Public Service Pensions Bill

Public Bill Committee, 20 November 2012.

Clause 11 - Employer cost cap

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 57, in clause 11, page 6, line 40, at end insert—

‘(4A) Treasury directions under subsection (3) may only be made after consultation with the persons or representatives of the persons who appear to the Treasury to be likely to be affected by the employer cost cap.’.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss amendment 58, in clause 11, page 7, line 15, at end insert

‘provided that they do not have the effect of reducing members’ accrued benefits.’.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is a pleasure to have you back in the Chair, Mr Benton, and also to be back for another day of interesting deliberations on the Bill. This morning we will deal with one of the most important clauses we have still to consider, given the number of representations we have received about it from external organisations, particularly some of those representing people involved in public sector pension schemes who have expressed concerns.

The amendments were tabled in advance of receiving the Treasury papers that were provided during last week’s sittings. However, having looked through the documents in more detail, it is still important that we debate the amendments so that we can put a number of things on record, as well as seek the Minister’s support for what we are trying to achieve.

Amendment 57 would add proposed new subsection (4A) to clause 11. Notwithstanding some of what is set out in the Treasury documents, we want the requirement for consultation that is set out in the provision to be included in the Bill. We are worried that if the cost of a public service pension scheme goes above the employer cost cap by a specified margin, clause 11(7) will allow scheme regulations to reduce members’ benefits, or increase their contributions, to reach the target cost of the scheme. Subsection (7) might contain a relatively small number of words, but it may have very significant implications for the members of those schemes, so the way in which the cost cap is set is absolutely critical.

Clause 11 provides for the cost cap to be

“set in accordance with Treasury directions.”

Although the Treasury documents indicate that the Minister would like consultation to take place, there does not appear to be any requirement in the Bill for the Treasury to consult with scheme members or their representatives.

Subsection (3) gives the Treasury the widest possible discretion over how the cost cap is set so, in theory, there would be nothing to prevent it from setting the cap in such a way that it would be easily exceeded, thus triggering an increase in employee contributions or a decrease in benefits. Of course, some might say that we have a Minister who would do no such thing but, as we have repeatedly heard, Ministers come and go—indeed, Governments come and go—so we want to ensure that the Bill will stand the test of time. There is concern that the clause might allow for the increase of contributions or the reduction of benefits through the back door, as some organisations have suggested.

Once again, let me quote the words of the Chief Secretary to the Treasury on 20 June last year:

“establishing a relationship of trust and confidence between the Government and public service workers is critical to the success of these reforms.”

If the Minister agrees with that, I would hope that he would accept our amendment. There would be real concern if there was no consultation on the employer cost cap, and that could seriously damage trust.

Several points made during the evidence sessions and in written submissions to the Committee highlight why this issue is so important. During the evidence sessions, my hon. Friend the Member for Nottingham East specifically made a point about the employer cost cap in clause 11. Brian Strutton gave him a very full response, including by saying:

“There is one crucial area—future cost management—where the proposals that we designed and submitted in the summer are incompatible with clause 11 and other provisions in the Bill. The way in which the Bill describes cost management does not suit the LGPS with its funded nature and the provisions that we have put together. In addition, the Bill’s suggestion that schemes should close is unsuitable for the LGPS.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 151, Q29.]

We have dealt with some of those issues during the course of our debates, but that again highlights the sense that people feel that the huge amount of work and many debates that took place will be superseded without proper consultation.

When my hon. Friend asked whether the BMA representative, Dr Porter, was satisfied with clause 11, he received the reply:

“We have supported the principle of an employer cost cap. Nobody wants to see pension schemes with completely unlimited costs and open future commitments.”

However, Dr Porter went on to say:

“We would like to see proper mechanisms for consultation and—this is similar to some other comments—we would like to see it being subject to the affirmative procedure, so that we get away from the potential in the Bill for people simply to write in the rules and regulations regarding pension schemes without having to open themselves to proper scrutiny.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 159, Q44.]

I do not want to get ahead of our discussions on amendment 59, but those comments are important as they are a sign of people’s concerns.

I make reference also to a number of points made by the British Dental Association in its written submission. The papers were helpfully provided to the Committee yesterday, which state:

“There are a number of places in the Bill where power is reserved to HM Treasury to exercise control…Examples of this power appear in Clause 11—Employer cost cap—where the cap is to be set in accordance with Treasury directions.”

Unison’s written submission also expresses concerning, stating:

“In respect of clause 11, dealing with the employer contribution cap, UNISON would seek clarification as to what the Treasury involvement would be with the LGPS. Principles designed jointly by the LGA and trade unions and agreed by the Government; provide a mechanism for setting the cap and collar that will be incorporated into the scheme regulations...We do not understand why Treasury directions should therefore apply to the LGPS as this seems to contradict the principles already agreed by government.”

Amendment 58 would insert a provision on accrued benefits. At present, clause 11(7) allows members’ benefits to be reduced, or for their contributions to be increased, to prevent the cost of the scheme going beyond the specified margins, but it appears that there is nothing to stop accrued benefits from being reduced. Lord Hutton’s written evidence set out that one of his main concerns about the Bill was that it did not offer

“proper protection of accrued rights”,

so that sensitive and serious issue needs addressing.

The Treasury documents state:

“There is no intention to make changes to benefits already accrued via the cost cap mechanism.”

That sentiment is sensible, and I am sure that people welcome it, but the problem is that the Bill, as I understand it, does not say that. Despite the Minister’s good intentions, the clause could allow for the deduction of accrued benefits via the cost cap, so its wording is not as strong as I and others would like. Just because the Government have “no intention”, it does not mean that that might not happen. This comes back to the question of trust and the need to find a common understanding of how to proceed.

Given that the Minister has promised in the Treasury papers that the Government do not intend to reduce any accrued benefits, I hope that he will not object to amendment 58. Such a change would not be detrimental to the Government, but would be of enormous benefit to the millions of public service workers who worry that their pensions are not safe. At the heart of our discussions has been the fact that people want to be able to plan with a degree of certainty. The worry and uncertainty that the proposals create will cause much grief and concern to people who are approaching retirement age and do not know what financial position they will be in.

The Bill allows for the reduction of accrued benefits. Although the Government have promised that they will not reduce them, what if the legislation outlives the Government? Presumably it will, because the intention is that it will apply in the long term. The Government cannot guarantee that Ministers in any future Government will not use the Bill to reduce accrued rates. If the Minister genuinely wants to protect accrued rates, why not accept our amendment and send a message to the public service workers who are concerned about that?

A further question is prompted by the Treasury paper “Establishing an employer cost cap in public service pension schemes”. Paragraph 1.7 on page 6 states:

“The Government is currently considering more detailed proposals on the operation of the cost cap in the local government scheme, including in Scotland where there is currently no model fund. Further details will be provided in due course.”

I have already asked the Minister several questions about the operation of schemes in Scotland. Will he update us on exactly what discussions are taking place, and with whom, about the local government scheme in Scotland? When does he expect to be able to report on those discussions and give us further details? This is a crucial point, because external organisations, including some trade unions, are worried about the scope of the legislative consent motion that the Scottish Parliament is due to discuss. The Government and the Scottish Government do not appear to believe that such matters need to be part of the motion, but the paper suggests that the Treasury is involved in discussions about the future operation of the local government scheme in Scotland. That may or may not be different from what has gone before—I do not know, because we do not have the details—so will the Minister tell us whether he believes that putting that statement on paper brings the matter within the scope of the legislative consent motion in the Scottish Parliament?

I hope that I have outlined the concerns to which we would like the Minister to respond. Our important amendments reflect the views that we heard during the evidence sessions, which is surely why we have such sessions in the first place. They also reflect the views of Lord Hutton. I know that the Government will adopt some of Lord Hutton’s recommendations and not others, but I hope that they adopt this one. The amendments also reflect the views expressed in the written evidence that we received from professional organisations—particularly, but not exclusively, trade unions—that are involved in discussions with the Government about the way ahead. I believe that those organisations want to continue to work in a spirit of trust and co-operation, but they have not had all the assurances that they hoped for set out in the Bill.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Lady for her thoughtful comments. A key recommendation in Lord Hutton’s report was the establishment of an employer cost cap mechanism to ensure the future sustainability of public service pension schemes. Clause 11 establishes the mechanism for all pension schemes made under the Bill, which we will discuss in more detail later.

Amendment 57 would place a statutory consultation requirement on Her Majesty’s Treasury regarding the detail of the cost cap policy, which is to be set out in Treasury directions. That requirement would be unnecessarily burdensome. There will be further opportunities for scheme members and their representatives to comment on the operation of the cap as the policy is developed through the normal scheme governance procedures. Additionally, a consultation requirement for the scheme regulations, which must include the cost cap and mechanisms for dealing with any breach of the margins around it, already exists in clauses 19 and 20.

Amendment 58 would prevent members’ accrued rights from being reduced under the operation of the employer cost cap. Let me reassure hon. Members that the Government have no intention of reducing scheme members’ accrued rights either as part of the default response to the cost cap, or through changes agreed by scheme members and employers. As is clearly set out in “Establishing an employer cost cap in public service pension schemes”, which was published by the Treasury last week, any adjustments made to member benefits as a result of the cap will only apply going forward. The paper states:

“There is no intention to make changes to benefits already accrued via the cost cap mechanism.”

Amendment 57 therefore places an unnecessary burden on the workings of the new schemes, while amendment 58 would provide protection for accrued rights when none is needed, because adequate protections already exist.

One of the hon. Lady’s key questions was about local government pension schemes, particularly in relation to Scotland. Such schemes are funded, but the taxpayer ultimately provides the back-stop, which is why it is fair that the Treasury has a keen interest in those schemes and that there is some form of cost cap. However, the schemes’ funded nature must also be taken into account. The Government are in detailed discussions with the representatives of such schemes, including in Scotland, and with trade unions on the best way to put the cost cap together. There are more discussions to be had because there is no model fund for Scotland. The hon. Lady asked when we might be able to provide further information about that. If I had such information today, I would share it with her, but the discussions are ongoing and we have not reached a conclusion. However, the Government expect that discussions will be completed in the coming weeks and we will announce the result as soon as we can.

The hon. Lady also asked about the legislative consent motion in Scotland, specifically in relation to the Scottish LGPS. The Scottish LGPS is not in the scope of any such motion. Public service pension policy is reserved to Westminster with only minor exceptions in the case of Scotland, including for the judiciary and non-departmental public bodies.

I urge the hon. Lady to consider withdrawing the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

May I start with the issue of the legislative consent motion in Scotland? I hear what the Minister says about the policy being reserved, apart from on some minor issues, as he describes them. However, some of the people in Scotland might consider them to be pretty major issues when they are worried about whether there will be fundamental changes to the local government pension scheme in Scotland as a result of decisions taken here, which is why I have persisted in pursuing points about the legislative consent motion.

I appreciate that that is not entirely the Minister’s responsibility, because the Scottish Government also have a responsibility to look at some of these issues and, so far, they have been fairly silent on them. I do not want to appear to be entirely on the Minister’s side, but I think that the Scottish Government should look more widely at their responsibilities, rather than always trying to blame this place for what goes on. I will be worried if there is no certainty on this by the time we get to Report and Third Reading, and I am sure that the Minister will want to be able to give some assurances at that stage, particularly to Scottish Members.

I am slightly disappointed by the Minister’s response to amendments 57 and 58, which I thought were reasonable amendments that would do exactly what he says he wants to achieve. If his good intentions were set out in the Bill, that would enable him to see them through—if he is spared a reshuffle before the end of the Parliament—and ensure that they were in place for the long term. If they were in the Bill that is passed, they would stand the test of time.

I was also rather disappointed to hear the suggestion that putting such provisions on consultation in the Bill would be burdensome. If the Minister’s good intentions are that there should be consultation, there is no reason why that should not be set out in the Bill. That would ensure that consultation would take place, including with trade unions and others who have a direct interest.

I understand that the Prime Minister said in his CBI speech that consultations could be burdensome—perhaps that is the word of the week—and that he wanted to slash consultation periods in the future. I am sure that the Minister did not have any of that in his mind when he said that he wanted to ensure there was consultation—that is referred to in some of the documents he has given us—yet he will not take the next step by ensuring that the Bill provides for it. Perhaps he does not want to be out of step with the broader strategy of the Government. If consultation is to be slashed in future, I do not think it would be a good thing, although I do not believe in consultation for its own sake. It should always have a purpose and be carried out with a view to taking action at the end of it. Amendment 57 would ensure that consultation would take place.

Amendment 58 would put another of the Minister’s good intentions in the Bill so that no one would lose out. It was important that he set out his points on record, but it would have given some comfort to members of the schemes if he had showed that he had listened to what they were saying, and what has been represented to him in Committee, by accepting the amendments. That would send the message that he is a listening Minister—and an acting Minister, who is prepared to do something rather than simply listen. “Listening” is another word that is being used a lot at the moment, because I have heard the Minister say on numerous occasions that he and others are listening. We seem to be listening all over the place, but surely at some stage we have to do something as a result of listening to representations. I am therefore not minded to withdraw the amendment at this point.

Joe Benton (Labour, Bootle)

Does the hon. Lady wish to move amendment 58?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am disappointed that the Minister is not accepting our amendments, but I do not intend to press amendment 58 to a Division.

Joe Benton (Labour, Bootle)

We shall therefore move on.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 59, in clause 11, page 7, line 19, leave out ‘negative’ and insert ‘affirmative’.

The amendment seeks to change clause 11 by replacing the word “negative” with “affirmative”. That will come as no surprise to the Minister and his colleagues. We have previously made such suggestions on a number of occasions where we believe it would be more appropriate to have the affirmative procedure in place. Once again, we want to put the issue on record.

As I have said in relation to previous amendments, representations have been made by external stakeholders on this point. Without going over again every part of the debate we have had on other clauses and amendments, it is worth putting on record that employer cost caps can result in an increase in employee contributions or a reduction in benefits. That is essentially what could happen. Therefore, I believe it is essential that regulations setting those cost caps are subject to proper parliamentary scrutiny. We did not get assurances and agreement from the Minister on previous amendments, which would have put in the Bill safeguards that he wishes to see. I hope that he will at least accept that those regulations should be subject to the affirmative procedure.

I heard what the Minister said about consulting affected members and their representatives. We have seen some of that in the paperwork provided on the setting of the employer cost cap. However, I have to say that failure to accept our amendment to put that consultation in the Bill gives all the more reason to have the affirmative procedure in place, as parliamentary scrutiny is important.

I think the Minister would agree that these issues have the most impact on scheme members but, as he rightly said, they also have an impact on the taxpayer as the potential backstop. It is important that all hon. Members have the opportunity properly to scrutinise any proposed changes in future. With amendment 59 we are simply trying to ensure that parliamentary procedure is in place to take account of that and that Members have the opportunity of thorough scrutiny before any decisions are made.

Sajid Javid (Conservative, Bromsgrove)

The amendment would oblige Parliament to debate and formally approve the regulations that will set in place the size of the margins—the ceiling and floor—around the cost caps, and the level to which costs should return if the margins were breached. We recognise that the regulations will be of interest to scheme members, their representatives and parliamentarians, especially because they will specify the point to which costs will return in the event of a breach of the margins. To provide an effective control on the costs faced by the taxpayer, we intend to require schemes to return to the original level of the cost cap in the event that the 2% margins are breached.

The Government have made clear their commitment to the margin being set at 2% above and below the level of the cap. Parliament can therefore be assured of our intentions in relation to the cost cap. We consider it unnecessary to commit further parliamentary time to debating the regulations. The negative procedure balances the efficient use of parliamentary time with the need to achieve the correct level of scrutiny. Making the regulations subject to the negative procedure means that Parliament will still be able to scrutinise them before they are laid and debate them if parliamentarians consider it necessary. The use of the negative procedure is in line with the usual approach to making regulations on public service pay and pensions matters when the broad policy design is set out already in primary legislation.

I urge the hon. Lady to consider withdrawing her amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am concerned about what the Minister said. He said that the regulations were being dealt with in the usual way. A bold, brave Minister would have said that he would do something different and break new ground and, perhaps, give Parliament the opportunity to have a greater level of scrutiny.

I am genuinely concerned. Some issues have been raised before in relation to other clauses and amendments. The Minister mentioned the scheme costs rising by more than 2% above the cost cap, the point being that

“action will be taken to return costs to the level of the cap. This may be achieved via adjustments to member benefits accruing in respect of future service, adjustments to member contributions, or via some other method.”

We are concerned about “some other method”, because we do not know what is covered by those words. That wording is lifted from the summary of the paperwork that has been provided to us. Yet, as I have already mentioned, page 6 of that document elaborates on the point, stating that there is

“no intention to make changes to benefits already accrued via the cost cap mechanism.”

As I said earlier, that is not as strong a statement as we would have liked. I should have thought that the Minister would welcome the opportunity to give additional scrutiny in such circumstances. It would be no bad thing if there were more involvement in, and a higher level of awareness of, these issues among hon. Members from all parties, and if they were involved in the process.

I am disappointed that, once again, the Minister will not accept the amendment, which is relatively modest, straightforward, sensible, logical and would have sent a signal to those who are concerned about the Bill. Although I will not press the amendment, we may return to the matter. I beg to ask leave to withdraw the amendment.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss new clause 7—Maximum annual public pension—

‘Employer contribution to any individual pension will cease when that pension accrued an actuarial value equivalent to an annual pension upon retirement age equivalent to two times national gross average earnings as derived from the Office for National Statistics.’.

Sajid Javid (Conservative, Bromsgrove)

A key objective of the reforms is to ensure that the cost of pensions remains sustainable. To achieve that, Lord Hutton recommended that the Government establish a mechanism to control the costs of pensions and ensure that the risks associated with pension provision are shared between members and taxpayers. The clause provides for such a mechanism by establishing an employer cost cap in the pension schemes made under the Bill. That will provide backstop protection for the taxpayer by ensuring that if there are significant and unexpected changes in the cost of providing pensions, action will be taken to ensure those costs remain sustainable.

On the detail of the clause, subsections (1) and (2) require scheme regulations to set an employer cost cap, defined as a percentage of pensionable earnings of the members of the scheme, to be used for measuring the cost of the scheme and any schemes connected with it.

Subsections (3) and (4) provide for Treasury directions to set out the technical details around how the cap will be set and how future costs, and changes in costs, will be measured against it. Changes to costs classed as employer costs will not be included when changes in costs are measured against the cap. That will mean that changes to financial assumptions, such as the discount rate used to value future benefits, will not lead to scheme changes.

To avoid schemes being required to make frequent changes due to small fluctuations in scheme costs, subsection (5) will require the Treasury to make regulations providing for margins on either side of the cap. Only if costs go beyond those margins—if they are higher or lower—must action be taken to bring them back to the level of the cap. Those margins will be set two percentage points either side of the cap.

If action does need to be taken, subsection (6) provides for consultation with scheme members, or their representatives, to reach agreement on the change needed to bring scheme costs back to the cap. That will ensure that the interests of members are fully considered when any such changes are contemplated. That adjustment may be an increase or decrease in the contributions that members make to the cost of the scheme, or an increase or decrease in their future benefits.

The clause is intended to be forward-looking, and not to affect any accrued rights. A number of protections exist for accrued rights, and we have discussed them before. They include the enhanced consultation procedure, the affirmative procedure requiring the consent of all relevant legislatures, and the European convention on human rights.

If there is no agreement, the clause requires scheme regulations to include a default mechanism to bring costs back in line with the cap. That will be required only if, after full consultation, agreement cannot be reached on a way to bring costs back under control.

