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I should add that, in accordance with the requirements set out under Clause 24, the Government will consult with the trustees of the RMPP on the details of the order made establishing the new public service scheme, which is expected to specify which of the requirements that would normally apply to an occupational pension
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I hope that there is a broad degree of consensus among Members of this House on the outcomes we seek. I hope that my noble friend is satisfied that I have been able to demonstrate why the Government’s approach already achieves that goal, perhaps in a way that is better suited to the circumstances of the scheme, and accordingly that he will feel able to withdraw the amendment.
It may help if I say to my noble friend in relation to the general requirements under pensions legislation that apply to the new scheme as an occupational scheme, which of those we believe should apply. Obviously, this would have to flow from discussions with the trustees, but it is likely, for example, that it will include the provisions that apply to other public service pension schemes relating to matters such as disclosure of information to scheme members, dispute resolution and assignment of pensions. I hope that has given my noble friend a flavour of what is intended.
Lord Clarke of Hampstead: My Lords, more than a flavour. The record of this short debate should make clear what Clause 16(4) actually means in terms of,
and all that goes with an occupational pension scheme—that is, the right of consultation. If I was a difficult person, I would be arguing that it needed a trustee’s agreement, rather than just being consulted, but I think enough has been said. There is very little between us. I shall look at what has been said. I am sure that the trustees of both the existing scheme and the new scheme will be heartened to know that the occupational pension scheme general terms of consultation will apply. I beg leave to withdraw the amendment.
35: Clause 16, page 8, line 40, at end insert—
“(8) Before making any order under this section the Secretary of State shall consult with persons appearing to the Secretary of State to represent persons likely to be affected by the proposed order.
(9) No order under this section shall make any provision which would have effect of reducing the amount of any pension, allowance or gratuity, in so far as that amount is directly or indirectly referable to rights which have accrued (whether by virtue of service rendered, contributions paid or any other thing done) before the coming into operation of the order, unless the persons consulted in accordance with subsection (8) have agreed to the inclusion of that provision.”
Lord Clarke of Hampstead: The wording of this amendment is taken from Sections 1 and 2 of the Superannuation Act 1972. These relate to Civil Service pensions—I used to be a member of that scheme, many years ago, when we had a real Post Office. There is a statutory obligation to consult the Council of Civil Service Unions in the case of Civil Service schemes
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Given that the new scheme will hold only past service rights, the protection that members have from adverse changes ought to be protection requiring the active consent of their representatives, as in the Civil Service, rather than an obligation to consult. That is why we have suggested the Civil Service model. There should be an obligation to consult the trades unions before any amendments are made. That is the starting point in all private sector schemes, as well as in the public sector. The obligation is contained in primary legislation for other schemes and ought to be contained in this Bill.
In Committee, I mentioned several times the role of trustees and the tripartite arrangements between the employer, the unions and the trustees. They have survived the test of time and some of the agreements have lasted for so many years because of this consultation and agreement procedure. This amendment should attract the support of the Government. I beg to move.
Lord McKenzie of Luton: My Lords, in responding to this amendment, I should like once again to address some of the concerns that have been raised in relation to consultation with members and protection for members’ accrued rights. I recognise that these are very important issues.
In terms of protection for members’ accrued rights within the new public service scheme, noble Lords may recall the discussion in Committee of the relevant provisions in Clause 19(6). These provide that the new scheme can be amended only in a way that would or might adversely affect accrued rights if prescribed steps are taken to obtain the consent of members or, alternatively, if the scheme is amended “in the prescribed way”.
It is correct to say that the detail of Clause 19(6) does differ from some other public service pension schemes. However, I mentioned previously Section 3(1) of the Armed Forces (Pensions and Compensation) Act 2004 which adopted a similar approach to that proposed in this Bill. Given the requirement in Clause 19(6) for member consent in certain circumstances, it seems to me that the benefit of the amendment proposed is quite difficult to discern. Indeed, in effectively over ruling the ability under Clause 19(6)(b) to make prescribed amendments without consent, subsection (9) of the amendment could adversely affect the ability to make changes in future that other trustees and employers can make in relation to other occupational pension schemes, such as the RMPP.
In the past, these changes have included expanding the class of person who may receive death benefits to include same-sex partners and changes to ensure compliance with tax legislation. We cannot rule out the possibility that there could be an unforeseen need for comparable amendments to the new scheme in future.
Moreover, there is a general point of principle that underpins the Government’s intended approach. The measures set out in Clause 19(6) are intended to operate in a similar way to the protection that members
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In relation to the proposed new subsection (8), I recognise the strength of feeling on the issue of consultation and communication with members that was expressed in this House during our earlier debates. I previously set out the importance that the Government attach to consultation in relation to the key order-making powers under Part 2 of the Bill, including orders made establishing a new scheme under Clause 16. This is reflected in the specific requirement to consult the RMPP trustees set out under Clause 24 and, more broadly, in our practical programme of engagement with trustees, with Royal Mail and with representatives of both current employees and RMPP pensioners that is already well established. That engagement is now focused on planning the programme of work that will be required to implement the measures set out in Part 2 of the Bill and on ensuring that members of the RMPP are kept informed of key developments as appropriate and that any concerns or questions raised can be addressed.
