can be subject to quite wide variations, with additional burdens having to fall on future taxpayers, even with these changes. Do you think that the Government should have considered moving to a fully funded scheme, such as the future fund in Australia, for all public sector pensions, as a way of being fair to future generations, rather than continuing with the current approach?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I have a couple of questions on slightly different topics. The first, which has already been touched on, is the potential drop-out rates and the issue of people who are at the higher end of salary scales and the lower wages. We have heard some different views this morning about the likely drop-out rates, and I think you have referred to that. I also wonder to what extent you think the Bill would make for greater fairness between public and private sector workers, and between the so-called high flyers and those on the lower wages.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

On a slightly different topic, one of the big issues for people, in terms of planning for retirement, is to have a degree of certainty about what is coming down the line. When, for a previous Bill, we were discussing the issue of the state pension age, there was concern that the way that some of the changes were put forward disadvantaged women in particular. In the course of this Bill, do you think it would be reasonable to build in a 10-year lead-in period before the scheme pension age changes?

Sheila Gilmore (Labour, Edinburgh East)

I want to come back on the question of people’s behavioural responses. The answer given on the question of whether people drop out seems to revolve around “Well, it is still a good scheme.” But, as we have seen in the world of private sector pensions, people are predominantly looking at their position as they find it now. How can we avoid people just looking at increased contributions and listening to the talk about the pensions being worse, and strengthen the position so that people do not drop out?

Sheila Gilmore (Labour, Edinburgh East)

Do you think that the regulatory regime in the Bill will be effective?

Chris Leslie (Labour, Nottingham East)

Alison, you were talking a little bit ago about the negative revaluation process and how that might dent confidence in some of the schemes and so forth. I want to ask you all about retrospectivity and the fact that members might have thought that their accrued benefits to date were inviolate and that nobody could really go back on what had been accrued, yet some doubts have crept in that the way in which the Bill has been drafted does not preclude Ministers, the Treasury and others allowing retrospective reduction in accrued benefits.

Do you agree that it is pretty fundamental for confidence or trust in the schemes that that particular part of the contract is put beyond doubt and that it is absolutely clear that there will not be that level of retrospectivity?

Graham Evans (Conservative, Weaver Vale)

I should like to pick up what Niki was talking about earlier: the high quality of these pensions, once the reforms have been brought in, compared with the private sector. Joanne, you mentioned that you are pleased that agreement is being reached to ensure that these remain quality defined benefit schemes, as opposed to defined contribution schemes, with key changes such as the move to career average benefits and to ensure that retirement ages keep pace with increasing longevity. We have had witness statements here that disagree with that. They do not think that they should be made to work longer. We have got some more visitors coming after your good selves who feel the same way. Could you tell me, in your experience and your opinion, what you think is a reasonable retirement time for public sector workers?

Graham Evans (Conservative, Weaver Vale)

Health, local government, teachers and the like, rather than the armed forces and the police.

Graham Evans (Conservative, Weaver Vale)

Can I put a figure to that? So 65 is not an unreasonable age to work in a classroom, for example. You said people should retrain to go to a less front-line service, but for a teacher at the front of a class teaching 30 pupils, are you saying that 65 is not an unreasonable age at which to be teaching?

Debbie Abrahams (Labour, Oldham East and Saddleworth)

This is a general question. We are all talking about life expectancy, and it is absolutely right that we are all living longer. However, people on lower incomes will die earlier; in my constituency of Oldham East and Saddleworth, people in Oldham East will live 10 years less than people in more affluent Saddleworth. There is also the issue that we have a different quality of life, so people on low incomes may live not only shorter lives, but less healthy lives in terms of their mobility—they are more likely to experience disability. Is it not time that we looked, in our pension calculations and in the debate as a whole, at life expectancy quality-adjusted life years and disability-adjusted life years, which are recognised international indicators, instead of at life expectancy?

Debbie Abrahams (Labour, Oldham East and Saddleworth)

I do not think they are mutually exclusive.

Debbie Abrahams (Labour, Oldham East and Saddleworth)

With my health brief, I would say that there are definitely issues to be looked at in the round.

