Column Number: 003
Third Standing Committee
on Delegated Legislation
Wednesday 4 June 2003
[Mr. David Taylor in the Chair]
Draft Contracting Out
(Administration of the Teachers'
Pensions Scheme) Order 2003
The Minister for School Standards (Mr. David Miliband): I beg to move
That the Committee has considered the draft Contracting Out (Administration of the Teachers' Pension Scheme) Order 2003.
I am sure, Mr. Taylor, that all my hon. Friends and other hon. Gentleman in the Room will welcome you to the Chair. It is the first time that I have appeared under your chairmanship, and I look forward to your keeping me brief and in order. I am sure that my hon. Friends look forward to my being exceptionally brief.
I hesitate to say this with the hon. Member for Altrincham and Sale, West (Mr. Brady) sitting opposite me, but when I read the papers last night they seemed relatively straightforward and non-controversial. Last time I said that, we had the longest debate in which I have participated in a Delegated Legislation Committee.
The order is made under provisions in the Deregulation and Contracting Out Act 1994. It has one main purpose, which is to update the existing contracting out order made in 1996 and allow for the continued effective and efficient administration of the teachers' pension scheme by a private sector contractor. This is a technical issue. The existing order remains in force, but it needs to be updated to reflect administrative functions that have come into being since the existing order was made. It may help hon. Members if I give a brief resumé of the history.
Before 1996 the teachers' pension scheme was administered by the Department for Education. In 1996, the Conservative Government decided to outsource the administration of the scheme to secure better value for money and the significant capital investment, particularly in IT systems, that was needed to modernise the provision of administrative services. I am sure that in 1996 the then Opposition gave careful and helpful consideration to that proposal from the then Government.
The 1996 contracting out order allowed for another body to perform the functions of the Secretary of State in relation to the pension scheme under the Superannuation Act 1972 and the Pension Schemes Act 1993. The new order will also allow for another body to perform the functions of the Secretary of State conferred by regulations under section 172 of the Pensions Act 1995.
Those regulations are the Teachers' Superannuation (Provision of Information and Administrative Expenses etc.) Regulations 1996, which set out the circumstances in which information may be provided in relation to the mis-selling of
Column Number: 004
pensions and fees that may be charged in connection with the admission of a person into the pension scheme. We propose that those new functions should also be contracted out as they are fundamentally linked to the main scheme administration and will provide teachers with the most efficient service. In addition, the new order provides an opportunity to update the references to the secondary legislation by which the pension scheme is governed, which have changed significantly since 1996.
Since the original contract was placed to administer the scheme with Capita Business Services Ltd., it is estimated that the Exchequer has saved £20 million in comparison with the cost of running the scheme in house. In recent months, we have concluded a re-tendering of that contract and have secured further savings for the next seven years together with significant improvements in the service provided. In particular the new contract will allow for increased use of modern IT communication methods and will bring real benefits to teachers, pensioners, schools and employers.
Before re-tendering the contract, the Department conducted a rigorous assessment of the merits of continued contractorisation—contracting out—and found that the original case for outsourcing remains convincing and that it is the most cost-effective method of ensuring that we provide the improvements that will benefit all members of the scheme. Consultation with key stakeholders, particularly teaching unions and the employer representatives—in this case, mainly the local education authorities—has been a very important part of that re-tendering, and all have recognised the benefits that outsourcing has brought. They continue to support outsourcing and the Department's choice of contractor.
Although the order will allow for the continued outsourcing of the administration of the TPS, the Secretary of State will remain ultimately responsible for the management of the scheme and its finances. The Department will continue to work closely with employer representatives and teaching unions to set the policy for the TPS, in a way that supports teachers, employers and the Department's wider objectives of improving teacher recruitment and retention. Although the contractor will be responsible for maintaining teachers' records, calculating and paying benefits and so on, the Department retains overall control and ultimate accountability for all aspects of the scheme.
To ensure the effective delivery of the administration of the scheme by Capita, the Department will continue with the contract management arrangements that have been successfully developed, together with the involvement of the National Audit Office. Under the new contract, the contractor's payment will be linked to performance, with deductions being made if any aspect of the service falls below the required standard.
