Second Standing Committee
on Delegated Legislation
Tuesday 16 April 2002
[Mr. James Cran in the Chair]
Local Government Pension Scheme
(Amendment) Regulations 2002
Mr. Malcolm Moss (North-East Cambridgeshire): I beg to move,
That the Committee has considered the Local Government Pension Scheme (Amendment) Regulations 2002 (S.I., 2002, No. 206).
Once again, it is a great pleasure to serve under your chairmanship, Mr. Cran.
On the face of it, this may appear to be a mundane, if not anodyne document, relating to amendments to regulations on local government pension schemes. However, the regulations should be considered in the present context of problems with pensions in general, which reflect on local government schemes. I hope to use this debate to probe some of the fundamental difficulties faced by local government schemes that the Minister and his Department ought to be addressing.
The regulations do nothing to tackle the growing crisis in local authority pension schemes and, as with the private sector, the Government are putting their head in the sand. The regulations were to have been dealt with under the negative resolution procedure, and would have gone through the House without debate. It is important to use every opportunity to debate and discuss the fundamentals of local government pension schemes.
If the local government pension sector is facing problems, that feeds through to council tax payers, who will end up footing the bill. The Government once promised to support and strengthen the framework for occupational pensionsit was in their manifesto in 1997. However, we believe that despite their rhetoric, their pension policies have reduced the value of funded pensions. In time, that will lead to a huge increase in the number of pensioners on means-tested benefits. Thousands of final salary schemes are already being closed to new members and local authority pension schemes are not immune from the crisis.
The pressures on pension schemes are enormous, and include those caused by the removal of advanced corporation tax, or ACT, which was abolished by the Chancellor when Labour took power in 1997. At the time the Chancellor claimed:
''many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform''.
Those remarks were quoted in the Financial Times in July 1997. However, the abolition of ACT has amounted to a £5 billion a year tax on occupational and personal pension funds, and the systematic decline in the value and number of occupational pension
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schemes as they absorb this sting. Sir Ken Jackson, of the trade union Amicus, called for the Government to reinstate ACT and added:
''Without it the Government will undermine its own laudable aim''
The Chairman: Order. Mr. Moss, I do not want to interrupt your oratorical flow, but the regulations are very narrow and I must ask you to relate your remarks to them. I have no objection to being supplied with the background material, as long as it relates to specific points in the regulations.
Mr. Moss: I stand corrected, Mr. Cran. I will endeavour to relate my comments to the regulations.
Regulation 3(b) refers to regulation 5(17)(j)(c), which deals with best value arrangements. It inserts the words:
''and, in the case of an admission body, is approved by the Secretary of State for the purpose of entering into an admission agreement with a transferee admission body''.
That couldI hope that the Minister will confirm thiscreate the problem that arose recently over the transfer of local authority employees from local government to private sector employment. How are the pension rights of those local government employees affected in those circumstances?
The Government have been inconsistent about the effect of local authority procurement on council workers' terms and conditions. The amount of contracting out has fallen under best value. The Audit Commission found that 23 per cent. fewer contracts were being advertised following the end of compulsory competitive tendering. At last year's Labour party conference, the Secretary of State made the following promise:
''we will . . . review the particular concerns of local government employees transferred to the private sector.''
Yet the Government now seem to have backtracked, according to a leaked Government memo, which is reported to state that trade unions' demands would seriously lessen the flexibility of contractors to make improvements, and that in order to keep business on board, Ministers may think it preferable not to extend the Transfer of Undertakings (Protection of Employment) Regulations 1981, but to maintain the current system. Since last month, as part of the work of the Minister's Department in tinkering with the flawed best value regime, contracted out workers can now be offered an inferior stakeholder pension,
''to match employee contributions up to a maximum of 6 per cent. for the employer's own defined contribution scheme.''
In other words, they do not have to be offered the standard local government final salary pension scheme.
Mr. Don Foster (Bath): Before the hon. Gentleman pursues his remarks in that area further, is he aware of the letter from the Secretary of State dated 26 March 2002 to the Minister of State who chaired the local government best value review of two-tier work forces, which makes it absolutely clear that what the hon. Gentleman suggests is certainly not the Government's intention? The letter specifically states:
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''This will ensure that contracting exercises are conducted on the basis that TUPE will apply, unless there are exceptional circumstances, and that transferees will be offered either retention of the Local Government Pension Scheme . . . or a broadly comparable scheme.''
That is in marked contradiction to what the hon. Gentleman suggests.
