15 Jan 2013 : Column 585

House of Lords

Tuesday, 15 January 2013.

2.30 pm

Prayers—read by the Lord Bishop of Exeter.

Introduction: The Lord Bishop of Coventry

2.38 pm

Christopher John, Lord Bishop of Coventry, was introduced and took the oath, supported by the Bishop of Exeter and the Bishop of Birmingham, and signed an undertaking to abide by the Code of Conduct.

Introduction: Lord Williams of Oystermouth

2.43 pm

The right reverend and right honourable Rowan Douglas Williams, lately Archbishop of Canterbury, having been created Baron Williams of Oystermouth, of Oystermouth in the City and County of Swansea, was introduced and took the oath, supported by Lord Griffiths of Fforestfach and the Lord Framlingham, and signed an undertaking to abide by the Code of Conduct.

Lord Hardie took the oath.

Thames Tideway Tunnel


2.48 pm

Asked By Lord Berkeley

To ask Her Majesty’s Government what will be the costs to the consumer of the Thames Tideway Tunnel.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley): My Lords, for Thames Water’s 13.8 million domestic sewerage customers, the tunnel is estimated to have an average maximum annual impact on bills of £70 to £80 at 2011 prices. This includes the cost of financing the project. The exact profile and duration of the cost to customers continues to be analysed. Spread over several decades, bills could gradually be affected from 2014-15, with the maximum impact estimated from around 2019.

Lord Berkeley: I am grateful to the Minister, and glad that they are still looking at the finances. Does he agree that if Thames Water had paid a reasonable dividend appropriate to a utility for the past 12 years and Macquarie Bank had not taken £48 million a year on management fees, this project could have been funded out of Thames Water’s assets without any

15 Jan 2013 : Column 586

extra charge on the customers? Will he therefore instruct the regulator Ofwat to look at all this again—to look at alternatives such as a sustainable drainage system—so that customers can perhaps get a reduction in their fees rather than this horrendous increase?

Lord De Mauley: My Lords, Ofwat has ensured that the regulatory ring-fence in Thames Water’s licence was tightened following its acquisition by Macquarie. The ring-fence licence conditions on Thames Water already include a condition requiring Thames Water to ensure that its dividend policy will not impair the company’s ability to finance its functions. As for alternatives to the tunnel, studies have looked at all kinds of alternatives over the past decade but none has shown a viable cheaper solution that would simultaneously address the current sewer overflow problems within a decade, deliver value for money and meet environmental objectives.

Lord Stoddart of Swindon: My Lords, this project has been known about for decades, I imagine, but over the past 10 years Thames Water has paid out £3.5 billion to shareholders. Should it not have known that that sort of money should have been saved to provide this essential ring system in London? Why should every customer of Thames Water pay for this project? Would it not be better if Thames Water did not pay any dividends for the next 10 years at the rate that they paid in 2012, and that covered the whole of the cost of the new project?

Lord De Mauley: What an interesting suggestion, my Lords. The standard model in the water sector is for customers to pay the financing costs of the company’s capital expenditure on underground assets together with a charge to reflect expenditure required to keep them in a serviceable state. I do not think that we would find investors if we were not able to finance it in this way.

Lord Stoneham of Droxford: My Lords, over the past two years Thames Water has paid out £650 million in dividends and £100 million in management fees. Can the Minister assure the House that Thames Water is not simply a private equity vehicle designed to save tax for its overseas investors at the expense of London customers and UK taxpayers, who are supposed to stump up for its infrastructure investment?

Lord De Mauley: Yes, my Lords; Thames Water pays its tax. All UK companies are allowed to claim capital allowances when they spend on capital investment programmes. Tax relief is allowable against the capital expenditure incurred with the aim of encouraging investment by companies. Water and sewerage companies have significant capital programmes in comparison with their revenues. They therefore benefit from tax allowances proportionately more than others. HMRC remains vigilant in ensuring that companies operating within the UK pay the tax they are legally obliged to pay.

15 Jan 2013 : Column 587

Lord Bradshaw: Does my noble friend believe that the people who privatised our utilities expected that within 10 years they would be in the hands not only of foreign administrations and foreign countries but actually of the Governments of those countries? We have denationalised here and renationalised from abroad. Surely the regulator should get a lot tougher on these people who are making absolute fools of people who have to subscribe increasing sums to the maintenance of essential services.