Andrea Leadsom (Conservative, South Northamptonshire)

Some of our earlier witnesses said that they completely resist the idea of people having to retire later, but they conceded that there was scope to retire earlier, optionally, or for ill health. Can you each give us your comments on whether you think that the new scheme addresses those concerns for those who do need to retire earlier, for whatever reason, due to ill health or stresses of the job, or just because they choose not to work to such a late age?

Andrea Leadsom (Conservative, South Northamptonshire)

So if a doctor, for example, did not want to be running round on call for 12 hours a day until the age of 68, he or she could retire earlier and just take a more modest annual pension for the rest of their lives, at perhaps around £30,00 to £40,000, instead of £45,000 to £55,000. That would be the rough sort of idea; is that about right?

Andrea Leadsom (Conservative, South Northamptonshire)

Bearing in mind the move towards a career average retirement pension, to me that would say that that is fairer to people who decide actually they would rather retire earlier, because quite often what happens in the public sector is your years of experience on the job mean that your last job, if you wait till your retirement date, is the most highly paid one, off which your pension would previously have been calculated. So going to an average career salary calculation would incentivise you, or facilitate you deciding to retire earlier. Would that be a reasonable assumption?

Jackie Doyle-Price (Conservative, Thurrock)

I just want to come back to one of the points that Alison made. It is a point we have heard quite a lot in this debate, which is about the fact that the average pension in local government is between £4,000 and £5,000. Obviously, that is not a very meaningful figure because the average takes in people who spend 40 years of their working life in local government and some who perhaps only spend two or three. Do you have any figures about the average length of time people contribute, which will give a bit more meaning to that figure?

Jackie Doyle-Price (Conservative, Thurrock)

In practice, my vibe is that people once they start working in the public sector tend to stay. Do you have any idea of proportions of people who perhaps do less than five years, and those who do their full career?

Joe Benton (Labour, Bootle)

It appears that we have no further questions, so I thank our witnesses on the behalf of the Committee. We will now hear oral evidence from the CBI, the Police Federation and Prospect.

Joe Benton (Labour, Bootle)

Thank you all very much for coming today. You are most welcome. Can we begin with a brief introduction from each of you?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Welcome to the Committee. Thank you for giving up your time to give evidence. I want to ask you all a general question about the disparity between private sector pensions and public service pensions. We have seen a decline in the private sector from 5 million-plus active members of private sector DB schemes down to fewer than 1 million now, whereas we have not seen a similar fall in the public sector. We now have this negotiated settlement that preserves good-quality defined benefit schemes, albeit a career average instead of final salary. What are the views of the panel about the negotiated settlement that has been reached between the public sector and the Government in terms of the quality of the pension going forward vis-à-vis what is available in the private sector? The question for the CBI in particular is: do you have a view about why there has been such a decline in defined benefit pensions in the private sector?

Chris Leslie (Labour, Nottingham East)

This is a question that we have asked a number of other representatives from employer groups and from trade unions who perhaps were entering into negotiations and might have reached agreement but then saw the details of the Bill. How far do you think—if you can be specific I should be grateful—the Bill departs from your understanding of what had been agreed in some of those discussions? I suppose I should start with Mr Hudd.

Chris Leslie (Labour, Nottingham East)

How can that happen? How in legislation could we strengthen that 25-year protected period? Are there particular ways in which it could be embedded more firmly? I have a similar question about that provision. It is stated, but Parliament cannot bind its successors and so on, so how do we enshrine it?

Chris Leslie (Labour, Nottingham East)

Would that extend to the fair deal promise as well? That is not enshrined in the legislation—the concept that members of schemes who have their employment transferred to a private contractor are entitled to accrue benefits to the same or greater value than the benefits provided under the previous scheme. Would it be helpful to have that clarified in the Bill?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Could I follow up on a couple of points, particularly in relation to the Police Federation representatives? I heard you outline some of the difficulties that you would see in relation to the Bill’s provisions, given the particular circumstances that police officers have to work under. I invite you to make additional points about that if you want and perhaps to expand on where you have concerns around the Bill’s governance provisions and whether they give adequate weight to the views and interests of your members.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Can I ask the Police Federation representatives one further question? What discussions have you had with your Scottish Police Federation colleagues? Were there any particular issues that they felt ought to be reflected in the contribution made by yourselves today, or things that we ought to look at in the Bill?