Mr. Moss: I am deeply grateful to the hon. Gentleman for pointing out, yet again, the discrepancies that occur in the Department for Transport, Local Government and the Regions. I was quoting from a press release issued by the DTLR on 25 March, so that is another example of how one half of the DTLR does not know what the other half is doing. Of course, that might have been written when there was such a massive hiatus in DTLR that it did not know whether it was coming or going.
To return to the transfer of undertakings, we believe that it is wrong for the Secretary of State to promise one thing and deliver something entirely to the contrary to 2.5 million members of local government pension schemes. The problem of financial reporting standard 17 will also feed through to local authorities. These regulations only tinker with the basic problems. I hope that the Minister will say that they are the first of many statutory instruments that will be considered in Committee to enable us to delve more deeply into what is going on with local government pension schemes. The regulations are a start, but they do not begin to address the fundamental problems with local government pension schemes, which are suffering as badly as private sector schemes. The Government have a poor record on pensions, and the issue must be addressed.
The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Dr. Alan Whitehead): I join the hon. Member for North-East Cambridgeshire (Mr. Moss) in expressing pleasure at serving under your chairmanship, Mr. Cran.
It is kindest to say of the hon. Gentleman's speech that it was an interesting attempt to secure an Adjournment debate on local government pensions. I strained, as I am sure other hon. Members did, to find any more than a tenuous reference to points that arise from the statutory instrument. Indeed, I strained a little more when the hon. Gentleman presented what he clearly believed was a closely argued case on why the point that he made was relevant to a particular part of the statutory instrument. It may be my lack of understanding of these matters, but I fail to understand how the point that he made coincided with regulation 3.
Mr. Moss: I am grateful to the Minister for pointing out my errors. Perhaps he will tell the Committee how he understands regulation 3(b).
Dr. Whitehead: If the hon. Gentleman is patient, I shall follow a novel procedure by keeping closely to what is in the statutory instrument and expounding it for the elucidation of hon. Members. There are several
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important issues to debate about the local government pension scheme. For example, as the hon. Member for Bath (Mr. Foster) said, the Government have made it clear how TUPE applies to pension schemes that will come into force when local authority employees are transferred to schemes run by organisations that have received those transferees as a result of partnership arrangements that they have entered into with local authorities.
Some misinformation has been spread about the state of local authority pensions. The actuarial assessments required on a three-year basis within each pension scheme mean that every one of the 100 or so pension schemes in the local government scheme must ensure that it has the resources to continue to fund its activities. That is done on the basis of actuarial assessments, and the question of contributions is then raised. By that device, the schemes can ensure their own future. Arguments about those pension schemes being in crisis are therefore wide of the mark.
The statutory instrument, as the hon. Member for North-East Cambridgeshire said, is in many ways mundane and anodyne. It is part of a process that has been followed in the past and will continue in future, whereby course corrections and steering changes are made periodically to the operational requirements of the local government scheme after regular consultation with local government. We received suggestions, information and thoughts about how the scheme might work better. Therefore, hon. Members will quite often encounter statutory instruments that make those corrections and ensure that the schemes work to the benefit of their members. We consulted extensively on the present series of changes, and as far as I am aware, not one consultee presented any objection. They have the support of those who run the pension schemes and appear to be a straightforward and sensible way in which to make pension schemes work better.
I should place the regulations in context. Although the scheme has 100 operators, it is effectively a single pension scheme that provides the same defined benefit structure to all local government employees in England and Wales. Apart from teachers, who have their own similar arrangements, all employeesregardless of grade or hours workedof local government pension scheme bodies named in the regulations have the right to join the scheme. For the past two years it has also been possible for employees of contractors who successfully tender for contracts to provide outsourced local services to have access, if the contractor so wishes, to the scheme.
It is among the largest public service pension schemes in the UK. Some 2.5 million employees or former employees will receive benefits from it. The local government pension scheme is a statutory public service scheme, set out in secondary legislationthe Local Government Pension Scheme Regulations 1997, as amended. Those provisions are made under powers contained in the Superannuation Act 1972. My right hon. Friend the Secretary of State is responsible for the
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overall policy direction of the scheme and for maintaining the efficiency and effectiveness of the regulations that govern it.
The scheme has several features that make it unique among public service schemes. It is a funded scheme, relying on contributions from employee members and employers and income from investments. It is administered at local level in England and Wales by 89 separate fund authorities, all of which must comply with the same legislation. Their combined pension funds, which have an estimated market value of some £83 billion, are managed and invested by those local authorities within a framework of specific investment regulations, also made under the 1972 Act. The full costs of providing the pensions of local government pension scheme members are met by the combined income stream that I have mentioned. That also meets all the costs of administration and other professional services.