Lord De Mauley: My noble friend makes a fair point, my Lords, but we believe in free capital markets.

Lord Harris of Haringey: My Lords, does the answer to the noble Lord, Lord Bradshaw, mean that the Government are indifferent to the extent of foreign ownership of our critical national infrastructure? Are they indifferent to the possible implications of that?

Lord De Mauley: No, my Lords, we are not indifferent; we take these things very seriously. As I say, however, we believe in free access to our capital markets.

Lord Lea of Crondall: My Lords, has the noble Lord seriously considered whether he has given adequate answers to all the questions that have been asked in the last five minutes? Will he write, and put in the Library, a full letter on the considerations in the Government’s mind about where we go from here on all these matters?

Lord De Mauley: I cannot think of anything that I would like to expand upon but I will look at the record and, if there is anything, of course I will write.

Lord Bowness: My Lords, I apologise to my noble friend for not giving him advance notice of this question. My understanding is that properties not connected to mains drainage do not pay sewerage charges. By analogy, are those properties within the Thames Water area which have no physical benefit from this proposal actually liable to pay the charges, or should there not be the equivalent of what used to be described as differential precepts? I declare an interest as somebody who lives in a property that may be in that kind of position.

Lord De Mauley: My Lords, my understanding is that those who are not connected and not currently paying sewerage charges will not pay this charge. If that is not correct, I will write to my noble friend.

Lord Knight of Weymouth: My Lords, I, too, live in a property that may be affected by the construction of the tunnel and I, too, have not given advance notice of my question to the Minister.

Although I see no other option but to proceed with the project, I agree with my noble friend Lord Berkeley that the huge cost to the consumer is of great concern. How will the Minister ensure that, in the interests of consumers, there is proper parliamentary scrutiny—in this House and in the other place—of the cost, which

15 Jan 2013 : Column 588

may well rise, and of the funding vehicle, which has now, by ministerial answer, been guaranteed by the taxpayer?

Lord De Mauley: That is a fair point. Anything that needs to come to Parliament will, of course, do so. If there is anything else that the noble Lord and I think it would be appropriate to debate, we will put it up for debate.

NHS: Liverpool Care Pathway



Asked By Baroness Knight of Collingtree

To ask Her Majesty’s Government what procedures will be adopted in carrying out the NHS inquiry into the Liverpool Care Pathway announced on Monday 26 November 2012.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, as we announced today, the noble Baroness, Lady Neuberger, has been appointed to oversee the review of the Liverpool care pathway and is currently determining its procedures. The review will examine how the Liverpool care pathway is used in practice, and will look in particular at the experience of the Liverpool care pathway by patients, families and health professionals, as well as considering the role of financial incentives in its use. It will report by the summer.

Baroness Knight of Collingtree: My Lords, there will be very much satisfaction at the appointment of the noble Baroness concerned as chairman. Does my noble friend agree that this inquiry was set up following the receipt of more than 1,000 complaints from relatives of patients who had been put on the Liverpool care pathway, and that the Government are not ignoring their complaints, as those about Stafford were avoided some time ago? Is it acceptable that, out of 130,000 people who die yearly on the pathway—everyone who is put on it—only half are told that they are being put on it and neither they nor their relatives are allowed to know or complain that that is the case?

My noble friend the Minister is very widely respected for his fairness. Will he now consider attending a meeting sponsored by five Peers and a Bishop and addressed by two professors, two consultants and patients’ representative, to hear the case against what is going on?

Earl Howe: My Lords, I am grateful to my noble friend for her endorsement of the appointment of the noble Baroness, Lady Neuberger, whom the whole House greatly respects. She is right that after seeing recent criticisms in the media and having received a great many letters in the department, the Minister of State for Care and Support, my honourable friend Norman Lamb, held a meeting at the end of November with patients, families and professionals, both supporters and opponents of the Liverpool care pathway. At that

15 Jan 2013 : Column 589

meeting, he announced his decision that there would be an independent chair to oversee a review of the experience of the pathway. However, it is important to emphasise that the pathway itself has not been called into question but, rather, how it is being used. My noble friend is right to draw attention to the concerns around the lack of engagement with patients and their families, which is often a feature of the complaints received.