Richard Fuller (Conservative, Bedford)

We heard in other sessions questions and points about the Government’s intent on fairness in some of the changes for people on lower incomes and those on higher incomes, in terms of their pension arrangements and seeking to protect more those on lower incomes—the people who clean the hospital rather than run the hospital. The career average measure achieves some of that, but we will still have people drawing public sector pensions significantly in excess of the national earned income that people have during their careers. Do you think there is a case for the Government to go further and put a cap on those rather larger public sector pensions so that the overall numbers may be even more oriented towards the person who cleans the hospital rather than the person who runs it?

Richard Fuller (Conservative, Bedford)

Before we move on, I have another question. Points have been made about the maximum tax rate in the country, which does not raise much money. From a fairness point of view, does Prospect believe that it is fair that people should be able to draw a public sector pension of £45,000 or £50,000 a year when the average income is £25,000 a year?

Graham Evans (Conservative, Weaver Vale)

To pick up on Dai’s point about the shortage of engineers and scientists, that is a problem for the whole country. We need more scientists and engineers, not least in the wealth-creating industries. The shortage of those types of professionals is a fairly common problem across the country. It was a good example, but it is a real issue with the nation, not just your profession.

My question is to Neil. It is about, for me, the best contribution in this document from your good self. I will remind you. It states that the CBI welcomes the Bill, and that it is a

“long-overdue step to delivering sustainable pensions in the public sector…Just such a change has happened in private sector schemes over the past decade. In boardrooms across the country, tough decisions had to be taken.”

You summarise by saying:

“Until the Hutton Commission, we believe no such disciplines have been brought to bear on the public sector.”

You would not think that, given the contributions that we have had by some people who were sat where you are earlier today. What I am saying is that the CBI should be speaking up louder on what effect this has on the private sector pensions issue that we have in this country.

You rightly say that the leadership and management in the private sector have had to have such difficult conversations over the past 10, 15 or 20 years. Now this has come to the public sector for the first time, and quite frankly, the management and leadership is quite interesting, because it is extremely mixed. In Dai’s case, he has taken what I believe to be quite a reasonable approach, as have some other trade unions. Ian, you talked about your members’ expectations. I would say to you that it is absolutely up to yourselves to manage and set the expectations of your members.

The country is in a difficult economic situation. We do not have any money, and I think that at this difficult time, the public service leadership and management teams have to rise to the occasion. I would like to see a lot more leadership, rather than just knee-jerk complaining to the coalition. Nobody wants to go through this, but as you say, Neil, we had this conversation in the private sector an awfully long time ago, and I would like to hear more from the CBI and see a bit more leadership from the public sector unions and federations.

Graham Evans (Conservative, Weaver Vale)

I was not criticising your leadership, I was thinking of chief constables more than you.

Marcus Jones (Conservative, Nuneaton)

We have discussed with all the panels today—we have touched on it with this panel—the effects of the changes on people at different levels within public service. My question is probably for the Police Federation, and it relates to a discussion that we have had. Effectively, people at lower levels will be proportionately more protected through the changes than others. Obviously, you can apply that more easily to organisations such as the NHS, where there are many more lower-paid entry-level workers than in the police service, but how do you think the reforms reflect on the police service, in terms of the difference between rank and file officers who remain police constables throughout their career and officers who make it up the ladder, some of them very late in the day, which boosts their pension under the current scheme?

Marcus Jones (Conservative, Nuneaton)

Do you have any figures or statistics for retiring officers, in terms of what those retiring officers do after finishing their 30 years? How many of them retire fully, and how many go into other careers?