Turning to subsection (8) of the proposed amendment, I would point out that the trustee body currently includes five member-nominated representatives, including one pensioner nominated trustee. To introduce a separate requirement for formal consultation with representatives of affected members would, in terms of the provisions set out in the Bill, duplicate the role of the trustees in discussing proposals for establishing the new scheme, while adding little in a practical sense to the process of engagement that is already underway.
In relation to consultation on changes to the new public service scheme going forward, I should also explain that once established, unlike many other public service schemes, the new scheme will contain only past accrued rights and that those rights already have a strong degree of legal protection. This means that the scope of any changes will in future be limited, not least because questions regarding future benefit accruals will not arise. Nevertheless, I can confirm that the Government intend to explore appropriate consultative arrangements, analogous to those that already exist in other public service schemes, to provide a forum in which issues in relation to ongoing administration of the new scheme that are raised by members and their representatives can be resolved, and to ensure that communications with members concerning changes are effectively communicated. The scope of these consultative arrangements has yet to be determined but experience with other schemes suggests that they are flexible and effective in addressing a wide range of issues that may be of concern.
I do hope that on the basis of these assurances, which are as strong as I can possibly give, and on the evidence of the consultative activity that is already
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Lord Clarke of Hampstead: My Lords, perhaps noble Lords can think back to just over an hour ago when there was an accusation of interference at government level. I want them to bear that in mind when we talk about any amendments to the pension scheme. As the Bill is drafted, the Secretary of State has supreme powers with regard to amending benefits and issues relating to the pension scheme. I hope that the House will understand—
6.30 pm
Lord McKenzie of Luton: My Lords, perhaps my noble friend will permit me to intervene—I am conscious that we are on Report and that we need to be mindful of the procedure. The Secretary of State does not have supreme power in relation to the benefits. Order-making powers have to follow consultation with the trustees in relation to splitting the scheme. We will be coming on to a later amendment that deals with this matter. There are provisions regarding the Secretary of State if a section of the RMPP is used for the new public service scheme; otherwise, he does not have any role in the ongoing running of the RMPP. That would be a matter for the company and the trustees. In relation to the new scheme, the Secretary of State’s powers are significantly constrained by the protections in Clause 19(6), and I press my noble friend to bear in mind that very important point. I know that he and his colleagues are concerned about this but I believe that there are substantial protections in this legislation.
Lord Clarke of Hampstead: My Lords, I am grateful to my noble friend for that further elucidation. However, I hark back to the fact that the history of the current Post Office pension schemes can be found in the Principal Civil Service Pension Scheme. The cardinal points of that scheme were the consultation and the rights of co-determination. I had a quick look at the Bill and, although I hate to disagree with my noble friend, there are references in it to the Secretary of State being able to make decisions. One is in Clause 23, headed “Information”.
I shall not make a meal of this because I think that my noble friend Lord McKenzie has again done enough in putting on the record the fact that there is a requirement for people to sit down and discuss these matters. There may not always be deficits; the schemes may go back into surplus, and that sort of thing must be borne in mind, taking into account these requirements and the aspirations of the people in the scheme. However, once again, I am very pleased with what we have on the record, and I thank the Minister for his reply. I beg leave to withdraw the amendment.
Clause 17 : Division of the RMPP into different sections
36: Clause 17, page 9, line 4, at end insert—
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“(1A) If no order has been made under section 16 establishing a new public scheme, an order under this section may create a section of the RMPP in respect of qualifying accrued rights (a “qualifying section of the RMPP”).”
Lord McKenzie of Luton: My Lords, I shall speak also to the other government amendments in this group.
The Government are proposing these amendments in response to questions raised in Committee regarding the scope of the powers provided at Clause 17. In explaining the purpose and effect of Amendment 36, perhaps I may start by recapping the Government’s policy intention behind the powers in this clause.
Clause 17, particularly subsection (1), allows the Secretary of State, by order, to divide the existing Royal Mail pension plan into different sections. It allows for different participating employers to be in the different sections, and for assets and liabilities in the RMPP to be divided between the different sections. This power is required because the Government intend that the strategic partnership will not include Post Office Ltd, which will remain 100 per cent in public ownership. As a result of the associated restructuring of Royal Mail Group, the Royal Mail pension plan will need to be divided so that there is a section for Post Office employees and another for Royal Mail Group employees. These sections will contain rights built up after the cut-off date for the transfer of liabilities to the Government. Post Office Ltd and Royal Mail Group will each be responsible for its own section.
In addition, however, Clause 17 provides the Government with a power to create further sections separate from the sections containing the ongoing pension liabilities of Post Office Ltd and Royal Mail Group. This power could, in the context of a partnership agreement for Royal Mail, be used to create a section that contained qualifying accrued rights, defined in Clause 15. A section created for this purpose would operate on a similar basis to the public service scheme created under Clause 16 and would not hold any assets. Benefits would be funded directly by the Government as they fell due, as provided for in subsection (2).
