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Contracting Out (Administration of the Teachers' Pensions Scheme) Order 2003

11.32 a.m.

Lord Davies of Oldham rose to move, That the draft order laid before the House on 28th April be approved [18th report from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the draft Contracting Out (Administration of the Teachers' Pension Scheme) Order 2003 be approved. I declare an interest. I am a small beneficiary of the scheme, having more than 30 years ago given some service to the teaching profession. I therefore duly record that direct interest in the measure, which I hope will in no way condition my objective position on its merits.

The order has one main purpose: 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 it was made.

Prior to 1996, the teachers' pension scheme was administered by the department. In 1996, the previous government decided to outsource the administration of the scheme to secure better value for money and the significant capital investment, especially in IT systems, that was needed to modernise the provision of administrative services. 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 pensions and fees 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 has changed significantly since 1996. Since the original contract to administer the scheme was placed with Capita Business Services Ltd, it is estimated that the Exchequer has saved 20m compared to 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

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increased use of modern IT communication methods and will bring real benefits to teachers, pensioners, schools and employers.

Prior to re-tendering the contract, the department conducted a rigorous assessment of the merits of continued contractorisation and found that the original case for outsourcing remains convincing and that contractorisation is the most cost-effective method of ensuring that we provide improvements that will benefit all members of the scheme. Consultation with key stakeholders—in particular, teacher unions and employers' representatives—has been an 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 teachers' pension scheme, the Secretary of State will remain ultimately responsible for the management and finances of the scheme. 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 the thorough contract management arrangements that have been successfully developed during the existing contract, together with the involvement of the National Audit Office. Under the new contract, the contractor's payment will be linked to performance, with deductions made if any aspect of the service falls below contractual requirements.

The order is an updating of the original contracting out order, taking account of legislative changes. It is an enabling measure that allows the Secretary of State to secure effective, efficient and value-for-money administration of the teachers' pension scheme. It allows the department to build upon the successful out-sourcing of the original contract and to deliver further improvements for teachers and employers. I commend the order to the House.

Moved, That the draft order laid before the House on 28th April be approved [18th report from the Joint Committee].

11.38 a.m.

Baroness Blatch: My Lords, I am grateful to the Minister for his explanation. He could have saved himself a lot of time by simply saying, "Ditto". I followed every single word verbatim from what was said in another place. Nevertheless, I am grateful, because it is important that we hear the explanation in this House.

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I also noted the benefits of having contracted out the teachers' pension scheme in 1996, and the substantial savings that have accrued to the Government since. Not for the first time, however, I was disappointed by the reply given by Mr Miliband, the Minister in another place, to the thoughtful comments and questions of my honourable friend, Graham Brady, Member of Parliament for Altrincham and Sale West.

Although it is true that Mr Miliband does not have access to the previous government's papers, and can therefore claim not to know why Section 172 of the Pensions Act 1995 was not implemented, he should nevertheless give an explanation of the need for that change. Given that the Government are in their seventh year in office, there must be an answer to the following questions.

First, why was it not thought necessary to enact this provision after entering office in 1997, especially as other orders relating to the issue have been passed since then? Secondly, what is the specific reason for the enactment now? Has the scheme been found wanting in some way? What has been the inhibiting effect of not having incorporated Section 172 of the 1995 Act?

Thirdly, given that the omission of the section has lasted for seven years, has the effect of that been felt by the department, teachers or the private contractor? If the answer is no, why the change? If there has been a problem, please put it on the record today. That would at least compensate for the lack of information from Mr Miliband and the inadequate Explanatory Notes that accompany the order.

My honourable friend Graham Brady also asked what would be the practical effect of the order. For example, does it allow the Secretary of State to authorise another person to carry out the functions? Given that for the past seven years the teachers' pension scheme has been contracted out, therefore functions have been carried out by "another person", what additional functions can be transferred as a result of the order? What effect will that have on accountability for the scheme? Will there be any practical impact on teachers' pensions? Again, if the answer is "none", what is the point of the order?

I understand that the contract with Capita has been renegotiated. Was that in competition with other providers? Was there a special competitive process to renegotiate the contract? Given that the contract has only recently been re-let, were those changes anticipated and taken into account at the time of agreeing the contract?

The Minister will know about the enormous disquiet about school funding. Ministers, particularly Mr Miliband, have argued forcefully that the money given to schools this year is greater than the cost pressures in school budgets; that is, the increase in national insurance, increases in salaries, special increments, inflation and employers' pension contributions. Yet, when my honourable friend Graham Brady asked in a Written Question on 14th April what was the additional cost of the increased

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pension contribution in total and for each local education authority, astonishingly Mr Miliband answered:

    "It will not be possible to calculate the additional cost of the increase in employers' contributions . . . for each local education authority for 2003/4 until we have analysed the contributions data for March and April 2003".—[Official Report, Commons, 19/5/03; col. 569W.]

As most schools knew, the cost pressures of increased pension contributions were considerable. Given Mr Miliband's answer, he could not possibly claim that they were fully taken into account. If he did not know the additional costs, how could he have taken them into account?

Only yesterday, I visited a school where the pension increase was over 5 per cent. The issue of pensions and their affordability, and the read-across to the importance of recruitment and retention of teachers, is important. Therefore, the questions that I posed, which were either not answered or only cursorily answered in another place, should be answered today for the record.

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