Richard Fuller (Conservative, Bedford)

We are all in it together, and we now come to new clause 7, which stands in my name. It would put a cap on the contributions that taxpayers will make to those in public sector pension schemes who will receive an annual pension more than twice average national earnings. That strikes for fairness between rich and poor, and between the public sector and private sector. Most importantly, it would assist the Government in achieving their goal of a pension scheme with sustainable, stable costs.

I hope that Opposition Members will leap at the opportunity to support the new clause, and I shall be interested to hear the views of Opposition Front Benchers on it.

Sheila Gilmore (Labour, Edinburgh East)

Will the hon. Gentleman tell us whether similar provisions should be introduced in the private sector for people working in businesses of all kinds, such as insurance companies and banks, where, as we are all aware, there are some extremely generous pension arrangements?

Richard Fuller (Conservative, Bedford)

That is a very good point. Those precautions are already in place; it is certainly within the purview of boards of directors of private companies to set pension arrangements for their senior executives. Putting in place caps and reducing the amounts involved is already perfectly feasible in the private sector. I would like to see that discipline put in place in public sector pension schemes, and not only through the new clause. I would argue, and have argued, for the affordability of pensions more generally through a fully funded scheme.

Chris Leslie (Labour, Nottingham East)

I am intrigued by the hon. Gentleman’s arguments. He obviously understands that the public sector—the taxpayer—provides a lot of tax relief on private sector pensions. Is he saying that that tax relief should be structured so that it no longer contributes to private pensions if they exceed twice annual earnings?

Richard Fuller (Conservative, Bedford)

That is a fair question, but one for another day. Today we are arguing about the direct contribution that taxpayers make to the people who provide our public sector services. As I mentioned to the hon. Member for Edinburgh East, there are already many provisions within the arrangements for how a private sector company manages its own scheme.

Chris Leslie (Labour, Nottingham East)

Is there a tax relief cap?

Richard Fuller (Conservative, Bedford)

I want to stick strictly to the new clause. The objectives in the new clause relate to the management of a pension scheme. Of course, the hon. Gentleman is right to raise the issue of whether the Government have the appropriate tax policies regarding tax relief on pension schemes. We will debate that issue in the November public statement and the Budget next year. There will be a time and place to debate that. This debate is about managing the public finances for the management of public sector schemes. I do not wish to be drawn by him into talk of other issues.

Alison McGovern (Labour, Wirral South)

Will the hon. Gentleman give way?

Richard Fuller (Conservative, Bedford)

As long as I am not going to be drawn again, I am happy to give way.

Alison McGovern (Labour, Wirral South)

I am trying to understand the hon. Gentleman’s argument. Is the basis of his new clause that discipline is needed in public sector pensions that would match or be allied to that demonstrated in private sector schemes?

Richard Fuller (Conservative, Bedford)

I think I am heading that way, yes. The objective is to try to provide some sense of discipline and affordability into the way in which public sector pension arrangements are made, which would match what we would like to see as best practice in the private sector. That would move us towards a funded public sector pension scheme, rather than a tax-as-you-go scheme. It would ensure that the assumptions that are made in the actuarial valuation of those pension schemes live up to the highest standards expected in the private sector. I would argue that we need a sense of balance between what in this instance could be termed our shareholders—the great British public—and the people who receive pensions.

In that regard, it is difficult for me to defend to the people of Bedford and Kempston the idea that it is appropriate to pass a Bill under which people will be able to take a pension from the public sector purse that is more than twice the earnings that they make each year as they go out to work, and which they fund. The workers in Bedford and Kempston fund the difference between the individual’s contributions and these very high public sector pensions.

Alison McGovern (Labour, Wirral South)

I thank the hon. Gentleman for his honest and frank answer. He has said that the basis of his new clause is the discipline demonstrated in the private sector over pension levels. Will he share the data he has about pensions available to those in private sector schemes and the figures that demonstrate that they show the discipline that he now asks the public sector to share?

Richard Fuller (Conservative, Bedford)

Of course, we live in a free society where the people who provide that information and are responsible for it are the shareholders of the companies providing the pensions. My responsibility as a Member of Parliament is to act as guardian of the amounts charged to the individual taxpayer. That is my responsibility, and I think I am fulfilling it fully by questioning whether it is appropriate, as we look to set up a stable and sustainable public sector pension scheme at a time when the public finances have been left in such a parlous state by the Labour party, that I should go back to the people of Bedford and Kempston and tell them, “I know that your average earnings are £24,000 a year, but it is quite okay for someone to take £49,000 a year in their pension from the public purse to which you contribute as a taxpayer.” It is perfectly fair and reasonable to question that.

Andrea Leadsom (Conservative, South Northamptonshire)

In my role as a councillor I discovered that certain people who, by dint of taking long-term sick leave, ended up retiring extremely early, had their public sector pension made up so that they did not lose out in their final retirement pension. That was completely unfair to taxpayers. Because it was possible to do it, councils voted for it, which was blatantly unfair.

Richard Fuller (Conservative, Bedford)

I greatly appreciate my hon. Friend giving a direct example from her own experience about when people can fall down on their responsibilities to stand up for taxpayers and for the appropriate value that people should be given in certain circumstances. It is a bit disingenuous—I am not sure whether that is an unparliamentary term, so perhaps I should say that it is intriguing—that Labour Members make such observations about the private sector and drag us away from the core point here. Do they think it fair that we should permit people to take pensions from the public purse of £50,000 a year or more?

Let me give an example that might help Members consider the fairness here. I had an interesting walk around the judicial pensions scheme. I hope that no one here will be meeting a judge fairly soon; I certainly hope that I will not after what I am about to say. A note from July 2012 talks about the changes that are being made as a result of the negotiations between the Government and the judges’ scheme and refers to:

“Indicative proposed scheme member contributions of 7.35% for those judges earning up to £149,999 and 9% for those earning £150,000 and above.”

This is about not only the gross amount of pension provided but the fact that a very large contribution is being requested from taxpayers. Those contribution rates also seem unfair when compared with contribution rates of some of the other people we have spoken about. The contribution rates for our firefighters are rising to 12% or 13% of their salaries and their salaries are but a fraction of the £149,999 salaries these judges earn.

Chris Leslie (Labour, Nottingham East)

I am grateful to the hon. Gentleman, especially considering the stress he is under having to do the casework of his neighbour the hon. Member for Mid Bedfordshire (Nadine Dorries).

We obviously have a number of banks that are currently in public sector ownership. In a sense, the taxpayer contribution comes through the tax reliefs given on some of their massive schemes. I take it that the hon. Gentleman implicitly argues for some cap on tax reliefs that could affect those in public ownership, for example.

Richard Fuller (Conservative, Bedford)

I appreciate the hon. Gentleman raising the issue of the banks in public ownership. The arrangements for that were set by his right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown)—he could ask him if he could find him somewhere. Perhaps he has moved down to Australia too. It was the last Government who set those arrangements and arranged those pay packets. It was the last Government who thought that was fair. Those are questions for the right hon. Gentleman if it is possible to find him.

Again, I find it intriguing that Labour Members are almost incapable of addressing the issue of fairness when it comes to asking taxpayers—hard-working taxpayers in the private and public sector on average or below-average earnings—to reach into their pockets to put some money aside each month so that a judge earning £150,000 a year can achieve a pension far in excess of what they will get without paying for it in any substantial way.

Graham Evans (Conservative, Weaver Vale)

My hon. Friend makes some important points. Does he agree that Labour Members never mention the 13,000 low-paid private sector workers who do not have a pension? They have no provision for their retirement. They pay taxes to pay for the very high earners in the public sector. Labour Members never mention them.

Richard Fuller (Conservative, Bedford)

My hon. Friend makes an extremely good point. Let me just build on that. We have talked a number of times about the average pension that people get, but we forget that many private sector workers have to provide savings to achieve that sort of pension. We have talked about the average public sector pension, which is about £7,000 a year. It is true that that average is a bit misleading because it does not take into account the periodicity of time, but somebody in the private sector would have to save £140,000 to get an average pension of £7,000 a year.

I can see that you are keen, Mr Benton, to find out how much someone would have to pay for a pension of, say, £40,000 or £50,000. Well, for £40,000, which is slightly less than the cap I am proposing in the new clause, somebody would have to save £800,000. Unless somebody bought property in London about 15 years ago and was very lucky with the location, they are going to find it very difficult to raise £800,000 on average earnings. If they are on £50,000 in the private sector, they will find it extraordinarily difficult, when they have to meet their everyday expenses, to save £800,000.

Yet, despite the cost-cutting consensus we have on setting public sector pensions, with both sides agreeing to reasonable Government proposals, we are still not saying that we are going to do something about people on very high public sector pensions. We are not meeting our responsibilities as guardians of taxpayers, current and future.

When we look at participation, we can see that we are on to something. Rightly, Members on both sides of the Committee have said that the current and proposed public sector pensions are a good deal for public sector workers, and they are. We want people to participate in public sector pensions, because, rationally speaking, that is in their best interests. Page 79 of the 10 March 2011 report by the Hutton commission shows participation rates in public sector pension schemes by income bracket. Interestingly, however, it shows that those on lower incomes in the public sector participate less than those on higher incomes. Participation rates go up, however, when it is easier for people to contribute, when they see that for every 9% they put in the taxpayer puts in 41%, 42% or 43% of that amount, and when they can afford the amounts involved. Rightly, the Government’s cost cap—the Minister will confirm this is true of the clause—will help those on low and middle incomes. New clause 7 is another stride towards achieving that fairness and responsibility in the public sector overall cost cap.

On the scale of the problem, if just one or two people were taking £50,000 or £60,000 a year in public sector pensions, that would not be worth talking about. However, the Intergenerational Foundation report “Are Government Pensions Unfair On the Younger Generation?” reviewed the schemes for the NHS, the civil service, teachers, the armed forces, local government and the police. It found that 148 people in the current pension schemes receive a public sector pension in excess of £100,000 a year. That is a cost each year of £15 million, which would pay for a number of things in each of our constituencies. More worryingly—this is the reason why the new clause refers to two times average earnings—there are more than 12,000 public servants receiving pensions between £50,000 to £100,000.

All those numbers are going to increase. We are talking about people who are already retired, but we have seen a significant increase in the number of public sector employees over the last 15 or 20 years. Over that period, average earnings in the public sector have also gone up relative to average earnings in the private sector. Therefore, the proportion of people in these brackets will go up. With 12,000 people on between £50,000 to £100,000, the taxpayer is being asked to pay something like £1 billion a year for people to receive an income that is twice the average income in my home town.

I will finish there and open up the discussion to see whether there are other Members who share that view, and then I will consider whether to press the new clause to a Division.

Joe Benton (Labour, Bootle)

May I clarify the position? We are debating this issue with clause stand part. So, for the benefit of the hon. Gentleman, he may move the new clause formally when we come to the new clauses at the end of our proceedings. I put this cautionary note to the members of the Committee because it is only today that they will have the opportunity to discuss new clause 7. When we come to it, we will ask the hon. Gentleman whether he is of a mind to move it formally. For the benefit of any Members who are new to the procedure, I point out that now is the opportunity to debate new clause 7.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Thank you very much for that clarification, Mr Benton. I await with interest to hear what the Minister will say in response to his colleague, the hon. Member for Bedford, who seems to be getting into some of the thinking as to where the Government might go if his current situation—I understand that he is covering not one but two constituencies, in respect of representing the taxpayer—continues. Perhaps he will be in a ministerial position at some stage and is anticipating where the Government will go.

I would perhaps take the hon. Gentleman’s comment about the issue of fairness for private sector workers, which he raised and is concerned about, slightly more seriously if he had not been supportive of the cuts to working tax credits for part-time workers who are working 16 hours a week. They are some of the least well-paid workers, who would surely have benefited from his support if he had stood up in Parliament to champion their cause at some stage. So his approach is perhaps not the best way to consider the issue of fairness.

My hon. Friends the Members for Edinburgh East and for Nottingham East rightly asked what the hon. Gentleman’s intentions are in relation to the private sector and to banking, but their questions were not answered. If he were seriously proposing this new clause, surely he would be able to have some answers to those questions, particularly on the taxation regime.

My understanding is that, among the pension pots that have been approved for former employees of Royal Bank of Scotland, HBOS and other banks, there is certainly one where the promised annual pension is in the region of £1.4 million and the pension pot is worth more than £16 million. That seems to be top of the league table that has been put together in relation to those things. That figure goes down—if I can use that phrase—to a pension of around £220,000 a year, with a pension pot of around £2.41 million. I hope that the hon. Gentleman will give some consideration to those particular issues as well, because those banks are banks in which the taxpayer has a stake.

Richard Fuller (Conservative, Bedford)

The hon. Lady is making a helpful contribution; I am actually quite intrigued by what she is saying. She mentioned the pensions for former bank employees. Obviously, at the time those contracts were made, those banks were in the private sector, but those bills will now be paid by the public sector. Therefore, does she think that those pension arrangements should be changed retrospectively? Just so I can be clear, is that what she is suggesting?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Perhaps the hon. Gentleman could give some clarity. Is that not what he himself is proposing should be done in the circumstances?

Richard Fuller (Conservative, Bedford)

I think, as the hon. Lady said in an earlier contribution, that the path of retrospective legislation would not be a good path for us to go down. The proposal would be applied henceforth to people’s contributions to public sector pensions. It would be difficult to pick off certain people and say that the provision should apply retrospectively when, in general, we are not doing so.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The hon. Gentleman tries to give us some clarity. His interest in not applying things retrospectively is something that will be noted for future reference, as will perhaps his lack of clarity on whether the new clause would have that effect. I am sure that the Minister will comment on that at some point.

I understand, Mr Benton, that we have the opportunity to discuss not only new clause 7, but clause 11 stand part, and I want to put on record that the Opposition tabled what we thought were three sensible amendments in order to give the necessary reassurance—I will not repeat all the arguments—to those most affected. We wanted assurances on consultation, approved benefits and parliamentary scrutiny.

I want to quote from “Establishing an employer cost cap in public service pension schemes”. Paragraph 1.12 states:

“Treasury consent will be required before the changes are implemented, in line with the general requirement for Treasury consent for scheme changes.”

However, paragraph 1.13 states:

“While the Government expects that agreement would be reached via this process, the Bill sets out that there may be a default action”—

to which the Minister referred earlier—

“if this is not the case. Scheme regulations will therefore set out what should be changed if there is no agreement within a specified period.”

Notwithstanding the Minister’s good intentions, people are still concerned about what that would mean in practice. We still have some concerns about clause 11, but we may revisit the issues in future, so I will save my remarks until then.

Sajid Javid (Conservative, Bromsgrove)

Before I discuss new clause 7 in detail, can I say that I appreciate the comments of my hon. Friend the Member for Bedford and his desire to control the costs of public service pensions? Controlling such costs, as we have discussed, is an important part of the Bill and the Government have spent considerable time focusing on it. Lord Hutton recognised the need to balance the concerns of the taxpayer against the importance of providing decent levels of income in retirement for public sector workers. It is vital that the Government take steps to achieve that aim.

The Government’s view is that the employer cost cap effectively controls the costs of the new schemes while ensuring that public service pensions remain among the best available. The Government, particularly my right hon. Friend the Chief Secretary, have discussed the reforms on several occasions, and it has been paramount among their objectives that public sector pensions remain among the best that can be achieved given the constraints on public finances.

Although the proposals of my hon. Friend the Member for Bedford may appear to be attractive to some hon. Members, they may not deliver the kind of cost control that is envisaged and could have an undesirable impact on recruitment and retention in the public sector. They could, for example, encourage individuals to game the system, where some individuals would be dodging from one scheme to another to avoid reaching such a cap. The Government would also be concerned that such a cap might run counter to the principles of fairness and simplicity that the Bill aims to deliver, and might discourage high-quality individuals from taking on vital roles in the public sector and remaining there once they have done so. As all Members have acknowledged, those roles are important, as is the principle of attracting good people to vital areas of public service, and retaining high standards.

When my hon. Friend made his case, he focused on a number of issues. One key point he made, which I can fully understand, was that many of his constituents will look at the generosity of public sector pensions, even after these reforms have gone through, and, if they work in the private sector, as the vast majority of the public do, they might compare those pensions to their own and think that public sector pensions are still among the most generous and decent in terms of level of retirement income available. However, the Government have always said that, although it is valid to make comparisons between the public and private sectors, we do not intend to have a race to the bottom. We want to make sure that public sector pensions remain among the best available.

Richard Fuller (Conservative, Bedford)

My hon. Friend is making the core of the Government’s point: that, in these reforms, they have been very much focused on those on low and middle incomes, to ensure that there is the right balance between fairness of contributions being asked for from people on such income levels, and the very good pensions that the Government are protecting for people in the public sector.

I would like to take my hon. Friend back to the point he made about attracting and retaining talent at the top. In the private sector, we talk about that a lot, and the private sector sets its pay and pensions accordingly. However, in many private sector companies the focus has been on pay rather than deferred pay in the form of pensions. I would argue that the way the Government do their accounts could mean that, by putting more reliance on protecting these very large pensions—as I mentioned earlier, they are not accounted for in most forms of public sector accounts—we are passing the cost burden of attracting the best and brightest on to future generations, when we should be paying it for now. Does the Minister therefore agree that, for those on higher pay, the emphasis should be on immediate pay rather than deferred pay in the form of a pension, just from the point of view of having the appropriate balance between current and future taxpayers?

Sajid Javid (Conservative, Bromsgrove)

My hon. Friend makes a good point, and has clearly researched all the issues very carefully. He has brought up on a number of occasions the burden on future generations and the contributions they will have to make towards meeting these pension commitments. The Government have gone some way in trying to have more transparency and openness about what those burdens might be; for example, the publication of the whole of Government accounts tries to put a detailed number on the size of those liabilities. That is good and is something the Government need to take into account, as indeed do other stakeholders, when we look at the size of the burden on the Government and how that will be met by future generations.

Nevertheless, despite the good arguments that my hon. Friend has made, the Government’s opinion on the principle of new clause 7 remains unchanged. We want to make sure that, after these reforms, we still have a fair and generous pension system that attracts the best talent but is affordable and sustainable in the long term for the taxpayer. I therefore ask my hon. Friend not to press new clause 7.

Clause 12 - Employer contributions in funded schemes

Sajid Javid (Conservative, Bromsgrove)

I beg to move amendment 11, in clause 12, page 7, line 26, leave out ‘scheme’ and insert ‘pension fund’.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss the following:

Government amendment 12.

Amendment 60, in clause 12, page 7, line 29, at end insert

‘or, where a pension scheme consists of more than one fund, separate actuarial valuations of each fund.’.

Sajid Javid (Conservative, Bromsgrove)

Amendments 11 and 12 clarify the objectives that must be met in setting employer contribution rates in funded public service pension schemes. Local government pension schemes are the only funded defined benefit schemes that we currently know will be made under the Bill. Clause 12 is for them, and it ensures that local fund valuations in that scheme will continue. If, as my hon. Friend the Member for Bedford would like, there were to be other funded schemes in the future, the clause would also apply to such schemes.

