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The noble Lord said: My Lords, Clause 112 sets out the timescale for a pension compensation credit to be implemented. The four-month period begins on the later of two dates: the transfer day or the first day the board is in receipt of the relevant documents. The relevant documents include a decree or order relating to the divorce, dissolution or annulment. This technical amendment adds “declarator” to that list. A “declarator” is a term in Scottish law that is in some cases used instead of a reference to an order or decree. For the reference to annulment in the clause, reference to “declarator” needs to be added in order to cover the position in Scotland, where the types of annulment in question come about by declarator of nullity. This amendment ensures that the provisions are triggered in the same way whether in Scotland or in England and Wales by accommodating the different terminology used in the different jurisdictions. I beg to move.

On Question, amendment agreed to.

Lord Kirkwood of Kirkhope moved Amendment No. 74:

74: Before Clause 123, insert the following new Clause—

“Independent Public Sector Pensions Commission

The Secretary of State shall establish an independent commission to be called the Independent Public Sector Pensions Commission to evaluate the terms, benefits and costs of public sector pensions; and report to Parliament within two years of the day on which this Act comes into force.”

The noble Lord said: My Lords, the provenance of this new clause, tabled in my name and that of my noble friend Lord Oakeshott of Seagrove Bay, was my looking, over the summer, at the debates in your Lordships’ House on the 2007 Pensions Bill. In June of that year, my noble friend eloquently moved a not dissimilar amendment in Committee. Indeed, the amendment was more widely drawn in that it would have provided for an independent commission with a remit to analyse research and provide information on pension costs and public policy issues over the longer term. I am grateful to other colleagues who have tidied

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up some of the wording, which improves the new clause which, for the purposes of clarity, is intended to be of permanent standing and not a temporary commission.

5.15 pm

Over the summer I was able to draw on the very important publication of the Pensions Policy Institute, of which I am a governor. In 2008 it published an assessment of the Government’s reforms to public sector pensions. If I were concerned before, I was even more concerned after reading the document at some of the gaps in our knowledge in looking forward—very long term—to some of these important areas of public policy. The Pensions Policy Institute looked at the background to the 2002 Green Paper, which reformed public service pension provision, and at how those changes impacted on public sector employees, how the financial stability of the schemes were improved over the longer term, whether it closed the gap between public and private pensions, and whether public sector pensions made up for lower pay, which was an important part of the underlying argument when the Government changed the scheme for public sector pensions.

The report treats the subject very seriously; it repays careful study and I commend it to colleagues. It has convinced me that Parliament does not yet have all the facts in the public domain to enable it to make sensible and objective decisions about the future costs that the country may be facing in this important public policy area. These issues are not new; they have been debated before, but bringing them back in this Bill is important. For the reasons that we have just been discussing on annuities, the situation on pension provision is now more acute this year than last. Last year’s concerns are even more relevant and need consideration in today’s uncertainty about the future of savings schemes generally and private sector provision particularly, which is being delivered more and more through defined contribution schemes.

There is great potential for this issue to be debated in a non-constructive way; a lot of ill-informed comment can be expressed. Big numbers are involved in unfunded liabilities, and the rest, which can scare people. In the run-up to the next general election, debate may be less informed than it might be if we had transparent access to the facts. The Government can state that the 2002 Green Paper reforms were put in place and are only just maturing—the last of them were introduced in April 2008—but, by accepting the new clause, which seeks greater transparency in the future, they would have a better chance of instilling in the electorate confidence that they are taking the issue seriously. Indeed, it needs to be taken seriously.

I want to quote from this important PPI report. First, the section dealing with the financial stability of public sector schemes puts the debate into context, as there are issues that need to be considered.

The paragraph headed:

“Will the reforms improve the financial sustainability of the”,

public sector “schemes?” states that:

“Public sector pensions are projected to grow more quickly over the next twenty years than any other area of state spending for which long-term projections are available. Over this period, spending on unfunded public sector pensions is projected to grow

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from 1.0% of GDP to 1.4% of GDP in 2027/8, after allowing for the savings from the recent reforms. This is an increase of 40%, which compares to an increase of 17% for long-term care, 16% for health and 14% for state pensions over the same period”.

Of course, those are percentage increases, not absolute figures—we must bear that in mind—but that gives us a sense of the extent to which the current provisions after the reforms will build in long-term state spending over the next 20 years or so.