Lord Walton of Detchant: My Lords, does the Minister accept that the principles of the Liverpool care pathway, when precisely defined and carefully applied at the right time and in the right circumstances, make an invaluable contribution to the care and passing of individuals with terminal illness? In light of the circumstances referred to by the noble Baroness, does he further accept that the unfortunate recent publicity has been the result of circumstances in which those principles have been misinterpreted and misapplied?

Earl Howe: Yes, my Lords. The LCP, if I may use the abbreviation, is internationally recognised good practice as a framework for managing care for people in their last few days or hours of life. It was created as a way of bringing hospice-style care into hospitals and helping staff who may not be palliative care specialists to provide appropriate care to allow people to die in comfort and with dignity. However, we have consistently made clear in guidance for implementation that the pathway cannot replace clinical judgment and it should not be treated as a simple tick-box exercise. I am afraid that, from the complaints that have been received, that sometimes appears to be what has happened.

Baroness Browning: My Lords, I, too, welcome the appointment of the noble Baroness, Lady Neuberger; I am sure that we all have confidence in her as chair of this review. Can my noble friend confirm that the terms of reference will specifically make sure that a direct comparison is made between what is appropriate in terms of the expertise and continuity to be found in the hospice movement and the rapid changes of staffing, including bank staff used in general wards of general hospitals?

Earl Howe: I am grateful to my noble friend for drawing attention to a very important point. It has always been emphasised in connection with the LCP that to ensure that it is used properly it is important that staff receive appropriate training and support, and that relevant education and training programmes are always in place. In view of the degree of staff turnover to which my noble friend refers, I am confident that the noble Baroness, Lady Neuberger, will have that fact in her sights.

The Lord Bishop of Exeter: My Lords, does the noble Earl agree that if there is to be full confidence in what is undoubtedly a useful clinical tool that has helped many thousands of people to experience better care in the last hours and days of their life, non-clinical priorities in the use of the pathway, especially financial priorities, must be eradicated, and every patient should

15 Jan 2013 : Column 590

be treated solely according to their needs? Does he further agree that it would be far better to link CQUIN payments to staff training in the use of the pathway, rather than the numbers of patients being placed upon it?

Earl Howe: My Lords, once again, I am sure that the noble Baroness, Lady Neuberger, will wish to look at that very issue. The CQUIN payment framework that the right reverend Prelate mentioned was designed to incentivise good practice, and the LCP is considered internationally to be best practice. In one sense, it is therefore logical that the two should be combined. It is equally important for me to emphasise that the Department of Health has not attached any set financial targets to the LCP; on the other hand, some commissioners in the NHS have introduced local incentives. The way in which those incentives have been applied should be the subject of close attention.

Baroness Jolly: My Lords, the Liverpool care pathway is widely used, but some care providers choose to use a slightly different pathway. Will my noble friend confirm that all similar pathways will be included in the inquiry led by the noble Baroness, Lady Neuberger?

Earl Howe: I will be happy to speak to the noble Baroness about that. I was not aware that she had that in mind. I do not think that there would be an objection on anyone’s part if she did, but it will really depend on the extent to which there is widespread concern about the use of those other pathways.

Health: HIV Strategy for England


3.04 pm

Asked By Lord Collins of Highbury

To ask Her Majesty’s Government what plans they have to publish a cross-departmental HIV Strategy for England, in line with the Political Declaration made at the United Nations General Assembly in 2011.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, tackling HIV remains a priority for the Government. We believe the way forward is to develop a framework that covers both HIV and broader sexual health issues. We therefore plan to publish a policy document on sexual health and HIV shortly.

Lord Collins of Highbury: I thank the Minister for that response. One issue that is obviously of big concern is testing. Half of the people diagnosed with HIV are diagnosed late. With the commissioning of HIV testing being highly fragmented under the new NHS arrangements in England, how will the Government ensure that HIV testing recommendations from NICE and the British HIV Association are implemented consistently across the country?