Amendment 11 clarifies that scheme regulations must provide for employer contribution rates to be set at levels that will ensure the solvency of the pension fund rather than that of the scheme. The amendment is designed to make it clear that where a pension scheme has more than one pension fund—as is the case in the local government schemes in Scotland, and in England and Wales—the solvency objective in clause 12(2) relates to each fund separately. As the clause stands, it would allow scheme regulations to specify that the objective to be met is the solvency of the scheme as a whole. The practical effect of that would be to allow the scheme regulations to provide that each local authority pension fund had to set its employer contribution rates with regard to meeting the solvency of the national local government scheme, which is not necessarily appropriate. It is clearly appropriate for each local authority pension fund to be responsible for the solvency of its part of the scheme. Naturally, when each fund meets that objective, the solvency of the scheme as a whole is secured.

Amendment 12 makes an equivalent change to the other funding objective in clause 12(2). It makes it clear that each pension fund must have regard to the long-term cost-efficiency of their part of the pension scheme when setting employer contribution rates. We will no doubt come to this in the stand part debate, but it might be helpful if I explain two key things about clause 12. First, it provides for each pension fund in a scheme to undertake an actuarial valuation and for that valuation to inform the employer contribution rates that it sets. Secondly, HM Treasury directions under clause 10 will not apply to those pension fund valuations.

Amendment 60 is clearly intended to put beyond doubt the fact that valuations are to be undertaken for each and every pension fund in a scheme, but the amendment is not necessary. The clause already requires that to happen, and amendments 11 and 12 clarify the matter further. Members will be familiar with the Interpretation Act 1978, which in this case ensures that “pension fund” in subsections (1) and (3) shall be read as “pension funds” where necessary, because

“unless the contrary intention appears…words in the singular include the plural”.

No other reading can therefore be applied to clause 12. The amendment might unintentionally make it harder to read other references in the Bill to “pension fund” in the plural where that is appropriate. For that reason, amendment 60 is unnecessary and therefore inappropriate, and I urge the hon. Member for Nottingham East not to press it to a vote.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for pre-empting my argument in favour of amendment 60. Before we come to that, however, Government amendments 11 and 12 are fairly straightforward minor drafting changes and I have no objection to them. I am glad that the Minister took the opportunity to draw them to the attention of the hon. Member for Bedford, who has made the case admirably for his own public sector pension contributions to be augmented by those of the hon. Member for Mid Bedfordshire (Nadine Dorries) while she is in the jungle. The Minister ought to consider that proposition.

I want to speak to amendment 60. The Minister rests on the arguments in the Interpretation Act 1978. That Act is an old favourite of Committees, and if I had a copy in front of me it would be interesting to go through the grammatical strictures that it places on various Acts of Parliament. The Minister was almost poetic in his quoting from that Act, saying that words in the singular apply in the plural; however, I understand where he is coming from. Rather helpfully, during last Tuesday’s lunch period, he published the impressive piece of prose, “Actual valuations of public service pension schemes”, which includes the commitment that:

“Individual local government pension funds will continue to carry out their own scheme valuations, as they do now.”

That is a helpful commitment in the document, and the Minister’s words are useful. Our amendment was designed to put that issue beyond doubt, because given the different demographics, employers, members, assets, investment strategies and so forth of each different local government fund, it was important that we clarified the need for each fund to be valued separately, and we thought that it was helpful to point the issue out to the Minister. It would have been better to put that in the Bill, as a little bit of a loophole has been left in the legislation. However, the Minister has done enough to put the Government’s interpretation of the Interpretations Act on the record, so I am content to leave it at that and I will not press amendment 60.

Chris Leslie (Labour, Nottingham East)

Clause 12 covers the issue of the valuation of funded schemes more broadly, and in the document published by the Minister last week there are some helpful points about how that will work. We have had an assurance about separate valuations, which was our main point, but I have a couple of specific questions for the Minister. He might have to write to the Committee because I would not expect him necessarily to have the figures to hand, but it is not impossible.

A lot of valuation changes are involved in these measures, many of which are welcome, but I wonder if the Minister has put a cost on those changes to the valuation processes. Obviously, members will have to bear some of the costs involved. We will talk about the management, administrative costs and so forth later on, but I do not know whether any assessment has been made of whether the total cost of undertaking those valuations will remain broadly the same as under existing funds, or will be higher. If they are higher, presumably they will be deducted from scheme funds, so will the Minister tell us whether any assessment has been made along those lines?

I will not ask the Minister to explain the SCAPE fund process—superannuation contributions adjusted for past experience—a wonderful acronym that the Minister will be familiar with; but I notice that the process says that as the valuation changes, there will be increases, assumed in line with actual returns, but also a discounted rate process that will be set at 3% plus CPI. I gather that some process is going on, either at the Office for National Statistics or in the Treasury, to review the statistical methodology for the CPI and the RPI, on which so many policy areas depend. Will the Minister clarify that and update the Committee about the revision of the methodologies for the CPI and the RPI, which are relevant here? Is an announcement imminent? Is there a process and if so, what is it? Obviously, changes to the methodology for the CPI and the RPI are incredibly important and relevant to the valuation process.

Sajid Javid (Conservative, Bromsgrove)

It will be appropriate for me not only to answer the hon. Gentleman’s questions, but to talk in more detail about clause 12. The clause is concerned with ensuring that appropriate employer contribution rates are set for local government pension funds. There are 89 pension funds in the local government scheme in England and Wales, 11 in Scotland and one in Northern Ireland. In Scotland, England and Wales, the funds are managed by local authorities; in Northern Ireland, the fund is managed by the Department of the Environment.

The funds exist to provide a mechanism for local authorities to set aside money to meet the future cost of paying pensions, allowing them to manage their liabilities and defray the costs of paying scheme benefits. Local authorities are appropriately accountable to their residents. The clause will ensure the continuation of the existing practice of undertaking regular and transparent valuations of the pension funds. It provides that the role of those valuations will continue to be about informing the rate at which employer contributions are set. It requires that those contributions are sufficient to meet the accruing liabilities of the pension fund and to address any deficits. The hon. Member for Nottingham East asked about the cost of the ongoing valuations. I do not have information about the estimated costs of the schemes to hand, but I am happy to look into it and, as he suggested, to provide that in writing.

The clause goes further than current arrangements in two ways. First, it provides that employer contributions not only will be sufficient to ensure the solvency of the pension fund, but must be set at a level ensuring the long-term cost-efficiency of the part of the pension scheme that relates to that fund. That will prevent any short-term suppression of contribution rates that would defer costs to the future and that would therefore fail to meet the liabilities of the scheme responsibly.

Secondly, the clause requires the pension fund valuations to be reviewed by an appropriately qualified and independent person. The appointed person will publish a report explaining whether they are satisfied that the valuation and the resulting employer contribution rates are appropriate. When the appointed person identifies a problem, the local authority will be required to take steps to remedy it. In doing that, the local authority must publish details of the steps it will take and an explanation of how they will be sufficient to address the identified problem.

That is the right course of action. Local authorities should be free to determine how to meet their liabilities from their resources, and must do so openly and transparently. However, a backstop is needed, given the risks underfunding pension funds might have on scheme employers, local council tax payers and local government services. The Secretary of State will therefore have reserve powers to intervene if an identified problem is not addressed satisfactorily. In Northern Ireland, that power will be reserved to the Department of Finance and Personnel, given that the Department of the Environment rather than local government is responsible for that pension fund.

I understand why the hon. Gentleman asked about the ONS calculation of CPI and RPI. As he rightly pointed out, the rates have an impact on pensions, Government bonds and other things. Those are the correct rates to use, but I do not think this is the appropriate venue to discuss this matter. It is not part of the clause, and it would not be appropriate for me to say anything that might pre-empt any review.

Chris Leslie (Labour, Nottingham East)

I accept that this is a small aspect of the issues raised by clause 12. Obviously, valuations that rest on pricing indices are going to be affected by potential imminent changes to the methodology. I am not necessarily asking the Minister what the outcome of the reviews will be. I simply want him to confirm whether reports that the Government are reviewing RPI and CPI are correct, and to shed some light on situation. If he cannot do that today, it would be sufficient for him to write to the Committee.

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman raises this issue because he is rightly concerned, but I do not think it will be necessary for me to write to the Committee because there is nothing more that I could say in writing than I can say now. If the rates he mentioned are being reviewed, the Government will announce that and make the details available at the appropriate time, but this is not the time.

Clause 16 - Closure of existing pension schemes

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 65, in clause 16, page 9, line 33, leave out subsection (4) and insert—

‘(4) The closing date is 5 April 2015 subject to subsection (7).’.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss amendment 78, in schedule 5, page 38, leave out lines 34 to 40.

Chris Leslie (Labour, Nottingham East)

Given that we have already debated clauses 13 to 15, we have now skipped to this important clause on the closure of existing pension schemes. I am grateful for your wisdom in grouping the two amendments, Mr Benton, because they are closely related.

Clause 16 will close the vast majority of public service pension schemes, including the funded local government pension schemes. Amendment 78 would remove the local government pension funds from the list of schemes in schedule 5 that would be closed by clause 16, while amendment 65 correspondingly removes the reference to a closing date for local government schemes.

The amendments have arisen due to widespread concern that has been expressed, not least in our evidence sessions. Lord Hutton told the Committee that the way in which the provision dealing with scheme closures might affect local government pension schemes was a great concern, and that was a recurrent theme in our oral evidence. Jeff Houston of the Local Government Association and Bob Summers of the Chartered Institute of Public Finance and Accountancy, among others, expressed serious misgivings about the effects of clause 16 and the closure of local government pension funds.

The main concern was that closing the existing schemes by a set closing date would trigger what are known as section 75 debts in many local government schemes that are currently in deficit, meaning that each participating employer would immediately become liable for its share of the scheme’s debts. Lord Hutton said of the possibility of closure:

“There could be a crystallisation of deficits at that point, and we really should avoid that if at all possible.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 161, Q50.]

The crystallisation of scheme debts would almost certainly lead to some employers facing massive financial difficulty, and those small organisations that are part of the local government pension scheme might even face insolvency. That includes academies, which are now party to many of these local government schemes.

I have two significant secondary academies in my constituency, and new primaries are also coming on stream. They would be aghast at the prospect of suddenly being faced with a massive bill for the crystallisation of debts accruing as a result of the closure of the local government schemes that the Minister envisages under the clause. The sums could be hundreds of thousands of pounds in some circumstances, which would not be something that academies would welcome. As individual schools will be outwith the protections of normal local education authority arrangements, the burden could be considerable. The same goes for third sector organisations and charities involved in those schemes. That is our most imminent anxiety about this provision, although obviously it would affect local authorities up and down the country too.

In his evidence to the Committee, Lord Hutton identified many other problems created by clause 16, all of which stem from the fact that closure—the word used in the Bill to close the funds—could create two separate schemes: an old scheme and a new scheme. Such a situation would create extra costs, such as because of the need for different advisers and auditors for both schemes. Lord Hutton said that he did not think that the Government intended to create such problems or the crystallisation of debts. He hoped, quite rightly, that clause 16 would be clarified in the future. I hope that we are reaching that point and that the Minister will table amendments on Report so that we avoid such problems.

This essentially boils down to the use of the word “close” which, in pensions law, means that a scheme is to be wound up, although it does not mean that a scheme will end all future accruals. When a scheme is closed, wind-up debts under section 75 of the Pensions Act 1995 are triggered if that scheme is in deficit. That section states:

“If, in the case of an occupational pension scheme which is not a money purchase scheme, the value at the applicable time of the assets of the scheme is less than the amount at that time of the liabilities of the scheme, an amount equal to the difference shall be treated as a debt due from the employer to the trustees or managers of the scheme.”

It is pretty clear that the section 75 arrangement applies.

Jeff Houston of the Local Government Association told the Committee:

“I think there are unfortunate uses of the word “close”. From conversations with the Bill team, I do not believe that the intention is to bring about a closure as under section 75 of the Pensions Act…I think the intention in clause 16 is to prevent further accrual rather than to close the scheme, although some of my colleagues who are pensions lawyers got very excited about that.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 196, Q99.]

He later said that if the Bill was not meant to close, as in closure under section 75, its provisions needed to be changed to make that clear. I therefore look forward to the Minister’s agreement that amendments will be brought forward on Report as a matter of priority. I understand that might take place on 3 December, which is not that far away.

Other witnesses spoke about the poor use of the word “close”. Brian Strutton of the GMB spoke of the catastrophic consequences that could follow the closure of the local government funds and said:

“that is why we are absolutely adamant that when the Bill describes closure—it runs all the way through the Bill in different guises—it must not mean closure; it must mean amendment to the existing scheme.”––[Official Report, Public Service Pensions Public Bill Committee, 6 November 2012; c. 152, Q30.]

Amendments 65 and 78 would simply remove references to the local government pension schemes from clause 16 and schedule 5, essentially so that the 89 funds are not closed by the Bill, but amended by it. They are fairly straightforward amendments, but they would save an awful lot of aggravation, cost and potential catastrophe, particularly for those small organisations that are part and parcel of the local government scheme. I commend the amendments to the Committee.

Sajid Javid (Conservative, Bromsgrove)

The amendments would remove the local government scheme from the requirement to close existing arrangements to future accruals which, as I am sure the hon. Gentleman agrees, could not be justified. However, I appreciate that several concerns have been raised about unintended consequences of including local government schemes in the provisions, so I welcome the opportunity to lay those concerns to rest. The hon. Gentleman’s thoughtful contribution needs to be dealt with in some detail.

The Local Government Association, the GMB, Unison, Lord Hutton, the hon. Member for Nottingham East and others raised concern about the crystallisation of fund liabilities during the oral evidence sessions. My officials have met the Local Government Association and the trade unions, and the LGA has explained its concern in more detail. It explained that it was worried that clause 16, as drafted, could lead to the winding-up of a scheme under the Pensions Act 1995. If that were the case, the LGA believed that it could give rise to requirements to meet any shortfall in the funds by virtue of section 75 of the 1995 Act.

Allow me to explain why the Government believe that such concerns are unfounded. I can reassure the Committee that neither clause 16 nor any other part of the Bill requires local authority pension funds to be wound up. It only requires the closure of a local government pension scheme in so far as is specified in clause 16(1). Clause 16, as the Local Government Association and others have acknowledged, simply prevents benefits from being provided under the existing arrangements in respect of a person’s service after the closing date.

In other contexts, when a funded pension scheme is wound up, section 75 of the 1995 Act requires any deficiency in the scheme funding to be identified and met immediately, which was the nub of the concerns raised during oral evidence. I assure the Committee that that concern is also unfounded. Not only are the local government pension schemes not being wound up, but section 75 of the 1995 Act does not apply to those schemes in any case, because of an exemption that has been made under section 75(9). The winding-up provisions do apply to other occupational pension schemes. They exist to protect members’ interests in the event of employer insolvency or attempts to walk away from pension liabilities. Given the constitutional permanence of local government, the winding-up provisions that relate to other pension schemes do not apply here. I reassure the Committee that local authority pension funds will continue and will apply across both the old and new local government pension arrangements, and scheme regulations will make that clear.

I appreciate that that was a detailed explanation, but I am sure that the Committee will understand that it is important to set this out clearly and fully. There is no intention whatsoever of closing the existing local government pension funds and running separate arrangements for service after April 2014. To do so would be inefficient and there is no reason for it. If, however, having reflected on our reasons, the hon. Member for Nottingham East, the Local Government Association or other stakeholders still think that further clarification is needed, we will be happy to work through that with them. Indeed, my officials will continue to discuss the detail of this with the Local Government Association and the trade union side. We believe that the clause is correct as it stands, but if any issues emerge through that detailed work, I will of course consider them and, if necessary, return to them at later stages of the Bill.

With those reassurances, I hope that the hon. Gentleman will consider withdrawing the amendment.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for elaborating on the Treasury’s understanding of the measure. I do not wish in any way to denigrate or belittle the legal counsel that he has received from his officials, but it stands in stark contrast to the understanding that we heard from the Local Government Association and CIPFA, as well as Lord Hutton.

The Minister is essentially resting his case on section 75(9) of the 1995 Act. I will certainly look at that provision, but it would have been smarter to try to clarify in the Bill that the word “closure” would not necessarily mean closing the scheme as under that particular Act. I know that the Prime Minister does not like judicial reviews but, as the Minister knows, such matters are justiciable, and there are people who will challenge them from any number of different angles.

Section 75(9) of the 1995 Act does not apply to occupational pension schemes

“falling within a prescribed class or description.”

Let us work on the assumption that Ministers will set out the prescription, at another date, that local government schemes are exempt. We can go through the read-across to the 1995 Act at another time—perhaps it would be sensible to do so before Report—but it simply seemed to me that it would be easier to clarify that the Government’s intention was to amend schemes, rather than close and wind them down.

Clause 3(1) allows schemes to be amended rather than closed, so closure is not absolutely necessary. It states:

“Scheme regulations may, subject to this Act, make such provision in relation to a scheme under section 1 as the responsible authority considers appropriate.”

That means that new regulations can amend scheme rules to ensure that all future benefits are accrued according to the provisions of the Bill and the negotiated terms, which will put an end to accrual under the old rules. Perhaps therefore the Bill does not have to be totally unpicked and there are ways in which we can preserve the overarching design and architecture of the legislation.

However, the problem is not just the crystallisation of debts, because there is also a question about having the two separate schemes—the old and the new—running in parallel, thus leading to management and administrative costs. Lord Hutton pointed out that that was a cause for anxiety. There are also further arguments that I am not sure that the Minister absolutely addressed by his reference to section 75(9) of the 1995 Act.

I am, however, cognisant of the fact that the Minister says that he is happy to work through these questions and, if necessary, to look at making clarifications prior to Report. He has therefore given a prudent commitment, so I do not want to push the issue at this stage. I make it clear, however, that if we have not had clarification by Report, it will be incumbent on us to continue to press the point. This is an issue for further dialogue, but it would be far more sensible to avoid all such questions by avoiding the reference to closure in the normal sense. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I think that we have dealt broadly with most of the issues raised by clause 16. We shall move on to consider schedule 5, and I do not have many particular points to raise now.

Schedule 5 - Existing pension schemes

Sajid Javid (Conservative, Bromsgrove)

I beg to move amendment 29, in schedule 5, page 40, line 3, at end insert ‘and compensation benefits’.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss Government amendment 30.

Sajid Javid (Conservative, Bromsgrove)

The amendments ensure that compensation schemes made under powers in the Reserve Forces Act 1996, in line with injury benefit schemes made under those powers, are not automatically stopped from providing benefits in 2015 as a result of the passing of this Bill. It is intended not that the Bill will automatically close compensation schemes, but rather that it will to allow scheme regulations to close compensation schemes should a new compensation scheme be made using powers in the Bill. The amendments simply bring compensation schemes that are made under powers in the Reserve Forces Act 1996 in line with that intention.

Sajid Javid (Conservative, Bromsgrove)

Schedule 5 lists the existing public service pension schemes that are to cease providing future pension benefits for all persons except those who are afforded transitional protection. That does not include defined contribution schemes, or schemes for the payment of compensation or injury benefits, which are outside the scope of these pension reforms.

The schedule, in combination with clause 16, ensures that existing powers to create pension schemes for the main public service work forces are shut down for future use. It will not shut down the schemes that have been created under them, but will instead ensure that they are not used to create new schemes, and that no future benefits are accrued in existing schemes unless members are permitted to do so by transitional measures. Those schemes will be replaced with new pension schemes that are created under the affordable and sustainable framework provided by the Bill.