Alison McGovern (Labour, Wirral South)

I have a brief question for Neil, primarily, although others might want to contribute. One issue in the Hutton review is accrued rights. It is one point where the Bill will almost certainly influence the private sector as well as the public sector. Do you think, as one of our other contributors mentioned this morning, that helpful definitions of accrued rights could be sought through the Bill? How would that affect schemes across the public and private sectors?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

One thing that has interested me over the years regarding all legislation is the potential for unintended consequences. I notice that the submission from Prospect and the FDA particularly addresses clause 28 and schedule 10 whereby, on the closure of certain schemes, people might be moved to other civil service pension schemes. Do you want to say more about the particular circumstances and what we might do to deal with such unintended consequences? Have other members of the panel identified anything to bring to our attention to probe further during Committee deliberations?

Jackie Doyle-Price (Conservative, Thurrock)

I wish to address Mr Rennie and Mr Sturzaker. I have a particular interest in the impact on police officers. They are working under different conditions from other public sector workers. We have been given figures for the average pension for other sectors but not for the police. Do you have that figure to hand, the average pension draw?

Jackie Doyle-Price (Conservative, Thurrock)

Right; it is not in mine. How concerned are you that police officers will opt out of the system? Obviously, there are changes but this still remains a good package on offer. We are getting a lot of rhetoric that people will opt out. How concerned are you that that will happen?

Jackie Doyle-Price (Conservative, Thurrock)

They are poorly advised because they will not get the same return. You alluded, in your opening remarks, to the number of people moving to the police from other professions. We have the average age for that as being 27. Do you have any information as to how many of those people are taking a pay cut, as opposed to moving up the career ladder? The feeling I get about police officers—and I know some people who have moved into the profession from other areas—is that it is very much a calling and a vocation, and people tend to look at the offering in the round. They will be coming in with their own history of their existing provisions.

Jackie Doyle-Price (Conservative, Thurrock)

No, absolutely right.

Jackie Doyle-Price (Conservative, Thurrock)

It still will be a good package, by comparison. That figure of 27 presumably reflects a lot of people who have come in when they are much younger, and then people who perhaps come into the service when they are much older, when people typically change careers.

Joe Benton (Labour, Bootle)

I do not think there are any further questions. On behalf of the Committee, I thank you for your interesting evidence. Although we are not scheduled to hear from our next witnesses until 4 o’clock, I believe they are all present so, with the Committee’s permission, I propose to continue.

Joe Benton (Labour, Bootle)

Good afternoon, gentlemen. You are most welcome. Thank you for coming. Would you like briefly to introduce yourselves?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Welcome, everyone. I would like to start with something that Councillor Phillips has already referred to: the local government pension scheme being the only major funded scheme in the public sector. You have given us a global context for that. Do you believe that the Bill reflects accurately that special position for the scheme? What changes do you think the Committee should look at as the Bill progresses?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

On crystallisation of the debt, which also came up on Second Reading, it was suggested that that is a real problem. To what extent do you believe there is a real risk of that being apparent or coming to fruition if a scheme were to close?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

So is there something you would like us to do in relation to that?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Do you believe that clause 12 reflects accurately the specific needs of the local government pension scheme in relation to setting the rate of employer contributions?

Ian Paisley Jnr (DUP, North Antrim)

Further to the last question, are you saying that you would like the Bill amended, and the word “closure” removed because it has connotations that mean something very different in the pensions world?

Ian Paisley Jnr (DUP, North Antrim)

So you think that should be in the Bill to make it clear.

Richard Fuller (Conservative, Bedford)

We have talked in other sessions about intergenerational fairness and the massive unfunded obligation for public sector pensions that will cascade down to future generations to pay. The local government scheme is a different model from the rest of the public sector inasmuch as it is funded. One of the points raised by an earlier panellist was that the transition costs of moving other parts of the public sector pension scheme to a funded scheme would mean a generation of taxpayers essentially paying twice, and that has certain merits. What were the circumstances of the original setting up of your own scheme? How did they get across those problems?

Richard Fuller (Conservative, Bedford)

Do you think that that is a more prudent approach to the funding of public sector schemes—to have them on a funded basis, rather than a tax-as-you-go basis?

Richard Fuller (Conservative, Bedford)

You make a very interesting point, Mr Phillips, about the fact that you are one of the largest investors. Of course, one of the advantages of pension funds is that they have a long-term perspective on investment and they can make long-term investment decisions. Do you think that there would be an infrastructure benefit—we are looking at funding for infrastructure—if the Government had looked at a greater expansion of funded schemes? Essentially, you could have killed two birds with one stone, with transition to a funded basis for our public sector pensions and funding provided for the long-term infrastructure projects that all parties would like to see.