15 Jan 2013 : Column 591

Earl Howe: My Lords, the new commissioning arrangements will allow each commissioning organisation to play to its strengths and will mean better services for patients. Local authorities will be able to link sexual health provision into other public health provision and other services such as family support and social care. HIV treatment is complex, specialist and expensive. That is why the NHS Commissioning Board will commission the NHS to provide treatment. During the White Paper consultation there was wide support for that. The key will be for local health and well-being boards and Public Health England to have a role in supporting integration at a local level to make sure that the commissioning of services is joined up in all parts of the country.

Lord May of Oxford: My Lords, the Minister will undoubtedly be familiar with the relatively recent and very thoughtful Select Committee report from this House urging specific measures aimed at reversing the regrettable rise in the incidence of new infections of HIV. Already one of those measures has been mentioned; not all of them are highly technical. Some of them address the fact that, in several studies, young people today show themselves to be much less well informed about sexually transmitted infection than in the past. Could the Minister assure me that these underlying problems outlined in that report will be taken account of in the proposed cross-departmental strategy and if not, why not?

Earl Howe: My Lords, the noble Lord is right to draw attention to the need for targeted prevention messages in this area. Following a competitive tender last year my department awarded the Terrence Higgins Trust a contract worth £6.7 million for three years. Known as HIV Prevention England, the programme targets gay men and African communities, the groups that remain the most at risk of HIV in the UK. That work includes promoting HIV testing through the Think HIV campaign; primary prevention messages, which we must get to the right audiences; and developing the evidence base on what works in HIV prevention. That DoH programme, I emphasise, is in addition to work funded by the NHS and local authorities.

Baroness Hussein-Ece: My Lords, the Minister will be aware of the links between HIV and tuberculosis, and of how important it is that when we talk about HIV we also talk about TB. Are there any plans in the strategy that is mentioned to include TB, given that cases of both HIV and TB are on the rise?

Earl Howe: My noble friend is absolutely right to mention the connection between HIV and TB. The complexities that arise from comorbidity of that order are fully taken account of in the approach taken by both the health service and local authorities to the testing and treatment of HIV patients. The individuals attending a TB clinic are offered and recommended an HIV test as part of their routine care. This is applicable to all patients irrespective of age. NICE has issued guidelines which recommend the use of a specialist test for people with HIV, and if the test is positive a clinical assessment will be performed to exclude TB and consider treating latent TB infection.

15 Jan 2013 : Column 592

Baroness Gould of Potternewton: My Lords, is the Minister aware of a recent study undertaken on behalf of the British HIV Association on the relationship between women with HIV and domestic violence, which shows that half the women interviewed have shared a lifetime of what is called intimate partner violence—IPV? In the light of that evidence, can the Minister indicate what action is being taken by government to raise awareness of this very serious level of violence against women with HIV and, secondly, whether there will be any routine screening to find out the level of IPV among these women? Furthermore, does he agree that if we had a national strategy for HIV, surely issues such as this and things such as unemployment, as well as other areas, could be taken into account?

Earl Howe: My Lords, the noble Baroness raises an extremely important issue about violence against women. There is a great deal of activity in my department designed to bear down on that and I should be happy to write to her about it. On the issue that she specifically alluded to at the end of her question, we think that, as most HIV is transmissible sexually, it makes much more sense to build that dimension into a sexual health strategy which embraces not only HIV but all transmissible sexual conditions.

Baroness Masham of Ilton: My Lords, is the Minister aware that there are many commissioning bodies for various aspects of HIV, such as CCGs, a commissioning board, local authorities, community nurses and voluntary organisations? Does he therefore agree that it is most important to have some strict guidelines and a strategy so that there is not a muddle?

Earl Howe: The noble Baroness makes a very good point. I can tell her that the sexual health policy document, which we will be publishing shortly, will set out our plans for improving sexual health generally, as well as our plans for offering support to women facing unwanted pregnancy. It is an important document. It is crucial that we take the time to get it right and make it clear that, as she points out, all the commissioners in the system need to work together with the benefit of advice not only from the commissioning board but from local health and well-being boards at a local level.

NHS: Reconfiguration of Services


3.12 pm

Asked By Lord Hunt of Kings Heath

To ask Her Majesty’s Government what the implications are for the future reconfiguration of NHS services in the light of the decision by the Office of Fair Trading to refer the proposed merger of hospitals in Dorset to the Competition Commission.