Clause 17 - Closure of existing injury and compensation schemes

Sajid Javid (Conservative, Bromsgrove)

If I may, I would like to speak to clause 17 and schedule 6 together. Clause 17 permits scheme regulations made under section 1 of the Bill to close connected injury and compensation schemes listed in schedule 6. Connected schemes are defined as those that make provisions for the same groups of people, which means that clause 17 will touch upon the existing injury and compensation schemes in place for the public servants listed in schedule 1. It is important to remember that there is no obligation to close down those schemes; the Bill simply allows for that to be done if desired. The clause is consistent with injury and compensation scheme-making powers included in the Bill, enabling regulations made under the Bill that create a new injury or compensation scheme also to close the current one.

The Bill provides injury and compensation scheme-making powers, which is in line with current pension legislation given the clear, and sometimes legislative, links with pension schemes. As the Bill’s powers allow for injury and compensation schemes to be created, it would be legislatively burdensome to require a different set of regulations for closing the schemes that would be replaced. I must emphasize again, however, that there are no current plans for wholesale reform to the existing injury and compensation schemes. That is outside of the scope of our reforms to the pension schemes. The clause simply allows for a consolidation of the legislative landscape.

Furthermore, the Bill does not affect existing powers, which may still be used to close or amend existing injury and compensation schemes if appropriate. Subsection (3) also allows for transitional arrangements, should they be necessary if the powers are used. I commend the clause to the Committee.

Chris Leslie (Labour, Nottingham East)

Clause 17 deals with the closure of existing injury and compensation schemes. It allows scheme regulations to make such closures to schemes listed in schedule 6. Worryingly, however, the Bill does not provide for the automatic replacement of those schemes. Schedule 3 allows for the new scheme regulations made in clause 1 to provide compensation payments in the event of injury or redundancy, but the schedule is only permissive, and crucially, no scheme regulations can be made without Treasury consent, under clause 3(4).

The explanatory notes to clause 17 state:

“Subsection (1) permits scheme regulations to provide for the closure or restriction of existing schemes that provide for the payment of benefits relating to compensation for loss of office on grounds of redundancy, and for injury benefits, as listed in Schedule 6. No date has been set for the closure of these injury and compensation schemes.”

The schemes listed in schedule 6 relate to employment in the armed forces, the civil service, the fire service, local government, the NHS, the police and teaching. If such schemes are closed, clause 1 provides powers for replacement schemes to be made for those work forces in future. That is the point that the Minister discussed when he said that the measures were consolidating and that the Government do not have any plans at this point in time. The key question for the Minister is this: will the permissive powers under clause 1 and schedule 3 be used to replace injury and compensation schemes closed by clause 17? If so, will those replacement schemes provide the same level of benefits?

As so often in these discussions, it boils down to the question of trust and of the confidence that public service employees have in the Government and their motives and commitments. It is vital that police officers, firefighters and Army personnel, for example, are reassured that the Bill will not reduce their compensations should they be injured in the line of duty. That is the level of commitment that we seek from the Government. We have heard the usual formula “I have no plans to make those changes.” As I am sure you will recall, Mr Benton, the noble Lord Heseltine used the phrase “I have no plans” only a few days before he launched his bid for leadership of the Conservative party, so phraseologies such as “I have no plans” are often taken with a pinch of salt by members of the public, particularly when it comes to questions of compensation for injury in the line of duty. Members of the armed forces, firefighters, police officers and others might raise an eyebrow—maybe two eyebrows—at the notion that the Minister is taking significant powers under clause 17 to close the schemes.

When we debated these questions earlier under a suite of amendments tabled by my hon. Friend the Member for Kilmarnock and Loudoun, she asked the Minister again for reassurance that no one will suffer any detriment or be less likely to receive the same level of benefits in compensation for injuries and so forth, but he did not really offer reassurance on that occasion. He spoke of it as a technical issue of governance of those injury and compensation schemes, rather than saying what most serving officers, firefighters and police officers would want to hear, which is “We will make sure that we protect injury and compensation benefits in that way.”

I ask the Minister again. This is a moment where we need assurances. Public service employees want to hear what the Government’s commitment is. Can he say clearly and in no uncertain terms what his plans are?

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for the points he raised. First, I reassure him that the effect of the clause is just what I would call good regulation. As he knows, the Bill is about public sector pensions, not injury and compensation schemes, but it makes sense to have framework powers in the Bill that allow those running schemes to change them in future, or to close them, if they wish to do so. I reassure him that, as far as the Government are concerned, there are no plans whatever to change injury and compensation schemes. That is for future discussion, and is not part of the Bill. I do not think that there should be any suggestion whatever, either from the Opposition or the Government, that injury and compensation schemes will be changed in any way. That is not covered by the Bill, although the Bill provides flexibility to manage new schemes for the long term. The Government have no plans to change injury and compensation schemes.

Chris Leslie (Labour, Nottingham East)

I am vaguely reassured by the Minister’s comments, but I still have a little lingering anxiety about the phrase, “we have no plans.” Nevertheless, I think that we have made the point, and have put down a marker to show that we are watching very closely what happens with regard to injury and compensation for those injured in the line of duty. That is an incredibly important point; this is very emotive for those affected. We are talking about public service duty that often requires those in the public sector to step in and make sure that people do not suffer unduly as a result of their service. I think that we have made our point on clause 17, but we reserve the right to raise the issue again on another occasion.

Schedule 6 - Existing injury and compensation schemes

Clause 18 - Final salary link

Chris Leslie (Labour, Nottingham East)

This is a fairly technical clause, which triggers schedule 7; we have an amendment to consider, and a discussion to come, on that. The clause essentially ensures that the final salary link is retained on an ongoing basis for members of schemes closed under clauses 16 or 28, and that means that the benefits can be calculated in relation to the member’s final salary at the point at which they retire or otherwise leave pensionable service, not the point at which their final salary scheme was closed. That is an important provision. However, I wonder whether the Minister can help on what might be a technical error in clause 18; it triggers schedule 7 only in respect of schemes closed under clause 16. It does not seem to trigger the schedule in respect of clause 28 arrangements, which are obviously also relevant to this arrangement. Can the Minister confirm that that is a drafting error that will be corrected later? I would have thought that schedule 7 also needs to relate to schemes that will be affected by clause 28.

Sajid Javid (Conservative, Bromsgrove)

Clause 18 simply provides for schedule 7 the final salary link, which was one of Lord Hutton’s main recommendations. It provides that final salary pension benefits accrued in the current public service pension schemes will be based on final salary at retirement from public service, not final salary when service in the old scheme ends. All the details of that link are included in schedule 7, which I look forward to debating along with amendment 79. In response to the hon. Gentleman’s question about whether there is a drafting error, I do not believe that there is. If he will allow me, when we get to schedule 7 I will try to answer that question in more detail.

Chris Leslie (Labour, Nottingham East)

That is a reasonable offer. I believe there might be an error and there ought to be a reference to clause 28, but if we are able to talk about that when we debate schedule 7 imminently, that might be sensible.

Schedule 7 - Final salary link

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 79, in schedule 7, page 42, line 23 at end insert ‘and

(iii) the definition of pensionable earnings under the new scheme will be the same definition as under the old scheme.’.

There are a number of provisions in respect of persons who remain in an old scheme for past service, and we seek to insert the provision in the amendment. It comes down to the question of how we define pensionable earnings. Schedule 7 provides transitional protection for employees whose schemes are closed by clauses 16 or 28, as we have discussed. Under schedule 7, a member’s final salary for the purposes of the old scheme is their final salary under the new scheme. As the explanatory notes set out,

“in determining the person’s final salary for the purposes of the old scheme, their service in the old scheme is to be regarded as having ended when their service in the new scheme ends”.

Amendment 79 would ensure that the final salary link is fully preserved between new and old pension schemes by providing that the definition of pensionable earnings under the new scheme is the same as it was under the old. The definition of “pensionable salary” is very important in defined benefit schemes, because a more restricted definition can result in a significantly reduced final salary and thus a substantially reduced pension. For example, to put it in more accessible terms, an old scheme might well include overtime or bonuses in the definition of pensionable earnings, but the new scheme might not. It is important to have a read-across from the definition of pensionable earnings in the old scheme to that in the new scheme. The explanatory notes for schedule 7 state that members’

“pensionable earnings from their new scheme service are to be regarded as derived from the old scheme service.”

Amendment 79 should therefore be uncontroversial as it would give statutory effect to the Government’s implied intentions. It would be better to clarify the matter in the Bill, and for those reasons I commend the amendment to the Committee.

Sajid Javid (Conservative, Bromsgrove)

The Committee will be aware that one of Lord Hutton’s recommendations to reform public service pensions is to maintain the final salary link for past service. This is an important means of honouring widespread expectations among public servants that the final salary link will be maintained for past service.

That link is set out in schedule 7. It provides that final salary pension benefits accrued in current public service pension schemes will be based on final salary at retirement from public service, not final salary when service in the old scheme ends. As drafted, the calculation of the final salary on leaving the new scheme will be based on the definition of pensionable earnings in the new scheme. I welcome the hon. Gentleman’s thoughtful concerns that that could allow for some kind of sinister undermining of the link if the definition is made less beneficial, but I hope that I can reassure him and the rest of the Committee that that is not the intention.

A key feature of these reforms is modernisation, to achieve not only modern pensions for a work force that live longer but modernisation and rationalisation of underlying legislation. That is seen in the Bill, where we have consolidated provisions from several statutes to provide a central framework for all public service pension schemes in the future, and in the scheme regulations, which will set out the details of the schemes.

One of those details concerns the definitions of pensionable earnings, which in the current regulations can appear outdated and archaic. The new scheme regulations are likely to modernise language and definitions of things such as pensionable earnings. However, it is important to note that this does not necessarily mean that the new scheme regulations will change the underlying calculation in any way or impact upon the actual value of the benefits.

Indeed, as a result of the schedule, any scheme that wants to change its definition of pensionable pay in the future would need to consider how that would affect the value of benefits calculated in accordance with the final salary link. If the change would reduce the value of someone’s final salary benefits, the scheme is likely to need to justify it in terms of article 1, protocol 1 of the European convention on human rights, and of course all aspects of the scheme regulations will be subject to consultation with the unions.

Chris Leslie (Labour, Nottingham East)

I just want to clarify something. The explanatory notes said that pensionable earnings in the new scheme service are to be regarded as being derived from the old scheme service, but the Minister seems to be leaving open quite a large door here for the definition of pensionable earnings to change. If, under the old arrangement, overtime or bonus arrangements were part of that definition, is he saying that it might be possible for them not to be part of that definition under the new scheme? Surely that would be something that he does not intend to happen.

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman is right; that is not my intention and nor is it the Government’s intention. That is why, in responding to the proposed amendment, it is useful to point out just how difficult and unlikely it would be that a pension scheme would make the kind of changes that he is concerned about. If the definitions change, it makes sense for that modernised definition to apply to the calculation of a member’s benefits accrued in a new scheme for all purposes. This is simple and transparent, and it also avoids the not insignificant administrative burden of forcing schemes to operate with separate definitions applying in parallel to the same earnings as well as the confusion that that could cause for the member.

I hope that I have addressed the concerns that the hon. Gentleman has raised. This schedule is not about trying to erode people’s rights; quite the opposite—it is about ensuring that we honour people’s expectations about the value of their benefits.

I turn for a moment to the issue that the hon. Gentleman raised earlier about clause 28 and its application. Clause 28(2) refers to schedule 7, so I do not think that there is a drafting error, as he suggested. However, I will look at that carefully and if there is a drafting error, I will table any necessary amendment. I hope that reassures the hon. Gentleman and that he will therefore withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for his comments. Obviously, our point is about ensuring that, for people who have made saving arrangements for their pension based on overtime and bonus considerations, the definition of pensionable earnings is carried forward into the new scheme, and that there is nothing underhand or any trick about altering that definition. It would have been better to have that in the Bill, but I hear the commitments he has given.

I am also grateful to the Minister for his clarification of the wording of clause 18 in relation to schedule 7. I agree that clause 28 refers to schedule 7, but that has not been carried across into clause 18. As he will appreciate, the Opposition want any little crumb of comfort—any change, any amendment, anything—that we can possibly rack up as a major achievement. Sometimes I even cling to drafting errors, if I can. I want to leave my mark on legislation, and if that is by the correction of a drafting error, so be it. I am grateful to the Minister for agreeing to consider that issue, and I beg to ask leave to withdraw the amendment.

Clause 19 - Consultation

Sajid Javid (Conservative, Bromsgrove)

The clause sets out the arrangements for consultation on scheme regulations. It provides for standardised requirements across all the schemes and removes the current discrepancies between different ones, as was recommended by Lord Hutton’s Independent Public Service Pensions Commission. The clause will ensure that, before scheme regulations are made, the responsible authority consults the people, or their representatives, who are likely to be affected by them. The responsible authority must consult the same people before any changes are made to regulations.

The Bill will ensure that all the relevant people are consulted transparently and consistently, by requiring the responsible authority to publish a list of those people who the authority anticipates would normally be consulted as part of such an obligation. Authorities will be required to keep an up-to-date list, so that scheme members are clear which organisations normally represent their interests. Schemes will not need to wait until the commencement of the provision before they consult on scheme regulations; an earlier consultation will still satisfy the requirements of the clause provided it complies in all other respects.

Chris Leslie (Labour, Nottingham East)

This and the next clause relate to consultation. My hon. Friend the Member for Kilmarnock and Loudoun has already referred to the fact that consultations are often disregarded. The Prime Minister has evolving ideas on how consultation should be truncated, because it is wasteful and burdensome. That was in his speech to the CBI yesterday, but I want to set aside such thoughts for the sake of the Bill.

The consultation provisions in clause 19 set a lower hurdle than those in relation to the consultation required on protected elements of the Bill. For example, clause 20(2)(a) refers to consultation of the persons specified

“with a view to reaching agreement with them”.

That is more what I would define as meaningful consultation. If there is a consultation, it is best done as it is set out in that clause, which does not seem to be the case under clause 19. Will the Minister explain why he has not made the same commitment to meaningful consultation under this clause? He will not be surprised that it raises a question about what the Government are up to. Why are they not looking to make a commitment that consultations should be part and parcel of a dialogue that heads in a particular direction and is part of a process that will hopefully lead to a more amicable conclusion, so that the various parties involved will feel a settlement has been reached as part of a dialectical process reaching a particular conclusion, which might be acceptable to all parties involved in the consultation process? He has not made that commitment under clause 19, and therefore there are limitations to these arrangements. Will the Minister say what is going on? Why has there not been that level of commitment under this clause?

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman suggests that there is some kind of significant weakening on consultation or consent requirements when it is compared to the old scheme. I do not believe that is the case. First, the clause formalises and reflects existing practices and expectations. It balances the current discrepancies in consultation requirements across the schemes, requiring that all those who are likely to be affected are consulted, either individually or through their representatives. It provides what I believe to be a comprehensive and fair consultation standard. I would also point out that, when the consultations occur with a responsible authority, one cannot just decide the type of consultation and the standards it must meet.

All scheme consultations on regulations will be done in line with the Government’s consultation principles, as set out by the Cabinet Office. As set out in the guidance, the time frames for consultation will be proportionate and the time required will depend on the nature and the impact of the proposal. I do believe that the consultations will be meaningful in every case. The hon. Gentleman asked about language used in previous legislation. For the reasons I have set out—the Government’s approach to the matter and the consultation principles set out by the Cabinet Office—consultations will be meaningful in every case, as they should be.

Chris Leslie (Labour, Nottingham East)

I am not quite sure that sheds a great deal more light on the deficiency. After all, the Minister relies so heavily on the Cabinet Office principles and protocols of consultation—12-week processes, and so on—which we just heard the Prime Minister wants to rip up because they are too burdensome. It is part of the Government’s big, new idea—we have had the big society, and all of those things—which is to put the country on a wartime footing and push to one side such encumbrances as consultation arrangements and Cabinet Office protocols. They were dismissed by the Prime Minister yesterday. It matters because the Minister references his commitment to consultation according to commitments made in the Cabinet Office protocols and documentation, which have the sword of Damocles hanging over them as we speak. I do not think that is good enough.

If we have commitments in clause 20 to have consultations with a view to reaching agreements, I do not see why that cannot be written on to the face of the Bill in respect of clause 19. The public are fed up to the back teeth with politicians promising to consult and then doing absolutely zero in response to their carefully worked arguments. On a number of occasions now, the public have seen Ministers going through the motions of a consultation but getting absolutely nowhere. If we are going to rebuild confidence and trust in the public policy making process, it would have been useful if the Minister could have made that particular commitment in clause 19. However, he did not, and we will have to find a way of encouraging Ministers to reflect on those issues on another occasion.

I do not wish to press the point on clause 19; we are coming to another, longer discussion about consultation arrangements in clause 20, and I hope we can move on to that.

Clause 20 - Consultation and report

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 66, in clause 20, page 11, line 11, leave out ‘significant’.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss the following:

Amendment 67, in clause 20, page 11, line 35, at end insert

‘or in the case of the Local Government Pension Scheme the period of 26 years beginning with 1 April 2014’.

Amendment 68, in clause 20, page 11, line 40, at end insert—

‘(d) the scheme’s definition of pensionable earnings;

(e) ill-health benefits;

(f) early retirement rights.’.

Amendment 69, in clause 20, page 11, line 41, leave out subsection (6).

Chris Leslie (Labour, Nottingham East)

We have four amendments in this grouping, all relating to how we feel the provisions for consultation and reporting under clause 20 should be enhanced and improved. The protections in clause 20 do not apply to adverse retrospective changes to any of the non-protected elements of public service schemes, and only if the adverse effect is deemed to be “significant” do the protections in the clause kick in.

I turn first to amendment 66, which would leave the word “significant” out of subsection (1)(b). As Members can see, subsection (1)(b) applies to the “responsible authority” if it is proposing to make

“scheme regulations containing retrospective provision which appears to the responsible authority to have significant adverse effects in relation to members of the scheme.”

That formulation leaves so much in question that we felt it important to ensure that there were consultation arrangements in every and any circumstance where adverse retrospective changes are being proposed.

We have already heard that the Government have refused to make changes to tighten up the provisions on retrospectivity in the Bill. That has raised a significant question mark in the minds of many public service employees about whether some of the savings that they have put to one side—the deferred wages that they are entitled to—are going to be clawed back unfairly somehow by retrospective changes. The issue is also relevant to the non-protected elements of public service schemes.

Sheila Gilmore (Labour, Edinburgh East)

A word such as “significant”, which is not defined in the Bill, in lots of ways cannot be defined and so would be matter for interpretation. Could putting such a term into the Bill give rise to significant legal challenges, which could cause more trouble than simply consulting in the first instance?

Chris Leslie (Labour, Nottingham East)

Indeed. It is an unnecessary risk to the best interests of public service employees to have a provision that lets the responsible authority off the hook when it comes to consulting on changes that might have an adverse effect on members, especially given that the provision relates to retrospective changes. I do not think it is necessary to have that protection for the authority on the employer side. If we are going to have consultation arrangements, these are surely circumstances where such arrangements are particularly justified.

There are only three protected elements in subsection (5): the extent to which the scheme is a career average defined benefit scheme; members’ contribution rates; and benefit accrual rates. That means that there are some important elements of a pension scheme that are not protected by clause 20 in terms of consultation arrangements. Most notably, these include the definition of pensionable earnings that we discussed a moment ago, early retirement rights and ill health benefits. On those non-protected elements of the scheme, it is important, if the employer side is to make changes, particularly if they are retrospective and have an adverse effect, that there should at least be meaningful consultation.