Richard Fuller (Conservative, Bedford)

A final point. I absolutely agree with you on the issues of probity, but also your understanding that this would provide funding support for longer-term investments within the general constraints of what the trustees think is in the interest of their members. Could I ask, for your own schemes, what proportion of the invested funds is located in the United Kingdom, and what proportion of your assets are overseas?

Richard Fuller (Conservative, Bedford)

But would it be fair to say that a large proportion of the pension fund money is invested in UK-based assets?

Joe Benton (Labour, Bootle)

It does not appear that we have any further questions for you, but this might be an opportune time for you to comment further on the Bill in general, if you so wish.

Joe Benton (Labour, Bootle)

Thank you very much. My life is full of contradictions; having informed the Committee that there appeared to be no further questions, I think there are now two further questions.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

In terms of the local government pension scheme, you are obviously speaking about schemes in England and Wales. Have you had any discussion with your counterparts in Scotland? Are there any comments you wish to make in relation to that?

Debbie Abrahams (Labour, Oldham East and Saddleworth)

Mr Galvin, will your additional responsibilities put the Pensions Regulator under increased pressure, in view of the resources you currently have?

Joe Benton (Labour, Bootle)

On behalf of the Committee, a big thank you to our witnesses. It is much appreciated.

Joe Benton (Labour, Bootle)

Chris Keates is not yet here, but we shall continue. Mr Courtney, I hope you are not feeling too lonely.

Joe Benton (Labour, Bootle)

You are most welcome. Thank you for giving evidence. Would you like to give us a bit of background about yourself before we proceed?

Joe Benton (Labour, Bootle)

Yes, thank you.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Welcome to the Committee, Kevin. It is nice to see you again. Why is your position still not hugely supportive of the final negotiated agreement, given that in the private sector, as we have heard in other sessions today, the number of active members of private sector defined benefit schemes has fallen from more than 5 million in 1996 to under 1 million now? The scheme that has been negotiated—skilfully negotiated, if I may say so, from your perspective and that of the other unions—has resulted in a continuation of a defined benefit scheme, albeit career average rather than final salary.

Some say—Lord Hutton said, and I agree—that a career average is fairer than a final salary scheme. We have to cope with longevity and increased costs, and we have to be fair to the taxpayer. No one within 10 years of their retirement age will be affected by this change, and for a further three years, there is a tapering for 13 years within retirement age. The salary calculated for the average salary scheme is indexed as time goes on; according to the teachers scheme it is indexed at CPI plus 1.6%. Given all that, why are you not marching in the streets celebrating what is a very good pension scheme for your members? I do not understand why there is still this hostility, given the realities of the type of schemes available in the rest of the economy.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

You seem to accept that teachers are perfectly capable of working to 65, managing a class of five-year-olds or teenagers—that was the agreement negotiated in 2007. You seem to accept that. It is just the final three years that you are concerned about. Given the point just made about SPA minus, have we not got that in the scheme, in that you can take an actuarially reduced pension? You accepted that even with SPA minus there would be a reduction in the pension you would have to have in exchange for that SPA minus figure. Do we not have that, in essence, with the actuarially reduced figure? I think it is 3% reduction for each year you are retired before retirement age. Is that not the same thing?

Joe Benton (Labour, Bootle)

Order. Before you respond to that, Mr Courtney, can I just take the opportunity to explain to Chris Keates? We made a start; you are not at fault. Apologies. I do not know whether you picked up the gist of Mr Gibb’s original question.