15 Jan 2013 : Column 593

Lord Hunt of Kings Heath: My Lords, I beg leave to ask the Question standing in my name on the Order Paper and refer noble Lords to my health interests in the register.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, patients’ interests must remain the paramount consideration in any NHS reconfiguration, including merger. We expect the competition authorities to consider the costs and benefits of proposals and to make a final decision based on the balance of impact on patients.

Lord Hunt of Kings Heath: My Lords, the noble Earl will recall that the Health and Social Care Bill was amended to emphasise the importance of the integration of services. This merger was designed to integrate services and to provide a higher quality of care in the hospitals concerned. Does he recognise that this intervention by the OFT, which knows virtually nothing about the health service, will send a signal throughout the National Health Service that the ideology of competition is graded as being more important than either the integration of service or the quality of service? Can we expect the Government to send a signal to the OFT that it should desist? Otherwise, this will cause great concern in the National Health Service.

Earl Howe: My Lords, the referral of this merger proposal by the OFT to the Competition Commission is not at all a result of the measures brought in by the current Government; it is a result of the provisions of the Enterprise Act 2002. Even if there had been no Health and Social Care Act last year, we would have found ourselves in this situation. This is the very first time that a proposed merger of two foundation trusts has raised competition issues and there is no doubt that the OFT would have had an interest whatever the situation. In the Act we avoided double jeopardy, whereby the Co-operation and Competition Panel, set up by the previous Administration, might have determined its view on this merger and then there would have been a second-guessing process by the competition authorities. We have avoided that and that is very positive. Aspects of this merger obviously impact on patients and patient choice, and it is right, in the judgment of the OFT, that scrutiny should be given to the matter.

Lord Marks of Henley-on-Thames: My Lords, will my noble friend confirm that before the decision was taken to refer the proposed Dorset merger to the Competition Commission Monitor’s advice was obtained by the OFT, as it should have been pursuant to Section 79 of the 2012 Act? Is it right that in giving that advice Monitor’s duty was to have regard to the quality of healthcare services? If that is right, is this not an example of this part of the 2012 legislation working in precisely the way it was designed—putting patient care at the heart of decision-making in this difficult area of hospital mergers?

Earl Howe: I am grateful to my noble friend and I can give the confirmation that he seeks. Monitor’s advice was sought and obtained by the OFT. He is

15 Jan 2013 : Column 594

quite right that that it is one of the benefits from the Health and Social Care Act. In situations of this kind we expect Monitor and the NHS Commissioning Board to engage with the Competition Commission on FT mergers but before that with the OFT because Monitor, as a health-specific regulator, has the insight into the considerations that bear most closely on the interests of patients.

Lord Winston: My Lords, does the noble Earl agree that, whatever the explanation, the involvement of the OFT suggests an increasing privatisation of the health service? Given that the health service so often does not cost out individual treatments per patient very successfully, that raises the issue of competition between private providers in such areas as this. Would the noble Earl be kind enough to comment on that?

Earl Howe: I do not agree with the noble Lord. Competition issues arise within the health service and the matter in the noble Lord’s Question is specifically a health service issue. There are, of course, competition issues involving the independent sector and the charitable sector as well but that is not the focus here. It was the previous Government who recognised the benefits of competition for patients. Our attitude to it is very pragmatic. The key objective for commissioners is to ensure that patients receive the best possible services irrespective of whether they are from the public, voluntary or private sectors. It is for commissioners working with patients to decide where competition is appropriate. It is a means rather than an end in itself.

Lord Rea: There have been recent press reports that Monitor has heard requests from private sector providers of NHS services to be exempt from corporation tax. Can the Minister say what the view of Monitor is on this and what its decision is likely to be?

Earl Howe: I am aware of that issue. It is very much in the sights of Monitor as it conducts the fair playing field review which, as the noble Lord will remember, was the product of an amendment proposed by the noble Lord, Lord Patel of Bradford, and passed in your Lordships’ House. The report that will ensue from that commitment by the Government will be published later this year and I am quite sure it will embrace the point mentioned by the noble Lord.