The latest estimate for the future unfunded public sector pension schemes liability that I have been able to find is from 2006. The figure is set at £650 billion. It would be of great interest to know whether the Government have a more current estimate of unfunded liability than that. Obviously, as the report makes clear, it depends a lot on discount rates, but the House is entitled to a much more up-to-date figure than one from 2006, which is likely to be higher than £650 billion. If the Minister can tell us the current estimate of liability, that will be very useful.

I have also not been able to find whether the Government have published an overall estimate of the year-on-year cost savings that they would expect in future as a result of the 2002 Green Paper reforms. We know—the then Chancellor, Prime Minister Brown, told the Treasury Select Committee—that the Government were anticipating saving about £13 billion over the next 50 years. That sounds like a big saving, but when you consider that there is a public sector contribution of £10 billion each year to public sector pensions, that puts it in context.

Just using those two examples, I make the case that it is nearly impossible, as far as I can judge with the information available to me, to assess the long-term affordability and sustainability of the 2002 Green Paper reforms. If that is the case, that is a serious matter for Parliament and it becomes an issue of what steps we need to take to get hold of that information so that judgment can be made.

I have no difficulty with the principle of unfunded public sector schemes being paid for by the taxpayer. I understand that those are contracted, negotiated arrangements between employers and employees, and that the trade unions take the very strong view that pension payments are deferred pay; I perfectly well understand all those issues. I am making no judgment about that in the proposed new clause; I am saying that we do not have the information available to us as policy-makers to make sensible judgments on important matters over the long term in the area of public provision of pensions.

I refer back to some of the advantages that we have been able to derive from work done by what were, admittedly, ad hoc groups in the past. I remember that the pensions provision group, which preceded the Turner commission, made a valuable contribution on the state pension sector some years back. The Turner commission also made a tremendously important contribution by illuminating, in a way that was trusted and independent of government, the whole background to the pension reforms that the Bill introduces. It helped to establish the consensus necessary to resolve some of these problems. The Pensions Commission comprised Miss Jeannie Drake, John Hills and Mr Adair Turner, as he was before he came into this House. It

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was not a big operation, a huge quango or a huge establishment, but it made a tremendous contribution to the way in which policy was debated after the report was produced.

The proposed new clause seeks to set up a standing body with characters of that calibre who are independent and are within the sequency of government and the department’s circle of knowledge so that they have access to the best, most relevant and up-to-date figures, working with the Government Actuary’s Department and regularly furnishing high-quality information that looks a long way forward. This is not the stuff that is easily traded in a normal political debate; it is an attempt to get more objectivity. Much of it is estimated, because many changes can be made in 20 years. The research and analysis that are available through such a route are invaluable when trying to get a better handle on exactly what provision needs to be made in Parliament.

Unless things are happening that I do not know about, the Government are not spending enough time looking at ageing as a policy. Ageing is not just a DWP issue; it affects everyone. I read papers at the weekend that reminded me that people in the 50 to 64 age cohort and the 64 to 75 age cohort have a much higher carbon footprint than other age groups. There is a whole raft of ageing-related issues. By 2031, the country will have 27 million people over 50 years of age. That is 41 per cent of the population. It will substantially change the way in which we run public services, and is not debated to the extent that it should be. The independent commission suggested by my proposed new clause is only part of that. The proposed new clause which my noble friend Lord Oakeshott tabled last year would have had a better chance of addressing broader pension provision. If the exclusive focus on public sector provision is too difficult for the Government, any truly independent commission set up to look at pensions should start by looking at the potential imbalance between public and private sector provision in the next 20 years. Perhaps that is what the Government are setting their face against in the amendment.

The House should look at tests that need to be met over the long term. I read with great interest the comments made by the noble Lord, Lord Turner, in Committee last year. He rightly talked about affordability, and the reasonableness of expenditure relative to the other public needs, being a cardinal test that needs to be passed. He also talked about fairness relative to the private sector. The PPI report adverts to this, and although it does not make judgments, it shed light on the relativities between the private sector and the public sector.

Another point made by the noble Lord, Lord Turner, concerned fairness within the public sector with regard to two-tier provision. Some final salary schemes have had to close because of the inherent discrimination involved. I do not want to find that, because of lack of forethought, preplanning and active, dispassionate consideration, public sector pensions suddenly become a hot political potato because they could be seen to be unstable at some point in the future. The only way that Parliament can be sure that it is attending to these important matters timeously and in a way that allows thought to be directed at the problems is with an

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independent commission in charge of its own agenda, working in a standing capacity and providing information in a transparent manner. That is what Parliament needs to make sensible decisions in these areas in the future. I beg to move.