Joe Benton (Labour, Bootle)

No discourtesy was meant by the Committee to you. We are running a bit ahead of schedule. I thought I had better explain that to you before we went any further.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Before we bring in Chris Keates, can I just ask you this? The accrual rates between schemes differ, as do the CPI rates and the agreed valuation rates. In exchange for retiring earlier would you be prepared to accept higher contribution rates to pay for that earlier retirement age for teachers, given that you are opposed even to the increase in contribution rates that is going forward? Would you propose even higher increases in contribution rates to pay for that earlier retirement?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Of course, the revaluation could not take place until all the variables had been decided. Lord Hutton made it clear that there has to be major restructuring of public sector pensions if they are to be sustainable in the future. Chris, why is your stance is so different from the Association of Teachers and Lecturers? In its written submission it says it accepts the Government’s proposed final agreement on the changes to the teachers’ pension scheme as

“the best that could be achieved through negotiation”.

Whereas your union says it is opposed to the programme for public sector pensions reform as representing an unfair attack on public service sector pensions in general and teachers’ pensions in particular. Could you say why teachers are worse treated than those in other public sector schemes? Why do you think schemes in the public sector should be so much more generous than in the private sector, where we have seen a fall in the number of active members of defined benefit schemes—the type of scheme that the Government have maintained for the public sector—from 5 million to under 1 million, whereas it has been sustained in the public sector. Why should there be such a difference between the two sectors?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I have one final question: if the pension ends up as currently proposed, would each of you advise your members to opt in, or would you advise them to go for an alternative?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Chris, what is your advice to your members on opting out?

Chris Leslie (Labour, Nottingham East)

The need to ensure we have balanced and sustainable pension schemes is clear, and Lord Hutton has made some very strong points that many of us would agree with. It is difficult not to feel some sympathy with that younger generation of teachers when I hear the story you told, Mr Courtney, about the state of the negotiations.

As I heard it from you earlier, there was a willingness on behalf of the employee representatives to try to find a way within that cost envelope, which might have included some extra contributions from the employee side, to do some deal with the Department for Education in respect of the retirement age alteration. You implied that you hit some sort of wall, and that there was a refusal to discuss it. As soon as it went into the Treasury those ideas just fell by the wayside, when they might have been perfectly prudent and viable options especially if there was more give from the employee side. First of all, are you able to act on those frustrations? What is the next step for you in trying to move the issue forward? The Minister has had quite a quiet day so far, so hopefully he is in listening mode. He might want to ask you some questions directly, which might save a lot of time and effort. What would be your point to the Treasury Minister today?

Chris Leslie (Labour, Nottingham East)

He was not given much of an explanation of why he was taken away, either.

Chris Leslie (Labour, Nottingham East)

Presumably, teachers up and down the country, particularly the younger generation, would be interested if you were able to elicit from the Minister a willingness to talk about the matter. That would be your ask of the Minister.

Chris Leslie (Labour, Nottingham East)

I am sure that the Minister will want to ask you about your availability for these discussions in a moment.

Finally, I want to ask about clause 9, because the question of the pension age featured in Lord Hutton’s recommendations. Specifically, he said that the link between the state pension age and the person’s normal or deferred pension age should be regularly and independently reviewed to ensure that it remained appropriate in the light of scheme members’ longevity. Are you surprised that that recommendation has not made it into the Bill?

Graham Evans (Conservative, Weaver Vale)

I am really glad, Kevin, that you encourage your teachers to join the teachers pension scheme. You mentioned an example of young teachers who were thinking of not taking out the pension. During previous evidence, I used the example of two graduates aged 21 or 22, one of whom is looking at teaching or a public sector career with a DB scheme. They know what to expect, they have got job security, they have reasonable pay and conditions, and working as a teacher is an honourable and good profession to get into.

However, if you are looking at the private sector, you are looking at a DC scheme. You do not know what the future will bring and there is a certain amount of uncertainty and ambiguity about your career prospects, because industries change. They ebb and flow, and so forth, so you do not have that job security in the private sector. Using your analogy, I would say to those teachers, “Take a look at the private sector and take a view,” but I would encourage them to stay in the teaching profession. The DB pension is a very good pension to have for any young person getting into teaching. If you would suggest anything other than that, I think you need to look again at what you are saying to your members.

My question to you is about the average working age. You have mentioned that you do not think teachers can carry on working until they are 68. Can you tell me what you think is a reasonable retirement age for teachers who have to stand in front of a class of 35 16 to 18-year olds? What is the current retirement age for your members, and what is the average mean pension? These questions are to both Chris and Kevin.