Business of the House

Motion on Standing Orders

3.19 pm

Moved By Lord Hill of Oareford

That Standing Order 40 (Arrangement of the order paper) be dispensed with on Thursday 17 January to allow the motion standing in the name of Baroness Hollis of Heigham to be taken before the motion standing in the name of Lord Smith of Leigh.

15 Jan 2013 : Column 595

The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford): I beg to move the Motion standing in my name on the Order Paper.

Lord Forsyth of Drumlean: My Lords, there are reports in the blogosphere that the Prime Minister has suspended Cabinet collective responsibility for the purposes of the Boundary Commission matters. Does this apply to consideration of the remaining stages of the Bill, following the extraordinary spectacle of Liberal Ministers voting against the Government’s measure last night?

Lord Hill of Oareford: My Lords, I assume that my noble friend meant to raise that question on the second Motion standing in my name. We are still on the first Motion. For the convenience of the House, I can take the matter early. The situation is that the Prime Minister and the Deputy Prime Minister, as leaders of their respective parties, have agreed that they will take different positions on this issue. That is in line with the approach that they have taken on a number of other specific issues. It does not affect collective responsibility for all other matters. Due to the specific agreement on this issue, it does not offend the doctrine of collective responsibility.

Motion agreed.

Business of the House

Motion on Standing Orders

3.20 pm

Moved By Lord Hill of Oareford

That Standing Order 46 (No two stages of a Bill to be taken on one day) be dispensed with on Wednesday 23 January to allow the remaining stages of the Electoral Registration and Administration Bill to be taken that day.

The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford): I beg to move the second Motion standing in my name on the Order Paper.

Lord Forsyth of Drumlean: My Lords, as we are now on the correct Motion, perhaps I could ask my noble friend this question: when he says that it has been agreed that the Prime Minister and the Deputy Prime Minister will differ as regards collective responsibility, is that solely limited to the issue of boundaries, or does it apply to the remaining stages of this Bill?

Lord Hill of Oareford: I do not think that I have a huge amount to add to the first answer that I gave to my noble friend. The Prime Minister and the Deputy Prime Minister have taken their respective positions and that does not offend against the principle of collective responsibility. That issue will now move forward.

Motion agreed.

15 Jan 2013 : Column 596

Prisoner Voting

Motion to Agree

3.21 pm

Moved By Lord Hill of Oareford

That it is expedient that a joint committee of Lords and Commons be appointed to consider and report on the draft Voting Eligibility (Prisoners) Bill presented to both Houses on 22 November 2012 (Cm 8499).

Motion agreed, and a message was sent to the Commons.

Disabled Persons’ Parking Badges Bill

Third Reading

3.21 pm

Bill passed.

Public Service Pensions Bill

Public Service Pensions Bil10th Report from the Delegated Powers Committee

Committee (2nd Day)

3.22 pm

Relevant document: 10th Report from the Delegated Powers Committee

Clause 5 : Pension Board

Amendment 43

Moved by Lord Newby

43: Clause 5, page 3, line 39, leave out subsection (7)

Lord Newby: My Lords, this group of amendments is concerned with the recommendation of the noble Lord, Lord Hutton, that each public service pension scheme should have an advisory group.

The Deputy Chairman of Committees (Baroness Anelay of St Johns): My Lords, we are joined seamlessly at the hip—my noble friend Lord Forsyth will be pleased. On this occasion, I hope that noble Lords will feel it right to leave the Chamber quietly so that the aficionados of the pensions Bill can continue with their work.

Lord Newby: My Lords, as I was saying, this group of amendments is concerned with the recommendation of the noble Lord, Lord Hutton, that each public service pension scheme should have an advisory group. Although these have always been dealt with administratively, we have listened to concerns raised in another place and proposals from stakeholders. As a result, we have decided to make these groups plain on the face of the Bill.

Amendment 45 introduces a new clause to require scheme regulations to establish a scheme advisory board. The central purpose of the scheme advisory board will be to consider and advise on the desirability of future changes to the schemes. The board will advise the responsible authority on any matter that it asks the board to consider, whether wide-ranging or focused on a single issue. The board’s role will supplement,

15 Jan 2013 : Column 597

rather than replace, the role of other persons and bodies in responding to consultations under Clauses 11, 19 or 20.