5.30 pm

Baroness Turner of Camden: My Lords, I am sure that the noble Lord will not be surprised to learn that I oppose the amendment. I do so because the present salary and pension structure for civil servants is the result of agreements between the Government and the unions, and because it is generally accepted that the pension package is an element of deferred income. As has already been stated, this is a question of deferred pay for the civil servants covered by the package. It is true that the present arrangements are non-contributory, but I understand that Civil Service salaries are effectively reduced by around 6 per cent in comparison with similar employment in the private sector to account for the non-contributory aspect.

We really are not talking about highly paid people. The average Civil Service pension is around £5,400 a year, with a quarter being less than £2,000 a year. Any attempt to make savings in public sector pensions will have a greater impact on women pensioners who have lower pensions than men due to their lower average salaries and shorter service records. Furthermore, if those pensions are taken away, the taxpayer will fund further payments under pension credit, since the people who would be disadvantaged if this package were removed would be those eligible for pension credit. As we all know, many of those who are eligible to receive means-tested benefits do not actually get them. Pension credit is not an easy way of covering the loss to those who otherwise would be compensated through the Civil Service pension scheme.

I understand that Civil Service pensions have already been through a process of evaluation and reform. The principles for reform of the scheme were agreed by the Government and the TUC in the Public Services Forum in October 2006. These principles recognise that public service pensions are a key benefit of public service employment and should be celebrated as such. It is important to maintain their good quality through retaining defined benefits and index linking. That is an important commitment. If the amendment to establish a commission was accepted, those covered by the present arrangements would be concerned lest the Government attempted to go back on what has already been agreed in the process of negotiations. I therefore urge that the amendment should not be accepted. We discussed this proposal during proceedings on a previous pensions Bill and the House rejected it. I hope that it will do so again. We have a negotiated agreement and there would certainly be difficulties if it was thought that any attempt was being made to go back on what has already been agreed. I suggest that this amendment should be decisively defeated.

Baroness Noakes: My Lords, we wholeheartedly support the principle behind the amendment just moved by the noble Lord, Lord Kirkwood, and I agree that the recent report from the Pensions Policy Institute is

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valuable because it illuminates what we know and what we do not yet fully understand. We on these Benches have warned for some time that the increasing disparity between the pension benefits available in the public sector and those in the private sector is unsustainable. Increasingly, the country reflects a tale of two workforces. The latest official statistics show that employee membership of defined benefit schemes in the private sector continues to fall, with around 1.5 million still in open DB schemes, although the Association of Consulting Actuaries uses a much lower figure of around 900,000. On the other hand, 5.2 million people are in public sector defined benefit schemes which are obviously still open. Not only do these schemes give full DB benefits in retirement, they often have much earlier retirement dates than in the private sector.

The result is a huge cost burden which taxpayers have to pick up. Some of the schemes are funded, which is imposing a considerable cost on the services to which those employees are attached, but as the noble Lord, Lord Kirkwood, pointed out, many schemes are unfunded. The noble Lord also told us how difficult it is to get a fix on how much is actually involved, partly because of the delay in the numbers coming out and partly because of the assumptions that are used. If we add together some figures that were available in 2006 and 2007, we believe that the estimate on the Government’s assumptions is around £760 billion. But those figures use the perfectly ludicrous assumption of AA corporate bond rates in the discounting when it is obvious that the only correct rate to use for the state’s liabilities is the risk-free gilt rate. If that rate is used, the Institute of Economic Affairs earlier this year came up with a figure of £1,071 billion, which itself is out of date because the figure will be higher even now. But just that figure represents 73 per cent of GDP. That is what is overhanging our economy, which, as we know, is in a precarious state as it is.

If the Government were a private sector company, which of course they are not, the answer to the financial facts would be clear, because we can see what boardrooms have been doing consistently over recent years. They have been closing their defined benefit schemes to new entrants and have been revisiting whether or not future accrual would be modified or possibly even stopped. What has happened in the private sector is plain, and I outlined it earlier when speaking to my conditional indexation amendment. However, the Government live in a completely different world.