As explained in Committee, the existence of this power is purely a contingency measure should, for whatever reason, the Government’s preferred option—that is, the transfer of the qualifying accrued rights to a new public service scheme under Clause 16—prove impossible. Creating a new section for qualifying accrued rights would be quicker than creating a separate scheme under Clause 16, and there might be circumstances where this additional flexibility was advantageous. In the debate in Committee, I sought to explain that the powers in subsections (2) to (5) of Clause 17 were intended to relate only to the establishment of the new subsection for qualifying accrued rights.
The amendment that the Government now propose concerns the use of the powers contained in Clause 17 in the scenario that I have just described. The proposed new Section (1A) makes it clear that the creation of a section to contain the qualifying accrued rights—a,
is limited to circumstances in which there has been no prior order to create a new scheme under Clause 16.
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The amendment also addresses the concern expressed in our earlier debate that, putting aside the Government’s policy intention, the detailed provisions in Clause 17 could in principle provide the Secretary of State with powers to intervene in matters that were legitimately the concern of the trustees, including the new sections of the Royal Mail pension plan relating to Post Office Ltd and Royal Mail Group employees. By making it clear that the relevant powers can be exercised only,
the amendment specifically excludes that possibility.
I hope that that explanation is helpful in setting out the purpose of the amendment, and I commend it to the House. I beg to move.
Lord De Mauley: My Lords, I thank the Minister for tabling these amendments in response to our concerns about what we considered to be the unclear drafting of this clause. I agree that the changes make it much clearer that the Secretary of State’s powers to interfere in the ongoing RMPP will be used only as a plan B if the Government’s preferred scheme fails, and I welcome that clarification.
37: Clause 17, page 9, line 5, after “provision” insert “in respect of a qualifying section of the RMPP”
38: Clause 17, page 9, line 10, after “provision” insert “in respect of a qualifying section of the RMPP”
39: Clause 17, page 9, line 18, leave out “which may be exercised” and insert “in so far as it is exercisable”
40: Clause 17, page 9, line 21, at end insert “in so far as it is exercisable in relation to qualifying accrued rights”
41: Clause 17, page 9, line 23, after “that” insert “, in any case where there is a qualifying section of the RMPP,”
42: Clause 17, page 9, line 26, after “order” insert “in respect of a qualifying section of the RMPP”
Lord Clarke of Hampstead: My Lords, I shall just check the groupings list as there has been a change. I believe that Amendments 44 to 46 and 48 are also in this group. They all deal with the possibility of using the RMPP as a vehicle for guaranteeing the qualifying accrued rights, which the Secretary of State has said will be guaranteed by the state. They revolve around Clause 17, which will allow the Secretary of State to sectionalise the RMPP, to create a section that will provide for qualifying accrued rights, to amend the RMPP to fit the arrangements that he wants to make after consulting the RMPP trustees but without getting their consent, and to veto any amendment or exercise of discretion in the RMPP.
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The Secretary of State has made it plain that the Clause 17 mechanism, if it can be called that, is very much a back-up to be used only if a new public scheme is not set up using the alternative Clause 16 mechanism. However, nowhere is there an explanation of why a back-up power is needed at all. The regulatory impact assessment makes a compelling case for operating the scheme, whatever form it is to take, on an unfunded basis. First and foremost, the reason given is the volatility inherent in a funded model, and the point is made in paragraph 20 of the regulatory impact assessment that a 1 per cent fall in investment returns could double the scale of the deficit.
Models suggested as alternatives in the regulatory impact assessment are as follows. Model A is:
“One off payment from Government to the scheme to make good any deficit; but no further changes to the distribution of assets and liabilities in the scheme”.
“Relevant liabilities and assets are transferred to a separate scheme (or a separate section of the existing scheme), with Government issuing a guarantee in respect of those liabilities, and assuming the role of the sponsoring employer—including making payments to the scheme to make good any deficit.
“Relevant liabilities are transferred to Government and met through the establishment of a new, pay-as-you-go public sector scheme. Assets transferred to government are in due course sold over a number of years”
That comes from the pensions appendix to paragraph 20 of the RIS.
We are dealing with models B and C; model A has been discounted. Model C supposes an unfunded pay-as-you-go scheme outside the RMPP—that is the Clause 16 mechanism. Model B supposes a funded new scheme or section of the RMPP. There is no model D—an unfunded section of the RMPP. However, that is just what Clause 17 is.
The regulatory impact assessment continues with an interesting explanation of “moral hazard”, which it defines as the risk that occurs where perverse incentives exist so that one party is incentivised to act in a way which other parties would consider to be inappropriate. It explores the moral hazard that would exist if a trustee of the RMPP were to invest in assets supplied by the Secretary of State. Here we have a different sort of moral hazard—the risk that the trustee would be forced to act in a certain manner because the Secretary of State was sponsoring an unfunded section. The point is that the RMPP and the RMPP trustee should be allowed to go forward without any interference from the Secretary of State.
Clearly, some amendments to the RMPP will be needed if liabilities are transferred to a new public scheme. Members’ entitlements to their saved benefits should be removed from the RMPP if they are being assumed by the new public scheme; otherwise, members of the scheme would have a double entitlement. However, that should be the extent of any amendment that the Secretary of State has any interest in.
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