The scheme advisory boards may play an additional role in the locally administered police, fire and local government schemes. In those schemes, the board may also advise the scheme managers and pension boards when such advice is requested or on their own initiative. Subsection (2) provides that the board can advise them on the effective and efficient administration of the scheme, any connected scheme and any pension fund that relates to them.

This amendment is in light of proposals that employer and employee representatives have put forward in respect of the local government scheme in England and Wales. While the precise role will be a matter for scheme regulations, we envisage that the locally administered schemes will want to provide for the advisory board to offer central support to scheme managers. That advice is likely to cover matters such as best practice and ensuring consistent approaches to the management of the schemes.

The advisory board will identify policy and operational issues that need to be resolved, either by better practices at a local authority level or perhaps through changes to scheme regulations or guidance. In turn, the advisory board will be able to advise the relevant parties on how changes should be made to improve the management and administration of the schemes and their pension funds. For example, there will almost certainly be an advisory board role to agree and advise on the interpretation of the legislative requirements—potentially around co-commissioning of expert advice and systems—and the co-ordination and co-commissioning of services. It is likely that, for the funded local government scheme, it will monitor fund performance across the pension funds. The employer and employee representatives in that scheme envisage a role to support scheme managers and pension boards to improve fund management across the scheme. These amendments allow for that.

The scheme advisory board will not have a separate role in advising the scheme managers and pension boards in the nationally administered schemes. That is not needed in those schemes. Unlike the locally administered schemes, the scheme manager and responsible authority will be the same person. Importantly, the amendments maintain a clear separation between the advisory board’s policy role and the scheme manager and pension boards’ responsibilities for the management, administration and governance of the scheme. The noble Lord, Lord Hutton, highlighted the importance of this separation of roles in his report.

Finally, the amendment requires that scheme advisory board members must not have a conflict of interest that could prejudice the way they undertake their role. This does not prevent a scheme member, or an employer or employee representative, being a board member. Those are not interests that would prejudice the way they undertake the role—indeed, they are instead interests that support such an undertaking. I commend these amendments to the Committee.

Baroness Donaghy: My Lords, I want to speak to Amendment 45. The Local Government Association and the relevant unions welcome this amendment as

15 Jan 2013 : Column 598

it ensures an effective separation of responsibilities for boards at local level and at national level, as was required. While it is a positive step, a concern for the LGA and the unions is the scope of the role of the board as contained in the amendment, particularly the nature of the advice which the scheme advisory board can offer. The current wording of Amendment 45 restricts this advice to that of desired changes to the scheme. The LGA and unions believe that the introduction of a scheme advisory board offers the potential for advice, not only on scheme changes but also other areas including scheme governance, technical advice and cost management. Will the Minister comment on this?

Lord Hutton of Furness: My Lords, I briefly add to the welcome that my noble friend has given to this amendment. I am very pleased the Government have brought forward this amendment; as the Minister has said, it is in line with my report and its recommendations and so I welcome it unreservedly.

I have one question that the Minister may be able to answer; I hope he will forgive me for being a little technical. I have noticed there is a different definition of conflict of interest in his new clause to that in Clause 5. The definition in Amendment 45 does not include any membership of a connected scheme; is that a deliberate change in the definition or does he have further thoughts about the matter?

3.30 pm

Lord Newby: My Lords, on the noble Baroness’s question about the broader scope for the local authority scheme, I direct her to subsection (2) of Amendment 45, which states:

“Where the scheme manager of a scheme mentioned in subsection (1) is a local authority or a committee of such an authority, the regulations may also provide for the board to provide advice (on request or otherwise) to the scheme manager or the scheme’s pension board in relation to the effective and efficient administration and management of … the scheme”.

That goes beyond simply the scheme content. It relates to the way that the scheme is run as well. There is already a much broader role in respect of the local authority scheme than for the nationally administered schemes.

I hope that the noble Lord, Lord Hutton, will not mind if I write to him to answer his question.

Amendment 43 agreed.

Amendment 44 not moved.

Clause 5, as amended, agreed.

Clause 6 agreed.