In conclusion, the order is an uprating of the original contracting-out order, taking account of legislative changes. It is an enabling measure that allows us to secure effective, efficient and value-for-
Column Number: 005
money administration of the teachers' pension scheme. It allows the Department to build on the successful outsourcing of the original contract and to deliver small further improvements for teachers and employers.
Mr. Graham Brady (Altrincham and Sale, West): Mr. Taylor, may I add my recognition of your chairmanship to that already given by the Minister? This is the first time that I have served on a Committee under your chairmanship and I, too, look forward to the experience, which I know will be enjoyable. It is also a pleasure to listen to the Minister giving credit, quite rightly, to the previous Conservative Government for contracting out the administration of the teachers' pension scheme and the savings on the cost of public administration that have accrued. So far the saving is £20 million. We are happy to take the credit for that and hope that the saving will continue in the future.
Some specific questions arise. I am grateful to the Minister for giving a brief history. It seems strange that the 1996 order is being revoked by this order to allow the implementation of section 172 of the Pensions Act 1995. That raises some fairly obvious questions. Why did the 1996 order not reflect the 1995 legislation? It would be interesting to know whether there was a perfectly appropriate technical reason for that, or whether there was an oversight at the time.
Given that the 1996 order did not reflect the 1995 legislation, why has it taken the Department seven years to bring it into line with that legislation? That is particularly pertinent in light of the Minister's comments that it was not just the 1995 Act but the 1996 order that was important as background to the new order. Clearly, a number of regulations could have been introduced using powers in the 1995 Act over the past seven years. The 1996 order was made right at the beginning of the period, which raises the question of whether it would have been better to act sooner in relation to the regulations. I have to ask the Minister whether any practical implications for members of the scheme have arisen as a result of the fact that the 1996 order did not take account of the 1995 legislation or regulations introduced pursuant to it. If there have been practical difficulties, it seems odd that we have waited so long before the technical amendment to which the Minister referred could be brought into force.
The explanatory memorandum states:
''This instrument will allow the Secretary of State to authorise another person to carry out the functions under these regulations.''
What will be the practical import of the new order? What are the implications for accountability? If we are not seeing any practical change in the arrangements as they affect members of the scheme, are we seeing a transfer of responsibility from Ministers to the contractor?
The Minister has spoken about both the current contract arrangement with Capita Managed Services, which expires on 30 September, and about the re-tendering that has taken place. I infer from the Minister's remarks that the outcome of the tendering
Column Number: 006
process was the reappointment of Capita, although I do not think he said so specifically.
On what date will the order come into force? Do implications arise from the timing for the contract that has now been re-let? Was the contract re-tendered assuming that these changes would be implemented, or was the tendering process conducted on the assumption that existing arrangements would be maintained? Or will the new regulations apply only from 1 October, the date when the new contract would ordinarily have been deemed to come into force?
On a further specific point, looking at the flow of information about the teachers' pension scheme and contributions to it, as well as implications for the mis-selling of pensions and a number of other things, I am tempted to ask whether the order will make any difference to Ministers' ability to give the House detailed answers about the state of the teachers' pension scheme and, particularly, the cost of flows into it from schools and local authorities. The Committee is sitting at a time when schools across the country are suffering difficulties because of the significant increase in the level of contributions to the teachers' pension scheme demanded by the Government, which is costing many schools and local education authorities a considerable amount of money.
On 14 April I tabled a written question to the Minister asking him
''what estimate he has made of the impact of increased contributions to teachers superannuation on school budgets (a) in total and (b) for each local education authority area.''
I received the slightly surprising response:
''It will not be possible to calculate the additional cost of the increase in employers' contributions . . . for each local education authority for 200304 until we have analysed the contributions data for March and April 2003.''—[Official Report, 19 May 2003; Vol. 406, c. 569W.]
One would hope that, before the changes in contribution were fixed, an estimate would have been made of the possible impact on school budgets. That, again, raises an important question: will the new order, in transferring further powers and further responsibility for accountability and the provision of information to the contractor, allow Ministers to give more detailed information on the level of contributions into the teachers' pension scheme by schools and local education authorities?