If a responsible authority decides to make adverse, retrospective changes to something as important as ill health retirement benefits or the definition of pensionable earnings, the Bill would allow them to do so with only the weakest of consultation requirements, provided that such changes are deemed to have an adverse effect but not a significant adverse effect. It is unacceptable for such adverse, retrospective changes to be excluded from the protections of clause 20. Like so many other provisions in the Bill, that will severely undermine the trust of millions of public service workers and reduce the security of their future retirement provisions.

Amendment 67 turns to the question raised in line 35 of clause 20 of what is called the “protected period”. Clause 16 would close the local government pension scheme on 1 April 2014 and all other schemes on 5 April 2015. Clause 20 defines the protected period as 25 years, beginning on 1 April 2015. That means that there is a rather strange window of just over a year when, bizarrely, the protections under clause 20 will not apply to the local government pension scheme.

Amendment 67 seeks to correct what must surely be a drafting error, by ensuring there is no such window during which the protective elements of the local government pension scheme are not protected by clause 20. It would be very odd if there were a protected period in future but an imminent one-year gap where no protections exist. The Minister will be familiar with the helpful intent of the Opposition to ensure that we plug any loopholes and drafting anomalies that we spot in the clause. I hope that amendment 67 will be useful in that respect. That amendment also aligns the protective period for the local government pension scheme with the protective period of all other schemes, so that both come to an end at the same time. That would again be a useful change for those of us still around in 25 years’ time when we next debate these issues. Hon. Members might want to put down a marker at this stage to say that they want to serve on the Committee for that piece of legislation. That is something they might want to put in their long-term calendars.

It is not an unfair advantage for the local government pension scheme to have 26 years of protected period compared with 25, as all other public service workers will enjoy an additional year under their old schemes compared with local government workers under this particular scheme. I hope that amendment 67 is useful to the Minister in that respect.

Turning to amendment 68, Members will see that from line 37 of clause 20 there are a number of elements to which the concept of protection relates: career average revalued earnings schemes, members’ contribution rates and benefit accrual rates under the scheme. The amendment seeks to ensure that those other elements that ought to be protected are inserted at the end of that subsection: the definition of pensionable earnings, ill health benefits and early retirement rights.

Clause 20 offers some protection to the so-called protected elements of pension schemes by requiring the responsible authority to consult specified persons with a view to reaching agreement, as we debated earlier on clause 19, and also to lay a report before Parliament.

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

I remind the Committee that with this we are discussing the following:

Amendment 67, in clause 20, page 11, line 35, at end insert

‘or in the case of the Local Government Pension Scheme the period of 26 years beginning with 1 April 2014’.

Amendment 68, in clause 20, page 11, line 40, at end insert—

‘(d) the scheme’s definition of pensionable earnings;

(e) ill-health benefits;

(f) early retirement rights.’.

Amendment 69, in clause 20, page 11, line 41, leave out subsection (6).

Chris Leslie (Labour, Nottingham East)

Good afternoon, Mrs Brooke. What a pleasure it is to have you in the Chair. I do not wish to belittle in any way Mr Benton’s contribution, but it somehow feels as though we are on the home straight. We obviously have some significant proceedings still to be conducted, but we are in the final week—according to the programme order at least—of the Committee stage. I can feel the enthusiasm in the room; it is quite palpable.

I was mid comment on amendment 68, which, as with the rest of this group of amendments, relates to clause 20 and consultation and reporting when a change may be made that affects the accrued benefits of members of public service pension schemes. Amendment 68 seeks to add to subsection(5) some additional elements that ought to be protected, which would then require the responsible authority to consult those affected and to use, as the Minister described it, this enhanced consultation procedure. In other words, there should be meaningful and genuine consultation, rather than just the tick-box consultation that people have sadly grown used to in the past few years.

It is important that we focus on Ministers’ decisions to protect certain elements of pension schemes but exclude others. The Minister said that if there were changes that alter the extent to which the scheme is a career average revalued earnings scheme or if members’ contribution rates or benefit accrual rates are affected, those are deemed as protected and consultation must be meaningful with a view to reaching agreement—so far, so good. However, other important factors of pension schemes, including the scheme definition of pensionable earnings, ill-health benefits, and early retirement rights, are excluded. Those elements are important, and it is disappointing that they are not subject to the protections in clause 20.

As the Bill stands, the responsible authority could make adverse and retrospective changes, and any form of non-retrospective change to the definition of pensionable earnings, ill-health benefits, or early retirement rights would require the most superficial of consultation exercises only. I will give some examples. If scheme rules were changed to reduce the ill-health benefits that would apply, if somebody were to fall ill, to ensure that their income is protected in retirement, particularly if it is early retirement, that would not be subject to proper consultation. If changes were made to the age at which early retirement could be taken, the same is the case.

We touched on the issue of the definition of pensionable earnings earlier, and if that is changed, benefits and accrued benefits could be reduced. It is interesting that the Bill mentions protecting “benefit accrual rates” under the scheme, but it does not say that any issues that affect benefit accruals more generally would be subject to the enhanced consultation arrangement. The Opposition have some serious concerns about the significant impact that an alteration to the definition of pensionable earnings could have on benefits being accrued. Simply referring to the “rate” covers quite a narrow area of potential benefits. I am quite worried that if pensionable earnings definitions are changed, benefits will be reduced. It would not be treated as a protected element and it could affect the overall level of benefits that are available. We therefore think that for the avoidance of doubt, as well as ensuring there is proper scope for those elements of constituent parts of pension schemes that should be part of this proper consultation process, it would be far better to add on those elements as we have set out in amendment 68.

Amendment 69 brings us to line 41 and this rather disappointing subsection which provides that any changes that flow from the employer cost cap are not afforded the protections under the consultation arrangements envisaged in clause 20. Subsection (6) states:

“references to a change to the protected elements do not include a change appearing to the responsible authority to be required by or consequential upon”

that employer cost cap. The wording is particularly interesting but I will come to that in a moment. We have already had a debate on clause 11, where the Government are allowing member contributions to be increased or benefits reduced, including retrospectively, so the scheme can stay within the specified margins of the employer cost cap. We do not have a problem with the operation of the employer cost cap, but it is important that scheme members understand how it works because it all depends on where it is set and at what level it kicks in. There could be significant changes to their accrued benefits—their deferred wages—if there are changes which seem arbitrary and could cut across their earnings in retirement.

For there not to be a requirement, certainly in clause 11, for the Treasury to consult when setting directions for that cost cap is bad enough; but then for the clause 20 provisions deliberately to exclude elements that might flow from the cost cap, as it affects the scheme contribution rates or benefit accrual rates, seems to underline the expectation that many in the public sector will have that the employer cost cap is not simply about scheme viability or balance, but is a way of finding opportunities to grind down and erode the benefits to which they might be entitled. Without any form of consultation on changes from this employer cost cap arrangement and without any form of proper parliamentary scrutiny if benefits are to be reduced or contributions increased as a result of the cap, the provision moves too far out of the realms of what should be decent relationships between the employee and employer sides, as part of the mature conversation we should be encouraging between stakeholders involved in making sure that these new schemes are viable.

Clause 20 does not require member consent to make changes to protected elements. It merely requires consultation with a view to reaching agreement and the laying of a report before Parliament so that it can be properly scrutinised. We see no good reason for the Government to exclude changes made under the employer cost cap from what are still pretty modest protections under clause 20. Ministers have tried to characterise this as some sort of lock when it is simply a requirement to consult, albeit with a view to reaching agreement. But that does not force an agreement to be made. It simply provides this extra level of parliamentary scrutiny. A Government majority can push things through, as we have seen time and again. It is not a protection that gives any guarantees to those on the employee side.

It is a shame to have this exclusion for changes flowing from the employer cost cap. That is the point I wanted to come to in respect of the wording of subsection (6). It does not just say, “Thou shalt not have this level of consultation if things appear”

“to the responsible authority to be required by…(employer cost cap).”

It says that if anything looks as if it is “consequential” to the employer cost cap, that also is excluded. So I am slightly concerned that issues relating to benefit accrual rates, member contribution rates and even the extent to which a scheme is a career average revalued earnings scheme, might themselves be affected by questions arising from that employer cost cap arrangement.

In other words, the supposedly protected right to be consulted on those matters might be eroded if somebody in the “responsible authority” says, “Well, actually these are indirectly impinged upon by the operation of clause 11 on the employer cost cap, and therefore out goes the requirement to consult.” Obviously there would be a right for individuals involved in the scheme to contest that, but it would be a very messy judicial review experience and not very desirable at all.

It would be far better if we could ensure that the cap was set in a way that at least gave people the chance to be consulted and to have their say on how it will affect them. That would also be a healthy process. Some scrutiny of operation of the employer cost cap arrangement would not go amiss. Often, scrutiny allows officials and others to reflect—once, twice, a few times—and ask, “What exactly are the downstream consequences of these things?” A consultative requirement is not just for the benefit of the employees affected; it is also part and parcel of ensuring that proper attention and thought goes into the design of schemes in the future.

There is also a concern about the way in which the employer cost cap can be enacted by Ministers. That was alluded to by my hon. Friend the Member for Kilmarnock and Loudoun in her comments on clause 11. Given the wide discretion the Treasury has granted itself in the drafting of clause 11 (3) in particular, there is nothing to ensure that the cap is set in a moderate way. The Treasury could set the cap in such a low way that it is very easily exceeded, triggering increases in employee contributions and decreases in employee benefits; and of course, all that would happen without any meaningful consultation whatsoever.

There is a flaw in the way the Bill has been designed. As I say, the employer cost cap arrangement may well indeed be the right and proper thing to produce, but it just seems so unnecessarily miserable of Ministers to refuse people at least the right to be consulted about that arrangement, especially if they are feeling adverse effects, not least in the retrospective context of their deferred wages.

I am sure the Minister will understand where we are coming from in trying to provide at least some balance in the protections for members of public service schemes. I commend the amendment to the Committee.

Iain McKenzie (Labour, Inverclyde)

Twenty-five years would seem a long time in anybody’s reckoning, but as far as pensions are concerned it is actually quite a short time. I know that from experience of looking at a pension many years off, and then seeing it coming starkly closer with every year of employment. So 25 years is a long time, but pensions are long-term plans. Pensions should be looked upon not as a gift from employers but as deferred pay, remembering that employees have contributed for many years with the expectation and hope that as they near retirement, they can look forward to the expected level of pension.

That is why I believe that any reforms should last a generation. They should give comfort to those entering employment and establishing a pension that there will be no changes for the next 25-plus years. The clause does not deliver on the required commitment or offer any comfort in that respect. We are all planning for retirement, and at the end of our working life we expect to receive the level of pension that we have accrued over the years.

If changes are made late in a person’s employment life, they will have little time to adjust to a new level of pension if anything untoward happens. Most recently, women who were born in the early ’50s were told virtually at the last minute that their pensions would not be what they had assumed, and they had little time to make the necessary adjustments. I am sure that, like me, many hon. Members received representations from their constituents who fell into that bracket, who felt that the measure was unfair and that it would put them in difficulties in the years ahead.

The use of the term “significant adverse effects” is particularly worrying, because it offers an opportunity to avoid consultation rather than engaging in it. Significant adverse effects for one person might not be significant adverse effects for another. Those at the top end of the salary range probably would not see as much of a significant adverse change as those at the bottom. Pensions in the public sector encompass an average of between £5,000 and £7,000 a year, and the majority of employees earn a salary of £20,000 or less. The measure will especially hit those who are on lower salaries and those who work part time. Again, that would mostly affect women, who tend to take up part-time occupations in the public sector.

Pensions are all about trust between employee and employer. An employee has to be able to trust in the link between what they are paying in and what they can expect. They have to be able to trust that their employer will stand by them and that they will leave employment with their expected pension. Conservative Members repeatedly cite the private sector as an example. Yes, it is an example, but it is an example of how to smash and shatter employees’ trust and adjust pensions at will, forcing many employees to leave their employment for fear of their pension being further reduced. I have some experience of that, because my previous employer used such a tactic to great effect to reduce its headcount, adjust its work force and make a massive saving over the years.

We do not want to replicate that situation in the public sector. It is essential that employees have confidence in their pension and confidence that if any adjustments are to be made, consultation will take place. That consultation must take place over a period long enough to allow them to make adjustments, so that they do not retire on poverty pensions that put them in real trouble later in life, where the Government will have to pick up the bill at the other end and supplement low pensions.

Sheila Gilmore (Labour, Edinburgh East)

I apologise for missing the start of the sitting. In evidence sessions and earlier debates, one issue that came up several times was the need to reassure people that although the Bill will fix a normal pension age, which will be lower for only a small number of specified groups, they will not have to retire at that age. People need reassurance that although that is the normal pension age, they should not get too upset, worried or anxious if they find it difficult to continue working because of personal or health circumstances, because they would be able to retire at an earlier age, albeit in many circumstances with a reduced pension. That is an important safeguard for many people. There are many examples of people who might find their type of work difficult on health grounds and have a lot of scepticism that they could reasonably do another job.

Although nobody wants anyone to have to retire early, we have to accept that many people, despite the longevity issues that we are struggling with throughout the Bill, are not that fortunate and will want to leave work early. The relevance to the clause is that arrangements for early retirement on health grounds are not protected elements requiring consultation. Amendment 68 aimed to insert additional circumstances to be protected, one being early retirement and another ill health. It is important that we consider making such a change.

We must remember that there is nothing that says that a future Government or scheme cannot make the changes. It simply says that a scheme must consult before making the changes, and ensure there is a level of consensus. Groups that might be particularly affected include nurses and carers, who find lifting and other tasks beyond them, as well as more obvious categories such as police and fire officers, who have a lower retirement age in the Bill but might still be unfit in some circumstances for the job and unable to reach the level of physical fitness we would hope for.

If it is possible for a scheme in future to alter the arrangements for early or ill health retirement and make it more difficult for people to take such retirement, the answer given to concerns expressed earlier about a fixed retirement age begins to disappear. People could find that not only is this not the fixed normal pension age for the calculation of the pension, but the other things that they might have hoped would help them if they needed to retire early could also be changed, and without consultation. The additional provisions suggested in amendment 68 would close that anxiety and make people feel more confident that the fact that a normal retirement age is fixed will not make it difficult for them.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I listened carefully to the hon. Lady’s well made contribution to the debate. Does she not accept that clause 20 constitutes an enhanced consultation and report process? That is what is referred to in paragraph 132 of the explanatory notes to the Bill. This measure is meant to implement the 25-year protection of pensions.

Amendment 68 would add three additional protected elements. In reality, would the hon. Lady not accept that no Government could change any element of a public sector pension scheme without all the unions, other vested interests and those who look after the interests of public sector employees knowing about that change and voluntarily putting forward their views to Government?

Sheila Gilmore (Labour, Edinburgh East)

The hon. Gentleman almost suggests that there is no need for the clause at all, but if that were the case, why put in the enhanced consultation? Clearly, the Government’s view is that, given the nature of the changes and the level of commitment given to obtain that agreement, the settlement will endure.

We all know from our postbags that a lot of public sector workers feel that the ground has been cut from under their feet. They feel that what they had been paying towards and what they had expected when they started their jobs has been taken away. People in that situation have been, in some cases, pulled reluctantly to reach the agreements, but one of the cornerstones that has been stated over and over again—the Chief Secretary to the Treasury has been particularly strong on this, and said this when speaking on this subject—is that there will be a guarantee of permanency. As part of that, this provision, for consultation, is there in clause 20.

The arguments that exist for protected factors, which are already in the clause as it stands, apply to further issues for the reasons I have given. In a situation that has not been easy for anybody involved, it is important that we give people that confirmation now.

Consultation, and consultation rights, are important. Although sometimes people will find out about things at some point and raise an issue, if a clear consultation process is not built in from the start, people find that they start at the back end of that process. There should be a clear obligation to consult, making sure that the issues are brought to the attention of the people who need to know.

In an earlier intervention, I raised a question on the use of the word “significant”. It cannot have precise connotations, but if we are not careful, we will end up in a situation where there will be a lot of dispute. One person’s notion of what is significant may be considered just a small change by others, or it may be that it affects only a few people. That is the other question about significant: is it significant in relation to the nature of the change, or is it significant in relation to the number of people who may be affected? If only a small group is affected by a change, they may be affected in a way that matters a great deal to them but it may not be considered to be a significant change in the grand schemes of things where there are thousands of members.

Iain McKenzie (Labour, Inverclyde)

My hon. Friend makes many good points. Does she agree that the attraction for many to stay in public service employment is not that they will be on inordinate amounts of money each month, but that they will have a reasoned, decent pension waiting for them at the end of their employment?

Sheila Gilmore (Labour, Edinburgh East)

There is absolutely no doubt, as my hon. Friend says, that that was the tradition. Nowadays, it is attacked on the grounds that the differential that existed in some respects between public and private sector salaries is not quite the same as it was. Nevertheless, one of the reasons for that is that many of the lower-level public service jobs have been outsourced and are not included in that count any more, so like-for-like comparisons have to be done with care.

People are prepared to do a lot of jobs in the public sector that are neither glamorous nor high-paid. I give the example of the remaining people who work as home helps in my authority—they are now called carers. I say “remaining” because a lot of them no longer work for the local authority; they work for private companies on an outsourced basis. However, those who still do are doing a hugely important, intrinsically hard job for not a very high wage. Pensions are one of the things that they have got, and women in particular fought very hard for pensions at a time when they often did not even get included in schemes because they were not working full-time hours. We fought very hard to get pensions for those sorts of jobs, and we certainly do not want to see them taken away or diminished even more than they have been.

I do not buy the argument that people in the public sector should be content because they still have something that people working in the private sector do not have. I know this is slightly off the point, but the more I look into some of the issues about private sector pensions—the way they have been sold and mis-sold, and the kind of provision that people have—the more appalling the situation seems. The result is, of course, that in the end the state has to pick up the tab a lot of the time anyway, because the private sector has not made provision. That is a whole other story, and one that no doubt we will be coming back to in due course.

Graham Evans (Conservative, Weaver Vale)

I agree with a lot of what the hon. Lady has said about private sector pensions. Does she not welcome the Government’s decision to bring career average pensions into the public sector, therefore putting in something that, relatively speaking, helps lower-paid workers, who historically have had a worse deal with their pensions than those at the very top? These Government reforms mean that those at the top do not quite get the pensions that they have had historically, because of the career average that the Government have introduced.

Sheila Gilmore (Labour, Edinburgh East)

The career average has some clear advantages for some groups, and that is why a lot of trade unions and employee groups have come to accept it, even though their initial responses were anxious as they were thinking that everything would be changed. One constituent of mine, who had apparently done quite a bit of work in his union on pensions, said that whether career average is good or bad basically depends on revaluation and on accrual rates; so it is dependent on how well those are structured. Certainly, that reform will be of advantage to a lot of lower-paid workers in pension schemes. I do not think we are saying that we would want to throw that away again.

That is why it is so important that, as is acknowledged in the clause, elements such as accrual rates are protected. My point was that we should go beyond simply protecting the elements that are listed in subsection (5), and look at other issues that could affect people quite substantially, to make sure that we can genuinely move forward, and to give people the confidence that this settlement will last, and that, should it ever be reopened, it would be reopened with the fullest possible consultation and involvement.

As I have said before, we cannot predict what will happen in the next 25 years. There may be further significant advances in longevity, for example, which may be a major driver for wanting change. However, it is also the case that we have not resolved a lot of the health problems that people suffer, both after they have passed normal retirement age and before that. In many ways, we are building up a quite substantial problem with regard to people who simply are not as fit as others when they reach that age, and so need protection. I urge the Committee to consider those points very carefully.