I understand what the noble Baroness, Lady Turner, said about a negotiation between Ministers and the TUC, but the plain fact is that that negotiation has sold taxpayers down the river. The solution at the end of that negotiation was a minimalist one, and there could not have been less produced. The noble Lord, Lord Kirkwood, gave us the figure of £13 billion over 50 years—around 1 per cent of the total liability on the assumptions I discussed earlier. Indeed, it is interesting to note that when the noble Lord, Lord Turnbull, was with us—he has much expertise in this matter and it is a shame that he is not in his place today—he described all criticism of the deal as entirely justified.

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Noble Lords on these Benches find it difficult to support amendments that involve public expenditure. I am not sure that a pensions commission to look at public sector pensions would necessarily involve a large amount of public expenditure, and could even be contained within the margins of the DWP’s existing provision, but it is important to know how much it would cost. As I have explained, we believe that there is a big issue here and that any responsible government should address it in the future, if only because there will be anger from taxpayers who have to sustain a level of pensions that they themselves cannot even hope to have. Whether we need a report to make that happen is perhaps a moot point, but the issue is very important and one that must be addressed.

Lord Oakeshott of Seagrove Bay: My Lords, I thank my noble friend for his remarks about my eloquence last year. I hope he will be rather more effective than me in getting this amendment through the House. I share very much the concerns of the noble Baroness, Lady Noakes, about the figures she quoted and I hope she will feel that if there is a very modest element of government expenditure involved in the amendment it is a drop in the ocean compared with the potential savings and the importance of properly identifying what are the costs of allowing these liabilities to continue.

I again pay tribute to the Pensions Policy Institute and the Nuffield Foundation which financed its excellent report on assessing the cost of public sector pensions which has recently been published. They have performed a signal service for informed debate in this crucial area. As always, the report is written in balanced and measured tones, but the figures contained in it are a substantial and devastating analysis of the unfairness and unaffordability of public sector pensions today compared with the clearly much poorer pension provision for the rest of our citizens who have to pay for the public sector pensions. Who does the noble Baroness, Lady Turner, think is paying for these pensions? Their costs come from taxpayers, and council taxpayers in particular, who, on average, have less good pensions by far than people in the public sector.

I shall quote some of the figures for the noble Baroness. I do not know whether she has read this balanced report but, on average, employers in the public sector contribute £4,000 per year per employee whereas the figure is £1,600 in the private sector. On pay rates, the report points out that there is no general pattern of public sector pay being lower than that in the private sector. It states that in the comparison between private and public sectors,

So there is no general pattern. It goes on to say that,

The noble Baroness referred to costs, but the negotiations and reforms that she mentioned have had the effect, basically, of producing savings of tuppence ha’penny in the pound on the total cost. The effect of those changes on the taxpayer—and remember the

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taxpayer is the employer here—is to reduce the employer contribution from 24 to 21 per cent in public sector pension schemes. For example—and this is for new entrants only—in the Armed Forces, the police and fire service, which are the most extreme versions, the contribution has been reduced from 37 to 33 per cent. Again, there is a distinct difference between the retiring age—or the pension age, should I say—in these sectors. So the changes have been very small. In the previous debate we were talking about how the value of private sector pension savings and pension schemes has been seriously affected—that will not change any time soon—but the figures today are even more dramatic.

No one is saying that the public sector should not go on having high quality pension schemes. What we are saying is that there needs to be proper, detailed, independent, regular analysis, as the Turner commission proposed, of what the costs are and how they should be paid for over the longer term.

5.45 pm

Lord McKenzie of Luton: My Lords, we have debated this topic before, as the noble Lord, Lord Kirkwood, and others have acknowledged. We recognise the importance of the issues raised by the noble Lord and I am happy to try once again to reassure him about our intentions. Much of the previous debate perhaps was less about the relevance of a commission—I understand that the proposition is for a standing commission rather than an ad hoc commission—and more focused on the position of public sector pensions as portrayed.

Our opposition to the amendment is not an attempt to avoid discussion of these important issues; nor does it reflect any reservations as to the usefulness of a commission in subjecting fundamental issues to rigorous scrutiny and establishing consensus on the way forward. As I have made clear, we are enormously indebted to the noble Lord, Lord Turner, and his colleagues for the work of his commission. However, that work having been completed, we feel the priority now is to implement the reforms to pension arrangements in both the public and private sectors that have been agreed in the light of the Turner commission’s findings. Noble Lords should note that public sector pension schemes have been undergoing major reforms. This was referred to in a somewhat dismissive way. The reforms already agreed or in train should mean that these schemes remain affordable.

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