Graham Evans (Conservative, Weaver Vale)

Can I come back on a couple of things? I agree with a lot of what you say, but you are talking about leadership and management. If staff feel insecure, including females in their middle 50s, that is for leadership and management. They should not be put in that position.

On being made redundant, I am a governor of a high school, and I am not aware of any redundancies. In fact, there is a shortage of good-quality teachers in the sciences and maths. I appreciate that you used the example of RE; I have heard of that. There is a shortage of good quality teachers, and the overall thing that Lord Hutton has done here, despite what you may say, means that even if these reforms go ahead, it is still an attractive profession to go into with a very good career path. That may be to 65 and beyond, but if you join as a 20-something, with teaching you know exactly where you stand in terms of your career path and what you will get at the end of it.

Alison McGovern (Labour, Wirral South)

A straightforward question—I hope—on accrued rights. This is an issue that has been raised in our previous sessions, so I hope my fellow members of the Committee will forgive me for repeating the same question but I think that different perspectives are helpful. On the matter of accrued rights, is there an issue of definitions? Do you think that the Bill, as drafted, is helpful in defining what we mean by accrued rights, and do you have any suggestions on this matter?

Richard Fuller (Conservative, Bedford)

Mr Courtney, I think that you described yourself and Ms Keates as “hard-nosed trade union negotiators”. Certainly, from my perspective, I am seeing a master class in the defence of self-interest without regard to the national interest, which marks your unions as well outside the mainstream that we have heard from today, such as Unite, Unison, GMB and Prospect. Of course, that is your right, as the views of your respective unions.

What concerns me is the other aspect of this, which is the affordability of pensions. The pensions bill is one that we pass on to taxpayers in the public and private sectors not only of this generation, but of the next generation—the people whom your members teach every day. In my own home town of Bedford, they teach them admirably and brilliantly well; it is hard work. But what would be your argument to that next generation about the resolution of this, in terms of affordability? We already know that we have a significant public sector debt that will be a burden on future taxpayers. Unfunded pension liabilities are in addition to that. Do you not think that the Government are trying to make a stride for inter-generational fairness?

Richard Fuller (Conservative, Bedford)

I did not think you would, but I thought I would pose the question.

Richard Fuller (Conservative, Bedford)

I wonder why so many other unions in other professions are in concord with the recommendations made here and why the ATL takes a different point of view. Does that not mean that you would be seen as being out of the mainstream?

Ian Paisley Jnr (DUP, North Antrim)

I am not unsympathetic to the points that you have raised. However, the teaching profile, the number of children in schools in Northern Ireland, is very different from the rest of the UK, unfortunately. I am very interested in what you have to say about not being opposed in principle to higher contribution rates being paid by your members. If that is an opening gambit for negotiations, it is an interesting one to start with. No doubt Ministers and Ministers’ advisers will have heard that, and hopefully it will be of interest of them.

Coming back to pension needs, although I think there is some credibility in your argument, its greatest flaw is the position on physicality. With the greatest will in the world, I cannot equate the physical attributes required by a teacher with those required by a soldier, a police officer or a firefighter. They are not anywhere near. You have to accept that, and recognise that there is going to be a significant difference there. I do not want a 68-year-old firefighter putting a fire out in my house, rescuing my kids or rescuing me. That is stupid. I would respect a 68-year-old teacher more, as would my kids. Perhaps that is something about the culture that we live in. Are you prepared to concede anything at all on the issue of age for your members?

Ian Paisley Jnr (DUP, North Antrim)

I think of them as a longer group.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I have a fairly short question on something that we have not really touched on. Numerous teachers to whom I have spoken in the past and in some of the work I have done previously would not have wanted the cliff edge of retiring completely. They would have wanted a winding-down scheme of opportunities. Will the Bill make it easier or more difficult to introduce part-time or phased retirement if teachers so wish? Is there anything in the Bill that is helpful in that, or does it hinder it?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am sure that the Minister has heard that.

Joe Benton (Labour, Bootle)

There do not appear to be any further questions. I thank you both for your evidence at this session.