Sajid Javid (Conservative, Bromsgrove)

I welcome you to the Chair, Mrs Brooke. I welcome the case that the hon. Member for Nottingham East has made, and I shall respond to it now in some detail, as he raised some important points. I also thank the hon. Members for Inverclyde and for Edinburgh East for their contributions, and also my hon. Friends the Members for Bognor Regis and Littlehampton and for Weaver Vale for their excellent interventions, in which they made some important points.

In a moment I will come to the individual proposals set out in the amendments. However, I will first take a moment to respond to the general thrust of the arguments advanced. The provisions in the clause deliver on the Government’s belief that the new public service pensions represent a settlement which should last for 25 years, perhaps even longer. It is important to the Government that their commitment in this regard should be embedded in the primary legislation in order to give reassurance to members of these schemes. Some will argue that it is inappropriate that such a commitment should be in the Bill as it represents an attempt to bind the hands of future Governments and Parliaments. However, we are determined to see it remain as a sign of our commitment.

The guarantee is as strong as we could make it without improperly binding future Parliaments. There are, however, practical implications to be taken into account. The clause should allow for commonly held expectations for these pensions, but it should not do so at the expense of a practical delivery of these schemes in the real world. As has been mentioned, there must come a point past which we entrust the future of public service pensions to future Administrations. The clause strikes the right balance.

Amendment 66 seeks to remove the word “significant” from the clause. This would make every regulation that implements a retrospective, adverse change to member benefits subject to the additional protections in clause 20, regardless of how minor that change might be. We have discussed the issue of retrospectivity at length so I will try to avoid going over too much old ground. Like the legislation it replaces, the Bill contains a power to make retrospective changes. What I will say again is that we believe that almost all retrospective changes will either be minor or technical in nature, or beneficial to members. It will be exceptional for retrospective changes to have adverse effects on scheme members. Where they do, we believe that those effects would generally be very minor, that is to say, not significant.

Such changes do not have a real likelihood of creating genuine or substantial unfairness. Therefore, the Government do not believe it is appropriate that all such retrospective changes are automatically debated, let alone subject to the enhanced consultation requirements and parliamentary report processes set out under this clause. Such an arrangement would be impractical. I am afraid that a similar argument applies to amendment 68. The Government have given considerable thought to the elements that could be included within this clause and we consider that those currently listed are the right ones.

Combined with a functioning cost cap, where a significant reduction in the cost of the scheme would see beneficial effects for members, the protection of the listed elements should give scheme members the assurance that they rightly desire and deserve. The inclusion of further elements, as suggested in the amendment, would, I am afraid, make it much more difficult for the scheme to operate in practice. Each element included under this list would represent a restriction on the ability of schemes to respond flexibly and appropriately to changes in circumstances. I therefore urge hon. Members not to press this amendment to a Division.

Amendment 69 seeks to remove subsection (6) from the clause. This subsection excludes any changes made to the schemes as a result of the employer cost cap mechanisms, from the protections set out in earlier subsections. Let me be clear. This is not intended as a back door through which changes can be smuggled without being afforded the considerations by the proper parties. Clause 11 sets out that there will be a period of consultation before any decision is made on what action should be taken to address any breach in the cost cap. The clause allows for a default adjustment to be made to the scheme if agreement cannot be reached. But subsection (6) clearly envisages that scheme regulations will provide a process for interested parties, including the responsible authority, the scheme manager, employers and members to reach agreement on how to adjust the scheme to bring its costs back into line before such a default adjustment would be made.

Agreement, of course, is even stronger than consulting

“with a view to reaching agreement”,

as will happen under clause 20. It would seem perverse for the Government to seek to restrict the scope of the discussions that would take place in the case of a breach of the cost cap by placing certain elements under a separate, less stringent consultation regime. Given those assurances, I hope that the hon. Member for Nottingham East will agree that amendment 69 is not necessary, and I urge him to withdraw it.

Labour Members may be pleased to hear, however, that I see more benefit in amendment 67. Clause 20 is drafted to provide one aligned 25-year period for all schemes. That has significant benefits, the most important of which is that all those involved would have the same clear understanding of the effect of the clause. However, there may be merit in considering whether we could do more to reassure scheme members, particularly those of the LGPS, that the Government are committed to implementing the schemes as they have been set out. I will need to give that further thought as there will be implications for any other case where a new scheme may choose to open before April 2015 and proper consideration would need to be given to the date on which the 25-year period might start. There is a case for amendment 67 and I will certainly look at it carefully.

Given those comments, I urge the hon. Gentleman to withdraw all four amendments.

Chris Leslie (Labour, Nottingham East)

I am glad that we have had a good debate. To outsiders, it may seem like simply talking about talk and about who is going to talk to whom and at what particular point in time. However, as my hon. Friends the Members for Inverclyde and for Edinburgh East said in their contributions, the extent to which people are involved in having a voice in the design of their pension scheme and the extent to which they have any control—never mind the opportunity to have a say—over how the scheme evolves is incredibly important. It is important in ensuring that members retain their confidence in the scheme and remain as members, which is necessary for the scheme’s viability and good financial health. It is therefore important to look at the consultation provisions, and we may discuss those in the clause stand part debate.

I am sorry that the Minister does not like amendment 66, but it is an important provision to have in the Bill if possible. My hon. Friend the Member for Edinburgh East said, quite rightly, that the definition of “significant” is very much in the subjective hands of the person making that judgment, and it would therefore be better to ensure that we consult on anything that has an adverse retrospective effect on scheme members. It is not a particularly onerous thing to have that requirement in the Bill. We have made the point about the concept of significant change previously, and it is unnecessary for the Government to caveat their offer on consultation. It seems unnecessarily mean to take that parsimonious approach to consultation, and they could do a lot better.

I am glad that the Minister says he will give further thought to amendment 67. It concerns what appears to be a drafting anomaly in the Bill, and it is excellent news that the Minister will take a look at the way that the timing of the closure of the old local government pension schemes and the arrival of the new schemes might align. I would be happy to withdraw amendment 67 on the grounds that he will give it further thought. It is an anomaly in the way that the Bill is drafted but I do not think it was the Government’s intention to have this strange one-year window when no protections would apply to the local government pension schemes. The Minister’s comments were welcome and I am glad that we were able to shine a spotlight on that anomaly.

I am afraid we are not in agreement on amendments 68 and 69. Commenting on amendment 68, the hon. Member for Bognor Regis and Littlehampton said that union representatives of employees would voluntarily make their case regarding the definition of pensionable earnings, ill health and early retirement rights. That is not the point we are making about clause 20. We are simply saying that those elements are as valuable a part of the new schemes and should be subject to that consultation, which is only to ensure that it is done with a view to reaching agreement. That is the way the arrangements ought to be put forward, with those aspects regarded as protected elements.

The Minister says that will make it more difficult for those involved. That is part of the design of ensuring that we get good changes, rather than ones that are shoddy and ill thought through. It is important to have an opportunity for dialogue about the arrangements. That is why we think it is worth having those elements in the Bill. I am not convinced by the Minister’s comments to exclude those aspects as set out in amendment 68.

Similarly, I do not agree that the deletion of subsection (6) would cause vast detriment or upset the design of the Bill in the way that the Minister says. He pointed out that in clause 11(6) there is a provision for procedures to be put in place to reach agreement, and that that is a stronger provision. That is a permissive provision. It says,

“scheme regulations may provide for”

those procedures to reach agreement, not that they must provide for those procedures to reach agreement. That is not a level of protection; it is very loose and permissive protection. That is why we felt it better to ensure that the employer cost cap arrangements at least came under the auspices of the consultation requirements in clause 20. If the Government are to have free rein to put in the cap, decrease member benefits or increase employee contributions, it is important to have good, meaningful consultation. That is not asking for the world; it is simply asking for good practice. I am sorry that the Minister did not feel able to move on that issue.

We have discussed the significant question and will come to that again later.

I beg to ask leave to withdraw the amendment.

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

I recommend that we do not have excessive repetition as we have had lengthy discussion.

Sajid Javid (Conservative, Bromsgrove)

I will, of course, follow your excellent recommendation, Mrs Brooke, and keep it short. I have already set out the Government’s broad position on the provisions contained within clause 20, so I will simply summarise the key components of the clause. It is concerned with establishing, in law, the commitments we have made to set a high bar for changing the core elements of the new public service pension schemes.

The Government believe these reforms to be a settlement for a generation and a package that can endure for at least 25 years. The key elements of these pensions will receive two layers of protection. First, any proposed changes will undergo consultation with a view to reaching agreement with the individuals who are considered to be likely to be affected. Secondly, a report detailing the justifications for the changes must be laid before Parliament. The key exception to that is a case in which changes might be required as a result of the cost cap mechanism set out in clause 11. In such a case there are separate processes for the engagement of all key parties, as set out in that clause.

I would like to correct something I said when we debated clause 11. I believe I stated that the clause did not allow for a default adjustment to be made to the scheme if agreement cannot be reached, but I meant, of course, to say that the clause does allow for a default adjustment to be made to the scheme if agreement cannot be reached.

To provide added reassurance on the issue of retrospectivity, which we have discussed at some length, the protections that I have mentioned have also been extended to any case where regulations are laid that contain retrospective provisions that appear to have significant adverse effects on members of the scheme.

Chris Leslie (Labour, Nottingham East)

I will not detain the Committee long. The drafting of clause 20 is quite an interesting innovation in legislative terms, because the idea of consultations with a view to reaching agreement is quite an untested concept in primary legislation. It inspires me for future amendments to think about ways in which we might enshrine such concepts elsewhere, but I digress.

The notion of a protected period of 25 years is interesting. The agreement is supposed to extend for that 25-year period, but it is also impossible for legislation to bind future Parliaments, as the Minister has quite rightly said. We are therefore reliant on the word of Ministers, and the word of Conservative Ministers in particular in this regard. Let us be honest, it is not likely that the Liberal Democrat component of the coalition will sustain itself for a 25-year period. Without in any way being disrespectful to the Liberal Democrats, Mrs Brooke, it is important that we get Conservative Ministers to make it clear that future Conservative Administrations would also adhere to this 25-year commitment. We can have nothing particular in legislation, only the Minister’s word. Although the Chief Secretary to the Treasury said that he wants this agreement, we have not heard that from the Chancellor of the Exchequer or this Minister. That is a point that we have to extract from leading Conservative policy makers such as the Minister as the Bill proceeds.

I still think that this is an inadequate clause, as shown by the amendments that we tabled, but it is an interesting one. Many stakeholders will want to keep the Government’s feet to the fire on the promises that they are making, even if they are only limited ones such as those set out in clause 20. We will not oppose the clause as it stands, but it is inadequate and we might want to return to it later.

Sajid Javid (Conservative, Bromsgrove)

The hon. Gentleman referred to the Government’s commitment to ensure as best we can, and with the caveat he has accepted—that no Government can bind future Governments and parliamentarians—that this legislation will endure for a generation. At this point I remind him that the Chief Secretary to the Treasury, who speaks for the Government on this issue, told the House:

“I believe that we will have a deal that can endure for at least 25 years and hopefully longer.”—[Official Report, 2 November 2012; Vol. 534, c. 929.]

He said something similar on Second Reading. The hon. Gentleman should take that as a reassurance of the Government’s intentions.

Clause 21 - Other procedure

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 70, in clause 21, page 12, line 5, leave out ‘significant’.

Clause 21 provides that the scheme regulations should be subject to an affirmative procedure only if they amend primary legislation—that is fair enough—or if they contain retrospective provisions which would have significant adverse effects on members of the scheme. Here we are again, as my hon. Friend the Member for Edinburgh East pointed out, talking about the frequent use of the word “significant” as a protection behind which Ministers can hide and refuse to bring forward affirmative statutory instruments before Parliament for us to consider. I do not apologise for returning to this issue, particularly on the question of retrospective changes to the pension rights of employees. It is not a surprise that many scheme members will be frightened by the possibility that benefits they are accruing or the rights they have relied upon could be amended by backdated changes.

As we have heard before in the Committee, it is the normal convention of pensions law and pension scheme rules that savings that have been made under certain scheme arrangements are sacrosanct and so too are the benefits that will accrue from them. It is therefore unusual and disappointing that we see caveats sneaking into the Bill that seem to allow Ministers to claw back sums of money retrospectively that people will think have been banked, are safe and can be relied on in their old age.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Given the hon. Gentleman’s experience in the House—I think he was first elected at the same time that I was, albeit that he had a short break from the House during that period—he will know that the negative resolution procedure involves scrutiny by the House, and if the Opposition are doing their job well, they will identify negative resolution statutory instruments that they feel need debating. Is his concern a reflection on his party’s ability to scrutinise negative resolution statutory instruments?

Chris Leslie (Labour, Nottingham East)

I understand what the hon. Gentleman says. Of course it is true that the Opposition—there is nothing stopping Government Members doing this, too—need to scour the lists of all the orders that Ministers make in their quieter moments that are off-line and not brought forward for debate.

Unfortunately, it is not just in the hands of a Member to say, “Ah. I have spotted a negative statutory instrument of great significance on the list. Here it is, let’s have a debate about it” because, as the hon. Gentleman knows, each individual Member does not have the power to require that that issue comes forward for debate. It is in the hands of the Minister to listen to the requests of the Opposition, Back-Bench Members or whichever Member of Parliament prays against an order. The Minister then decides whether he will or will not allow a debate. In fact, even if several dozen MPs pray against a negative resolution, there is absolutely no guarantee that the Minister will allow a debate.

We are therefore looking for a protection that will mean that the decision will not be solely at a Minister’s discretion, or on a whim if they are feeling in a bad mood on one particular day and do not want a debate—it should not be in that vein. There should be a requirement that the House can have a debate under the affirmative procedure if there are adverse effects from retrospective provisions. That is what we are talking about here, and that is the point we seek to make. We are not asking for a debate every time there is a change in the rules—that would be excessive, and I accept that there is a need for the negative procedure to be used in some cases.

The amendment would ensure that in circumstances in which primary legislation is being amended, or for changes that delve back into pension arrangements that people thought were protected, we should have the affirmative resolution procedure. The word “significant” leaves too much protection for Ministers; it is not much of a concession to have it added to the Bill.

If we are going to stand up for the security of public service employee schemes and accrued rights, if we are to prevent the drop-out rate from future pension schemes from escalating, and if we want public service employees to contribute to schemes and have confidence in them in the future, we need to ensure that we have certain backstop protections and rights in the Bill. That means ensuring, in the public interest, that all adverse, retrospective changes to public sector pension schemes will automatically receive a level of parliamentary scrutiny.

Of course, there is no guarantee that, on the day, the Government’s majority will magically disappear or dry up in a Delegated Legislation Committee. Some of us, on occasion, feel that such Committees are a bit of a rubber-stamping exercise, but at least that rubber-stamping takes place in public with an opportunity to have a debate about the issues and a full airing of the questions, and to put the Minister on the spot with questions. That is not an unreasonable request. The word “significant” is unnecessary in subsection (1).

Iain McKenzie (Labour, Inverclyde)

As we heard from my hon. Friend, we take issue with the word “significant” in the mention of “significant adverse affects” brought by retrospective provision. What is significant to one person, as I have already said, is not necessarily significant to another. Retrospective changes really frighten people and make them ask, “Where am I now with my pension?” It is not a case of the pension possibly being gone tomorrow, but people want to know where there are now in case the pension is well and truly gone before they realise. There is a feeling that they are in the pension wilderness. There is a belief that benefits may be curbed and their rates may be subject to backdated changes, which must really worry those who are looking to the future and looking to a pension to retire on.

That all adds to reduced security, and reduced security and belief in pensions have an impact on people dropping out, which may increase. That is bad for society in several ways and would cause real difficulty for pensions in future. These days, there is difficulty in getting young people to engage in pensions. How do we sell pensions to them if we have to say, “You won’t actually know today what your pension will be. It may change today. It may change tomorrow”? These worrying factors are kicking in for people who are starting their working life and looking to accrue a pension.

It only seems right therefore that all retrospective changes receive parliamentary scrutiny. It is correct that they should come back here. We should get the opportunity to examine proposals that will impact on thousands, if not millions, up and down the country. We need to be assured that such changes are fair, above board and reflect the need to provide good-quality pensions at the end of people’s working lives. I ask the Government to take on board the need for all adverse retrospective changes to come in front of Parliament, and to remove the word “significant” so that all changes that affect pensions will result in consultation.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Members for Nottingham East and for Inverclyde for their contributions. I will try to respond to their points. We had a lively debate on the issue of retrospection last week when discussing clause 3. I recognise that it is an area of genuine concern, and I am happy to try to reassure hon. Members again.

Amendment 70’s purpose is to ensure that, whenever adverse retrospective changes are made in relation to scheme members, they will always be subject to the affirmative procedure. The clause, as drafted, requires the affirmative procedure only where the adverse effects on scheme members are deemed significant. The use of the word “significant” in this clause is important. It brings a sense of proportion to the requirement for the affirmative procedure. Where retrospective changes have an adverse effect that is not significant, the Government’s view is that the additional parliamentary scrutiny of the affirmative procedure is not needed. However, where the adverse effect is significant, it is right that Parliament should scrutinise those changes more closely.

As we heard in our debates on clause 20, when retrospective changes are proposed that could have a significant adverse effect on members, the authority that proposes to make those changes must first consult those who are likely to be affected with a view to reaching agreement with them. That means that the consultation will have to be conducted in good faith—that goes without saying, of course—and in a consensual manner, so that agreement is a realistic possible outcome of the process. I referred to that standard as “enhanced consultation” earlier. The knowledge that consultation will have to be carried out on that basis can be expected to influence the nature of the proposals that form the subject of the consultation as well as the manner in which it is conducted.

Before draft regulations are brought before Parliament or a devolved legislature, the authority in question must also lay a report that will inform the debate on the regulations. Almost all retrospective changes will be either minor, technical or beneficial to members of pension schemes. If regulations have adverse effects on members, in the overwhelming majority of cases those adverse effects can be expected to be minimal. It is only where the adverse effects are significant that retrospective regulations have a real potential for unfairness. In those circumstances, the protection of enhanced legislative scrutiny through the affirmative procedure will apply.

Chris Leslie (Labour, Nottingham East)

We need to get into some specifics. The Minister has promised in previous debates that he will not support reducing benefits that have already been accrued. He has given a verbal commitment to that, although we have not been able to get it into the Bill. What other retrospective changes with significant adverse effects does the Minister have in mind with regard to the provision in clause 21?

Sajid Javid (Conservative, Bromsgrove)

I do not have any particular significant changes in mind. The purpose of the provision is, first of all, to provide that we do not need to use the affirmative procedure for changes that are not significant. Where there are significant changes—and we cannot predict what changes may be proposed by authorities in the future—they need to be subject to a high hurdle, which is the purpose of the clause. Our intent is not to try to guess what changes might be proposed by future Governments. As we have already discussed, this Parliament cannot bind future Governments, but we want to ensure that where changes would be significant, as defined here and as discussed, there would be what I have referred to as an enhanced consultation procedure.

For those reasons, the Government believe it is inappropriate that all adverse retrospective changes be automatically debated, even if they are not significant. I therefore urge the hon. Gentleman to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

We are rehearsing issues on which the Minister has refused to budge, such as the question of ensuring that the Bill provides protection against the long arm of the Treasury coming in and retrospectively purloining people’s accrued benefits. People may have thought they had some degree of security; in fact all we have in the Bill is a consultation requirement, although that requirement is not in force if the issue is consequential on the employer cost cap and applies only if there are “significant” adverse effects, which is such a subjective concept as to render the provision in clause 21 virtually meaningless.

The word “significant” is not necessary, particularly when we are talking about retrospective arrangements. Adverse effects with retrospective consequences ought, at the very least, to come before Parliament for a short discussion. The Minister seems to be suggesting that there will be too many things for poor old Parliament to cope with in the context of delegated legislation, but I cannot believe that that is the case. We need to put down a marker that says, “Be very wary before you start to tinker retrospectively with people’s pensions and accrued benefits.”

The Minister was not able to give any examples of what would be “significant” adverse effects compared with other adverse effects. He said that any changes would be overwhelmingly technical, but he did not rule out non-technical changes. We have to stand up for the rights of those who have accrued benefits and may do so in the future.

Sheila Gilmore (Labour, Edinburgh East)

If there is an adverse impact, surely it does not matter whether it is the result of a technicality. The adversity is the problem. The change might be highly technical, but it will still have an impact on those who are affected by it.

Chris Leslie (Labour, Nottingham East)

That is absolutely true. What might seem to be a small financial change to a Minister of the Crown might be an extremely large change to an ordinary public service worker on a very small income, which is why the subjectivity of the concept of significance needs to be challenged. We ought to stand up for the principle underlying amendment 70, so I want to test the opinion of the Committee.

Sajid Javid (Conservative, Bromsgrove)

It is the Government’s view that most rules that are established in scheme regulations are detailed and technical provisions of the kind that would be found in most other pension schemes. Since scheme regulations will set up pension arrangements within the design framework established by the Bill, our view is that the negative procedure is appropriate in most circumstances. However, the Government recognise that there are instances when the affirmative procedure is justified, such as if scheme regulations seek to amend primary legislation or have significant retrospective adverse effects on members.

Powers that have retrospective effect are common features of pension schemes, including in the enabling powers for the existing schemes. They are mostly used to update schemes to reflect changes in membership, tax or general pensions law, and they allow for administrative convenience when making such changes. They mean that the full effects of changes that are often very complex can be worked out completely, but applied from an earlier date.

As I have said, the Bill provides for the affirmative procedure as a protection when retrospective changes have an adverse and significant effect on members of the scheme. That aims to protect members of the scheme from the effects of retrospective legislation, but in a proportionate way. The clause sets out the legislative procedures that apply to the making of scheme regulations. The purpose of the clause is to establish the level of parliamentary scrutiny that is required of scheme regulations on the basis of their effect.

Clause 23 - Non-scheme benefits

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 73, in clause 23, page 12, line 40, at end insert

‘provided that the payment of pension and other benefits under this section does not limit the obligations under schemes under section 1 to provide members with all the benefits set out in the scheme regulations.’.

Clause 23 is a funny little provision about non-scheme benefits. It says that scheme managers or employers can make payments as they think

“appropriate towards the provision, otherwise than by virtue of the scheme, of pensions and other benefits to or in respect of persons to whom the scheme relates.”

I was going to ask the Minister to cover an aspect of this strange little clause, but perhaps I should elaborate on it for a moment—[Laughter.] Perhaps the Government Whip will be able to answer my question, because I suspect I might get more joy from him.

This very short clause has caused significant consternation in some quarters. Some public sector employees and their representatives are quite worried that it effectively undermines some of the other protections in the Bill.

It is my intention to ask the Minister—in as many ways as I can—to confirm that the clause would be used only to allow responsible authorities to make payments in addition to those required under the Bill. Alternatively, is the clause intended to allow responsible authorities to bypass those obligations and start making payments outwith the schemes that are allowed under the Bill?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Will my hon. Friend give way?

Chris Leslie (Labour, Nottingham East)

I shall be more than happy to give way.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend is being generous with his time on such a short clause. Does he agree that it could not possibly be the Government’s intention to bypass a scheme inappropriately? Amendment 73 would simply help to clarify that the benefits under clause 23 would be in addition to benefits paid under schemes established by the Bill.

Chris Leslie (Labour, Nottingham East)

That was the question that I was asking of the Minister, but it is one of those questions that bears repetition, given the importance of the clause. Surely the Minister would not want the protections set out earlier in the Bill to be bypassed so that obligations for schemes established under clause 1 might not be fulfilled under some back-door provision allowed under clause 23. I did not think that that could be the Government’s intention. Our simple amendment would clarify that any benefits paid under clause 23 must be in addition to benefits paid under the scheme, not in substitution. I am delighted that the Minister has listened so attentively to the debate.

Sajid Javid (Conservative, Bromsgrove)

I assure the hon. Gentleman that I have not missed any important point that he has made.

I hope that I can reassure the hon. Gentleman about the issue that he has fairly raised, but let me first set out the purpose of clause 23. The clause gives a power to make payments for pensions outside the schemes that will be established under clause 1. It allows scheme managers or employers to make pension or other benefit payments to people who could have access to schemes made under the Bill, outside the new schemes, where that is considered appropriate and subject to the normal administrative and governance arrangements that apply to the use of public funds. An example would be to make contributions to a personal pension scheme. The clause does not allow employers to override eligibility for main scheme benefits. Scheme regulations will specify who is eligible to be a member of a pension scheme made under the Bill. The clause could allow alternative arrangements to be offered, but not to be mandated.

I commend the hon. Gentleman for wanting to protect the obligations that will be set out in scheme regulations, but the fact is that the clause does not detract from those obligations. The reformed schemes that have to be negotiated in each sector will be set out in scheme regulations. They will apply to whoever they say they will apply to, so the amendment is unnecessary, and I ask the hon. Gentleman to consider withdrawing it.

Chris Leslie (Labour, Nottingham East)

It is uncanny, because it is as though our proceedings are being broadcast far and wide—[Hon. Members: “They are.”] Sometimes we forget.

I am grateful to the Minister for clarifying the situation. He will understand that we table amendments in such a way because it is important to pin down the Treasury. However, I will not detain the Committee any further, and I beg to ask leave to withdraw the amendment.

Sajid Javid (Conservative, Bromsgrove)

The pensions for which the Bill provides will be among the best available anywhere, but that does not mean that they will suit everyone or that they should be the only choice available. Clause 23 therefore gives a power to make payments for pensions outside the schemes that will be established under the Bill. Such a power already exists—for example, in section 1 of the Superannuation Act 1972.

The clause makes it clear that employers and scheme managers can make contributions to other pension schemes on behalf of their employees, such as to defined contribution schemes run by private sector providers. That happens already, and we see no reason why it should stop. The clause also allows alternative provisions to be made for providing pensions or other benefits, such as to meet circumstances that are not covered by a scheme available to a particular individual.

The clause has been described as unnecessary and as providing a back door to all kinds of alarmist scenarios. Allow me to set the Committee’s mind at rest: it is not intended to do any of those things. It simply allows scheme managers or employers to make pension or other benefit payments to people who could have access to schemes made under this Bill, outside the new schemes, when that is considered appropriate and subject to the normal administrative and governance arrangements that apply to the use of public funds.

The clause does not allow employers to override eligibility for main scheme benefits. Scheme regulations will specify who is eligible to be a member of a pension scheme made under the Bill. It could allow alternative arrangements to be offered, but they are not mandated. It will enable that current practice to continue when that is deemed appropriate.

Clause 24 - Consequential and minor amendments

Sajid Javid (Conservative, Bromsgrove)

This clause provides for consequential and minor amendments to other pieces of legislation, including to existing legislation that provides for public service pension schemes and wider pensions legislation.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

May I take a few seconds to agree with the Minister on this occasion, because we will not demur from anything in the clause? It simply triggers a “skedule”—or schedule, depending on how one wishes to pronounce it—containing consequential and minor amendments. We see nothing in the clause to which we object, but I may wish to say something about schedule 8.

Schedule 8 - Consequential and minor amendments

Sajid Javid (Conservative, Bromsgrove)

I beg to move amendment 31, in schedule 8, page 44, line 36, at end insert—

20C A pension payable under a scheme made by the Scottish Ministers under section1 of the Public Service Pensions Act 2013 by virtue of section1(2)(d) of that Act (teachers).”’.

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

With this it will be convenient to discuss Government amendments 32 to 38.

Sajid Javid (Conservative, Bromsgrove)

The amendments make several refinements to the consequential changes that the Bill makes to schedule 2 to the Pensions (Increase) Act 1971 and its equivalent for Northern Ireland, which provide for the annual uprating of public service pensions. The changes apply to deferred pensions and pensions in payment. The amendments also make some technical changes to ensure that the powers under the 1971 Act are used only in the way they are intended.

The amendments will ensure that the schemes made under the Bill by the devolved authorities are listed in the correct places in schedule 2 to the 1971 Act. They build on, and clarify, the changes already proposed in schedule 8, and they do not extend them further, or introduce anything new.

The amendments will ensure that increases in benefits that are made under the 1971 Act or its equivalent in Northern Ireland will apply only to defined benefit pension schemes made under the Bill. It would not be appropriate for the 1971 Act to increase other schemes that might be made under the Bill, such as defined contribution pension schemes, and the amendments will make sure that that does not happen.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The Minister gave us a clear outline of what the Government amendments are intended to do. It is always good to see tidying-up amendments tabled to make sure that everything is, indeed, in its correct place.

As the Minister said, amendments 31 and 32 amend the Pensions (Increase) Act 1971 to refer to the Bill. Amendments 33 to 36 replace references to legislation relating to Wales and Scotland and references to the 1971 Act with references to the relevant parts of the Bill. Amendments 37 and 38 replace references to Northern Ireland with references to the relevant parts of the Bill. Amendments 41 and 42—crucially, I would imagine, for the people affected—make minor changes to payments from the general lighthouse fund under the Merchant Shipping Act 1995.

I like to pick up, at every opportunity, on changes made in relation to Scotland, and it is worth noting that the “skedule” or schedule—my hon. Friend the Member for Nottingham East and I have different accents—makes changes to the Sheriffs’ Pensions (Scotland) Act 1961, which is important for a number of members of the judiciary in Scotland. I say that as a former Justice Minister there, and I am sure that members of the judiciary in Scotland will want to see that I am still on the case and looking after their interests, even though I have moved on from the Scottish Parliament to this place. That aside, the Opposition do not object to the amendments.

Sajid Javid (Conservative, Bromsgrove)

I beg to move amendment 40, in schedule 8, page 49, line 42, at end insert—

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

With this it will be convenient to discuss Government amendment 41.

Sajid Javid (Conservative, Bromsgrove)

Amendment 40 amends schedule 8 to allow a consequential amendment to the Merchant Shipping Act 1995. It is the Government’s intention that the smaller pension schemes run by various public bodies be closed or reformed along the lines of the reforms to the major schemes and, in the former case, that their members be brought into one of the main public service pension schemes. The pension schemes run by the three general lighthouse authorities are examples of such schemes.

Pensions paid to the employees of these authorities are currently paid out of the general lighthouse fund established under the Merchant Shipping Act 1995. That Act provides for pension payments to be made out of the fund for those pensions. However, it does not provide for the transfer of pension rights already accrued to be paid out of the fund. These types of payments, known as bulk transfers, will be necessary to transfer accrued rights into a new scheme if that is what the Government decide. The proposed amendment enables that by allowing payments to be made out of the general lighthouse fund which will include the bulk transfers.

Amendment 41 amends schedule 10 by replacing the reference to the Northern Lighthouse Board with the correct name of this body, which is the Commissioners of Northern Lighthouses. It does not change the policy objective or the persons affected in any way. It simply clarifies the name of the public body in question.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am sure there will be great interest in the correct terminology. I will resist the temptation to ask the Minister how many lighthouses or how many individuals could be affected by this change. We will give him some respite and not seek an answer to that question just now. It is right to ensure that the Bill uses the correct terminology and that where pension rights have to be transferred, it is done correctly. We would not want any unintended consequences of drafting that did not have the correct terminology. I am sure that everyone who might be affected will be pleased that the Minister has brought forward these amendments.

Sajid Javid (Conservative, Bromsgrove)

The schedule lists the consequential and minor amendments to other pieces of legislation that will be made by the Bill. These amendments include changes to the existing legislation which provides for public service pension schemes, and changes to wider pensions legislation. Many of these amendments will help to prevent existing legislation from being used to create new pension schemes, and in some cases injury or compensation schemes, for public service workers. This will ensure that in future any new schemes for these workers will be made under the provisions in the Bill.

The amendments also ensure that the new pension schemes made under the Bill will be included in the annual Treasury order that uprates all public service pensions in payment. Other amendments will allow parliamentary staff to join the civil service pension scheme; allow pensions for judges at the European Court of Human Rights to be made under the Bill; allow all members of pensions boards established as a committee of a local authority to vote in that committee; and ensure that judges’ pensions will always remain a matter for the Lord Chancellor.

Clause 25 - Existing local government schemes

Sajid Javid (Conservative, Bromsgrove)

The clause allows for the proposed new local government pension schemes, which may be made under existing powers before Parliament completes its consideration of the Bill, to continue after the provisions of the Bill come into effect. The agreement reached with the employer and employee representatives of the local government pension schemes included an earlier date for implementing reforms. Accordingly, the new local government pension schemes in England and Wales and in Northern Ireland will be in place from 1 April 2014. Given that timing, those changes may be delivered through regulations laid under existing powers in the Superannuation Act 1972 and the Superannuation (Northern Ireland) Order 1972, rather than under clause 1 of the Bill.

The reason for this measure is to allow local authorities sufficient time to ensure that the new schemes can be implemented in April 2014. That could be difficult if the relevant Ministers had to wait for the Bill to be enacted before putting new scheme regulations into place. That is why the clause allows for the local government pension schemes regulations, as far as they apply to benefits arising from service after 1 April 2014, to be regarded as though they were scheme regulations made under this Bill. To do otherwise could require regulations to be made in 2014 to effect the changes already agreed, and then require subsequent regulations to allow a scheme to continue for employment after April 2015. That would clearly not be the best use of departmental resources or parliamentary time, and would place unnecessary burdens on employers, members and administrators of the schemes. Equally, it is important that the new local government pension schemes are schemes under the Bill; that will ensure that the common framework applies in the same way to the local government schemes as to all the other public service schemes.

The new governance framework of scheme managers, pension boards and independent oversight will apply. The standard scheme design features required by the Bill will apply consistently to the schemes, as will the cost control measures and consultation procedures. The clause contains appropriate safeguards to ensure that a local government pension scheme may only be regarded as a scheme made under the Bill if it is indeed a scheme that could have been made under the Bill.

Chris Leslie (Labour, Nottingham East)

This is another clause that seems to cut across the way that clause 16 was drafted. We had a discussion when considering clause 16 about the decision of Ministers to talk about the “closure” of existing schemes. As we heard in the evidence session, Lord Hutton and others, from the Local Government Association to the Chartered Institute of Public Finance and Accountancy to mention but a few, were concerned about the way that the Bill seemed to be closing existing schemes and opening new ones rather than amending the existing arrangements so that we can have a smooth transition—and, incidentally, reduce the potential costs of having two sets of fund managers, administrators and the like.

Here in clause 25 we find the Government almost acknowledging that there are a few problems with this particular design; through their wish to keep legal effect for existing rules for local government schemes rolling forward even though they are talking about the closure of schemes, they are acknowledging that, going forward, they do not want to wind up those particular schemes. Would it not have been better when designing the legislation simply to have made sure that we were talking about the amendment of existing funded schemes, rather than sticking to the point about closing schemes simply for the sake of saying that schemes are closing? That is, self-evidently, not the best way forward, as clause 25 seems to imply. It would have been better if clause 16 had been redrafted so that local government schemes are not closed, and clause 25 could have proper effect in that way. It is a strange way to go about legislating, and we are still not convinced that that approach to designing the Bill was particularly wise.

Sajid Javid (Conservative, Bromsgrove)

We discussed clause 16 in some detail earlier, so I will not reiterate those arguments. I said at the time that I thought the hon. Gentleman made some good points and that I had tried to provide reassurance. I also said that if he felt, on reflection, that that reassurance was not enough, we would look at the matter again.

At the rate that we are scrutinising the Bill in Committee, and with the support of the hon. Gentleman and his colleagues, it is possible that it might progress through both Houses and receive Royal Assent by spring 2013. In that case, clause 25 would not be needed. One might look at it as a contingency provision. If progress were slower than that, it would allow scheme regulations to be made in time for the forthcoming scheme valuations to take account of the reforms and would allow the administrative process to be in place in time for April 2014.

Clause 26 - Existing schemes for civil servants: extension of access

Sajid Javid (Conservative, Bromsgrove)

With your permission, Mrs Brooke, it would be convenient to talk to related schedule 9 at the same time as clause 26. Currently, admission to the principal civil service pension scheme is restricted to those employed in the civil service or as set out in schedule 1 to the 1972 Act. Admission to schedule 1 is restricted to organisations and offices where staff costs are publicly funded. In a similar way, the Superannuation (Northern Ireland) Order 1972 limits membership to members of the Northern Irish civil service or as set out in schedule 1 to the 1972 Order. That prevents staff who are transferred to an independent provider of public services—including the private sector, the voluntary sector and mutuals—from continuing to be eligible for membership of their civil service pension scheme.

Clause 26 and schedule 9 amend the Superannuation Act 1972 and the Superannuation (Northern Ireland) Order 1972 so as to extend access to the civil service pension schemes created under those pieces of legislation. Schedule 9 extends the coverage of those schemes by allowing the Minister for the Civil Service, or the Minister for Finance and Personnel in relation to the Northern Ireland scheme, to specify service in a wider range of employments or offices as being eligible for membership. That will apply where the newly eligible staff have been transferred from the civil service, and it can include instances where the transfer took place before the Bill received Royal Assent.

That change in access to the civil service scheme will allow the new fair deal policy to be implemented for the civil service before the new civil service pension scheme is introduced in 2015. The revised policy is intended to remove the barriers to greater plurality of public service pension provision, encouraging a more diverse range of potential bidders to offer innovative and efficient ways to deliver the best public services. It also addresses the concerns of the current civil service work force around the formation of mutuals or the outsourcing of functions.

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

I call Mr Leslie, who might also want to comment on schedule 9.

Chris Leslie (Labour, Nottingham East)

Indeed, the clause and schedule are linked together. Provisions in schedule 9 amend the Superannuation Act 1972, which currently restricts membership of schemes made under the Act to those in employment in the civil service or other types of employment listed in schedule 1 to the 1972 Act. That means that once employees leave that employment, they are no longer entitled to remain in the public service schemes made under the Act. I would like to ask the Minister how the arrangement affects the new fair deal, which the Government have promised to all public service workers.

There are comments in the explanatory notes that suggest that there are some ways in which the fair deal may not be brought under the auspices of the Bill. The new fair deal, as I understand it, will allow public service workers who are outsourced to a private contractor to remain active members of their public service pension scheme. While clause 26 and schedule 9 are welcome, they draw attention to the fact that the details of the new fair deal do not appear in the Bill. Essentially, that means that the Government are not giving legislative protection to those arrangements.

We have tabled new clauses for debate later on in which we have sought to bring effect to some of the fair deal provisions, but this is also a useful opportunity, which I am sure the Minister will want to take, to talk about how the new fair deal arrangements will be affected by the Bill. I say that particularly given the comments on page 37 of the explanatory notes, which mention primary legislation that might be due on the new fair deal arrangements. However, those arrangements do not necessarily seem to have got the protections that they ought to have had, given the opportunity that this Bill provides. The many former public service employees who have found themselves transferred to the private sector will be listening closely to the Minister’s comments.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I know my hon. Friend will be aware of the witness submission made by the Public and Commercial Services Union, which highlights this clause and makes reference to discussions that took place with the Minister. Does he agree that it would be useful if the Minister would update us on the discussions that have taken place and any assurances that he has given to the trade unions?

Chris Leslie (Labour, Nottingham East)

That is exactly what we are looking for, and no doubt inspiration will be forthcoming as the Minister reflects on our comments and the questions that we have asked. It is important that, having gone through the negotiation process, we ensure that there are some protections for public service workers who find themselves working for private contractors in an outsourced environment. We want to ensure that, in the undertaking of transfer arrangements, there are protections that can be transferred across that will have some legislative effect. It would be useful if the Minister could give us a commitment in that regard, as that is our main question on clause 26 and schedule 9. We understand why the provisions are framed in this way, but it would be helpful if he would clarify what is happening with the protections for the new fair deal arrangement.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for his comments. He specifically raised issues about the fair deal. As he knows, it is a non-statutory policy. On 4 July 2012, the Government announced that they would review the policy, working with trade unions and other stakeholders. I can tell him a few things about the fair deal, but it may be information that he is already aware of. I am not directly involved in the fair deal discussions but, as he knows, the Government committed to policy reform when we formally announced our intentions for newly transferred staff in July. We have agreed to maintain the overall approach to the fair deal, delivering it by offering newly transferred staff access to public service pension schemes. That is something that, I think I am right in saying, most trade unions wanted to see and have welcomed. That approach will ensure that those transferred staff will continue, in general, to have access to good quality pensions while helping to remove barriers to plurality of public service provision. We recently published a formal response to the fair deal consultation and said that there would be further consultation and draft guidance. As this discussion is not about the fair deal itself, I hope I have said enough and that it will be helpful.

Clause 27 - New public body pension schemes

Sajid Javid (Conservative, Bromsgrove)

This clause provides that any pension scheme established to provide benefits for the staff of a statutory body after the enactment of the Bill must have the same common features that the Bill requires of new public service pension schemes.

Our reforms are intended to apply to all pension schemes for public service workers. Where no direct reform is made in the Bill, the clauses have been cast in such a way as to permit future reform. Clause 27 ensures that any future pension scheme for employees of any statutory body shall comply with the framework for pensions established by the Bill whether that scheme is defined benefit or defined contribution in design.

All schemes will be required to have the same governance, transparency and administrative arrangements. They will all be required to meet the common design requirements on pension age, the type of scheme that may be offered, the revaluation of benefits and the cost control mechanisms that apply to the new schemes for other public service workers. Our reforms are universal and it would be inappropriate for any part of the public service to be treated differently.

Chris Leslie (Labour, Nottingham East)

The clause is essentially a parallel provision to ensure that new public bodies have the same arrangements consistently applied to their pension schemes as other public bodies, and it is therefore relatively uncontroversial. There are, however, equal concerns among those working for public bodies as among those in other public service schemes, whether in the civil service, NHS or local government schemes.

The only question I wanted to ask concerns the nature of public bodies. There are a lot of different types of public body, some of which are known as quangos. We have had changes to those recently. Will the Minister clarify that he envisages “public body” in this sense as including a non-ministerial Government Department? There is a crucial difference between a non-departmental public body and a non-ministerial Government Department. I want to ensure that NMGDs are covered by the same provisions as NDPBs.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for that. On his last point about whether the clause covers non-departmental public bodies or those that are part of Ministries, and so not quangos, they are all covered by the same arrangements. The clause applies to them equally. As he mentioned, there are many hundreds of public bodies. In most cases they do not have individual schemes; they are typically part of main public body schemes, the larger ones that already exist.

The purpose of the clause is to future-proof the Bill. We want to ensure that if a future Government decided that a new scheme had to be created for a particular public body, it would follow the principles enshrined in the Bill, which all other public sector schemes must follow.

Clause 28 - Closure of certain existing public body pension schemes

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 74, in clause 28, page 14, line 21, after ‘body’, insert ‘final salary’.

Annette Brooke (Liberal Democrat, Mid Dorset and North Poole)

With this it will be convenient to discuss Government amendments 13 to 20.

Chris Leslie (Labour, Nottingham East)

This is a moment of great triumph for the Opposition, as far as I can tell. Amendment 74 was intended to deal with the drafting changes necessary to ensure consistency in the Bill. However, it turns out that the Government amendments, particularly amendment 14, largely addresses the question that amendment 74 was designed to raise. Government amendment 14 broadly resolves the problem of ensuring that only final salary schemes will be closed by the clause.

We were concerned that, as currently drafted, the clause would have closed all schemes for employees of the public bodies listed in schedule 10, not only the final salary ones, which would have resulted in the unnecessary closure of some schemes. The Minister has addressed the problem in his amendments, but it would be useful if he assured us that none of the bodies listed in schedule 10 already has a career average scheme that should not be closed to future accrual. That was the specific point that I wanted to make.

The Government amendments, which have been grouped with amendment 74, remove references to closing schemes—for example, the words “must close the scheme” in subsection (2)—and replace them with references to amending schemes. Given our earlier debate about how, for local government pension schemes, there was a problem with the closing of schemes—we would have prefer them to be amended—that is probably a step in the right direction.

The Minister seems to think that, in respect of public body schemes, amending them is often preferable to closing them and opening others. We are slightly mystified about why he did not take a similar route in relation to local government pension schemes. That may be because the Government are relying on the provision he pointed out earlier in section 75 of the Pensions Act 1995, but I am not clear why he has not removed the word “closure” from the provisions on local government pension schemes.

That takes us back to the crystallisation of debts and how we can deal with such matters. It is, of course, more sensible to amend schemes. Even for unfunded schemes, where there cannot be a section 75 liability, closing schemes and opening others is much less efficient and more costly than simply providing for such schemes to be amended.

The fact that public body schemes can be amended rather than closed shows that there is no fundamental problem with amending schemes to achieve the necessary reforms. That should be borne in mind in relation to local government pension schemes. Perhaps it presages a change in attitude by the Treasury to such arrangements. There is no need for me to talk about all the Government amendments, as the Minister will no doubt do so.

Sajid Javid (Conservative, Bromsgrove)

I thank the hon. Gentleman for moving amendment 74, which gives us the opportunity to look at a smaller, but no less important element of the reforms. Lord Hutton’s interim report made it clear that the process of pension reform was equally applicable to public bodies. In his written ministerial statement on 16 July, the Chief Secretary provided the House with details of how such public body pension schemes would be reformed.

The Bill will close the existing unfunded defined benefit pension schemes relating to the public bodies listed in schedule 10 to future accrual. In their place, it will allow the major public service pension schemes to be extended to provide pension benefits to employees of new and existing public bodies, or, in compelling circumstances and provided they follow Lord Hutton’s design recommendations, new bespoke pension schemes for public bodies may be allowed.

The amendment would restrict reform to public body schemes that are final salary in design. Such a restriction would, for example, allow employees and office holders of public bodies operating pension schemes that are analogous to the civil service Nuvos scheme to continue accruing benefits in those schemes while the Nuvos scheme is reformed. Although I can understand the amendment’s underlying intention, I fear that it may have unintended consequences by exempting schemes that offer a mix of benefits from reform. The process of reforming public body pension schemes is not as far advanced as the reforms to the major schemes, so we cannot say with any certainty that the schemes that need to be reformed are exclusively final salary schemes. That would be unfair and unjustifiable. No public body employees provide more vital a service to the public than, for example, nurses or the armed forces. The pension reforms recommended by Lord Hutton go further than simply reforms to final salary schemes.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I refer the Minister to the written submission from the PCS, which makes reference to the Commonwealth War Graves Commission and ongoing consultation about placing new staff into a defined contribution scheme. Will the Minister put something on record today to give comfort to those who share the concerns raised by the PCS?

Sajid Javid (Conservative, Bromsgrove)

I have not seen that submission, but I will take a look and then perhaps come back to the hon. Lady.

For the reasons that I have set out, I hope that the hon. Member for Nottingham East will consider withdrawing amendment 74.

I shall now speak to the Government amendments. Amendments 13, 15, 16 and 18 clarify that it is the public authority responsible for the public body schemes relating to the public bodies listed in schedule 10 that must apply the provisions of clause 28 to those schemes and reform them in line with reforms to the major schemes. The amendments will ensure that there is no ambiguity about who is responsible for ensuring that benefit schemes relating to the public bodies listed in schedule 10 are reformed.

Amendment 14 ensures that defined contribution schemes and injury and compensation schemes relating to the public bodies listed in schedule 10 are not to be closed to future accrual by the Bill. Amendment 17 clarifies that closures of defined benefit public body schemes to future accrual, and exceptions to those closures to allow for transitional protection, might be achieved by reforming the existing schemes. It also ensures that death in service benefits in existing public body defined benefit schemes relating to the public bodies listed in schedule 10 are restricted by clause 28.

Amendments 19 and 20 provide greater clarity on the limits placed on powers that have been used to create the existing public body schemes that are closed to future accrual by subsection (2). Amendment 19 clarifies that the powers used to create the public body schemes closed to future accrual by subsection (2) cannot be exercised to create new schemes once the Bill is enacted. Amendment 20 makes it clear that that limit on the exercise of such powers only prevents their use to create new defined benefit schemes. Any future defined benefit schemes relating to public bodies listed in schedule 10 must be made using the powers in clause 1 or, if members are not eligible to join a clause 1 scheme, in clause 28(4).

Chris Leslie (Labour, Nottingham East)

I think that we have debated the issue sufficiently, so I do not wish to press the matter any further. It was important to have the debate and to get the Minister’s words on the record.

Sajid Javid (Conservative, Bromsgrove)

May I answer the question posed by the hon. Member for Kilmarnock and Loudoun about the Commonwealth War Graves Commission? Those schemes are funded, and they are not included in schedule 10.

Chris Leslie (Labour, Nottingham East)

My hon. Friend seems satisfied with that helpful response from the Minister. I do not wish to detain the Committee any further, so I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 75, in clause 28, page 14, line 39, leave out subsection (7)(b).

This is a simple amendment. Hon. Members will see that there are provisions in the clause for the closure of certain existing public body pension schemes. The Treasury is allowed by order—in other words by the Minister signing a piece of paper—to amend schedule 10 to

“remove any body or office specified there”.

I suppose that that is okay, but the Treasury can also

“add any body or office to it (by name or description).”

In other words, the Treasury has the power drastically to amend any career average or other defined benefits scheme relating to a public body simply by adding that public body to the list in schedule 10.

Changes of such a magnitude should normally be made in primary legislation, and certainly not under the negative procedure. Such a provision should at the very least be subject to the affirmative procedure. I am quite surprised that the Minister has drafted the Bill in such a draconian way that public body pension schemes can be closed down or amended significantly simply by virtue of the flick of a pen, without parliamentary scrutiny. Obviously we wanted to pick up on this power that the Minister seeks to take for himself, and I hope that he will reflect on whether this strikes the right balance of protections for members of public body pension schemes.

Sajid Javid (Conservative, Bromsgrove)

Schedule 10 lists the public bodies whose defined benefit pension schemes will be closed to future accrual. However, there are very good reasons why the list is not comprehensive at this time. Public body pension reform is not as advanced as the reforms to the major schemes. We had to concentrate our efforts on dealing with the major schemes first before turning to smaller public bodies operating schemes. The Bill therefore needs to be flexible enough to be able to admit new bodies into schedule 10 for reform as and when such schemes that are ready for reform are identified.

We are waiting to hear whether the Scottish Parliament or the Northern Ireland Assembly wish to use the powers in the Bill to reform their devolved public body pension schemes. If they do—and it is a decision for them—some of those public bodies may need to be added to the schedule. Furthermore, the arrangements surrounding some public body pension schemes mean that it would not be appropriate to include them until proper arrangements have been made with other relevant authorities. There are a number of public bodies in Northern Ireland that afford pension provision to staff through the north/south pension scheme. Any changes to that scheme require the consent of the pension committee of the North/South Ministerial Council, and the Finance Minister in Northern Ireland and the Republic of Ireland.

When it becomes appropriate for such public bodies to be added to schedule 10, it will be important that the Treasury has the power to do that.

The affirmative procedure is unnecessary because any changes to schedule 10 are likely to be technical and, secondly, because the Government have been very clear about how these pension schemes will be reformed, so members of the schemes should be well aware that their pensions are in scope for reform. In any event, hon. Members will be aware that any instrument subject to the negative procedure could still be debated by the House if hon. Members feel that the subject matter merits wider discussion. I therefore urge the hon. Gentleman to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for at least addressing the issue, but it is a pity that he is unable to accept the amendment. It is important that we stand up for those who might be members of these schemes in future. I remain of the view that such an important measure should have the protection of at least the affirmative procedure. However, we will no doubt return to some of these questions, so I will not press the matter any further for the time being. I beg to ask leave to withdraw the amendment.

Sajid Javid (Conservative, Bromsgrove)

The clause requires the closure to future accrual of defined benefit pension schemes relating to public bodies listed in schedule 10. Unlike under clause 16, no closing date is specified, but we anticipate that action should nevertheless be taken by April 2018.

A number of bespoke defined benefit pension schemes exist for the payment of pensions to employees of public bodies, such as non-departmental public bodies, arm’s length bodies and other statutory offices. Our reforms apply to those schemes in exactly the same way as they apply to other parts of the public service.

In future, we will avoid recreating that proliferation of small schemes. Most existing schemes mirror the arrangements of one or other of the schemes for civil servants. Historically, staff of public bodies have not been eligible for access to civil service or other public service pension schemes, which has led to the creation of schemes by analogy, or analogous public body schemes. That is unnecessary, cumbersome and inefficient. In future, the default position will be that if there is a need to create a new public body, the staff of that body will be eligible to join one of the major public service schemes established under clause 1.

Existing employees and office holders will in most cases accrue future benefits under one of the new public service schemes established under clause 1. In exceptional circumstances, the Treasury—or the Department of Finance and Personnel in respect of Northern Ireland public bodies—may consent to the establishment of a new public body scheme for members of a scheme that is closed under this clause. Our reforms should apply to all pensions in respect of holders of public office. It would be inappropriate for any part of the public service to be treated differently.

Schedule 10 - Public bodies whose pension schemes must be closed

Sajid Javid (Conservative, Bromsgrove)

As I have explained, the schedule lists the public bodies that will, by virtue of clause 28, be obliged to cease providing future pension benefits under their defined benefit pension schemes, except when transitional protection applies. The 14 public bodies listed in the schedule are a small fraction of the more than 400 non-departmental public bodies, arm’s length bodies, and other statutory bodies and offices currently in operation. Some, but not all, will have their own pension schemes. The 14 public bodies currently listed represent the start of extending the reform process to those smaller schemes. The schedule can be amended using the power in clause 28(7) to include other bodies as necessary to roll out the reforms.

I note that most of the unfunded defined benefit schemes run by the 14 public bodies operate by analogy, with similar provisions to one of the major public service schemes. Such duplication is inefficient and, thanks to the Bill, will become unnecessary. The powers in the Bill will allow most of the members of pension schemes run by the listed public bodies to join one of the major public service schemes made under clause 1. We anticipate that that will be the normal method of reforming pension provision for such public servants. Only in exceptional circumstances will they be allowed to establish a new public body scheme.

Clause 29 - Existing public body pension schemes: pension age

Sajid Javid (Conservative, Bromsgrove)

The clause allows existing public body pension schemes to include a provision linking normal and deferred pension age to the state pension age or age 65, whichever is higher. The state pension age link is a means of managing the increasing costs of greater longevity. The clause enables existing public body pension schemes to include that reform without having to close and reopen. It is consistent with the link with state pension age that will be a part of the schemes made under the Bill.

The clause gives existing public body pension schemes that do not fall within the reform obligations in clause 28 the option to align their normal and deferred pension age with the state pension age or 65, whichever is higher. If the scheme established it, the link would affect all benefits earned after the change comes into effect. It will not affect benefits earned before the state pension age link provision was included in the public body pension scheme. That means that the effect of a change in the state pension age would be applied to all benefits earned after the link provision was introduced. The effective underpin of age 65 to state pension age is intended to catch the small number of women whose SPA will not be 65 by the time the Bill comes in to force.

Chris Leslie (Labour, Nottingham East)

If the Minister picks up a copy of his Bill, he will see that clause 29 states:

“A public body pension scheme established before the coming into force of this section may include”

the link to normal and deferred pension age and so on. However, if he turns to clause 9, he will note that, for everyone else:

“The normal pension age of a person under a scheme under section 1 must be…the same as the person’s state pension age, or…65, if that is higher.”

Why the difference? Why is there a permissive provision for public body pension schemes under this clause, but a mandatory arrangement for those under clause 9?

Sajid Javid (Conservative, Bromsgrove)

If it is okay with the hon. Gentleman, I will take a closer look at those provisions and get back to him.

Chris Leslie (Labour, Nottingham East)

This is a crucial aspect of whether clause 29 has the same bite, effect and strength as clause 9, because there is obviously no leeway in that clause. Under clause 9, it is a requirement—it “must” be—that the normal pension age is the same as the person’s state pension age, or 65 if that is higher. However, for public body schemes, that “may” be the case, which presumably means that it may not be the case. This is therefore quite relevant, so any inspiration that the Minister can provide would be quite useful.

Sajid Javid (Conservative, Bromsgrove)

As the hon. Gentleman will know from our earlier discussion, we have added some public bodies to schedule 10 already, but there are many other public bodies to go. I think that his question is answered by saying that the provision is permissive because it allows bodies that we have not yet identified in schedule 10 to make the necessary change—to make the link to the state pension age. Over time, as we identify these bodies one by one and they are added to schedule 10, they will have no choice—they must make this reform in relation to state pension age. There will be situations in which a public body scheme may choose—I use the word “may”—to make the link itself, but if it has not done so in the appropriate time, it will be added to schedule 10 and must make the reform.

Chris Leslie (Labour, Nottingham East)

It is interesting that this is to do with adding further public bodies under schedule 10, but I still do not quite understand why there is not the same stricture. The Minister insists in relation to all the other pension schemes that there must be the link to the state pension age, so for there to be a question in this regard seems to suggest that there is an anomaly in the drafting of the Bill. Perhaps the Minister will consider whether that was indeed the intention of his officials, as this leaves quite a big question about whether there is equal treatment for public bodies.

Sajid Javid (Conservative, Bromsgrove)

I do not believe that there is any need for redrafting, but I am always willing to take a second look at things. Given the importance of the Bill and the seriousness with which the hon. Gentleman has dealt with it over the last few weeks, the least I can do is to have another look if he has requested that I do so. However, I believe that the way in which the provision has been drafted means that it will have the intended consequence that all public body schemes will need to have the link with the state pension age, just as the main public sector schemes do.

Clause 30 - Great offices of state

Sajid Javid (Conservative, Bromsgrove)

The clause introduces schedule 11, which closes the current pension provisions for the great offices of state for future office holders and enables those office holders to remain members of relevant parts of parliamentary pension schemes instead. All the detail of the changes to the pension provisions is included in schedule 11 so, if it pleases the Committee, we may save the debate when we consider schedule 11 and the amendments to it that I have tabled.

Chris Leslie (Labour, Nottingham East)

This is interesting, because it might be that we are about to have a natural break in our proceedings prior to considering schedule 11. I do not especially want to engage in a long debate on clause 30 at this stage, given its overlap with schedule 11, if that provision is to be dealt with in a later sitting. I have a number of questions, but as clause 30 and schedule 11 are linked, it might be appropriate for them to be dealt with when we eventually consider schedule 11.