Amendment 45

Moved by Lord Newby

45: After Clause 6, insert the following new Clause—

“Scheme advisory board

(1) Scheme regulations for a scheme under section 1 which is a defined benefits scheme must provide for the establishment of a

15 Jan 2013 : Column 599

board with responsibility for providing advice to the responsible authority, at the authority’s request, on the desirability of changes to the scheme.

(2) Where the scheme manager of a scheme mentioned in subsection (1) is a local authority or a committee of such an authority, the regulations may also provide for the board to provide advice (on request or otherwise) to the scheme manager or the scheme’s pension board in relation to the effective and efficient administration and management of—

(a) the scheme and any statutory pension scheme that is connected with it, or

(b) any pension fund of the scheme and any connected scheme.

(3) A person to whom advice is given by virtue of subsection (1) or (2) must have regard to the advice.

(4) The regulations must include provision—

(a) requiring the responsible authority—

(i) to be satisfied that a person to be appointed as a member of the board does not have a conflict of interest, and

(ii) to be satisfied from time to time that none of the members of the board has a conflict of interest;

(b) requiring a member of the board, or a person proposed to be appointed as a member of the board, to provide the responsible authority with such information as the authority reasonably requires for the purposes of provision under paragraph (a).

(5) In subsection (4)(a) “conflict of interest”, in relation to a person, means a financial or other interest which is likely to prejudice the person’s exercise of functions as a member of the board (but does not include a financial or other interest arising merely by virtue of membership of the scheme).

(6) In this Act, a board established under this section is called a “scheme advisory board”.”

Amendment 45 agreed.

Amendment 46

Moved by Lord Eatwell

46: After Clause 6, insert the following new Clause—

“Pension policy groups

(1) The Treasury shall make directions providing for the establishment of a pension policy group for each scheme established under section 1.

(2) The pension policy groups will consider and advise on proposals to make significant changes to scheme regulations.

(3) Treasury directions under subsection (1) shall establish a single pension policy group relating to all schemes for local government workers.”

Lord Eatwell: My Lords, this also refers to administrative matters concerning particular pension schemes. The amendment would implement my noble friend Lord Hutton’s recommendation that pension policy groups should be established for each scheme at national level. To quote my noble friend’s report, he said that,

“even if all schemes have a pension board in future, there will still be a need for separate pension policy groups to consider at national level major changes to scheme rules”.

Many schemes already have such groups or bodies at national level, such as the National Health Service and Civil Service pension scheme governance groups, the teachers’ pensions committee, the Police Negotiating Board, the Firefighters’ Pension Committee and so

15 Jan 2013 : Column 600

forth. Part of the role of these groups would, as my noble friend recommended, be to ensure that information about key proposals for change and related costs are publicly available. It is very important to maintain confidence in these proposals to ensure good relations with scheme members and the smooth implementation of any changes.

My noble friend’s report also notes that these existing bodies were often established as part of the consultation and negotiation machinery for handling pensions as an element of a remuneration package, and have member and employer representation as appropriate. The appropriateness of member representation would, we hope, be taken into account if this amendment is accepted and pension groups established.

When this issue was considered in another place, the Minister replied to my honourable friend Mr Chris Leslie, who put forward a similar amendment. Mr Sajid Javid said:

“We will give further consideration as to whether it would be necessary or appropriate for the Bill to provide for a scheme-level group for the local government scheme in England and Wales”.—[Official Report, Commons, Public Service Pensions Bill Committee, 22/11/12; col. 453.]

It was on the basis of that commitment by the Minister in the other place that my honourable friend withdrew his amendment.

I would like to hear from the Minister this afternoon the nature of the consideration given by the Government, which the Minister in another place committed the Government to, and why they have not brought forward their own amendment to place the position of pension policy groups in the Bill. After all, if the advisory measures that we have just passed are administrative measures and are in the Bill, these are also essentially administrative measures, as Mr Javid pointed out, and surely they should be in the Bill as well. I beg to move.

Lord Whitty: I fully support the amendment put down by the Front Bench. However, with regard to the arrangements for the Local Government Pension Scheme, would it not have been better if the Government had set out in one place the totality of the arrangements that were intended for the local government scheme, rather than attempt yet again to generalise the provisions to cover most of the public sector schemes? It is probably too late for the Government to do that; in which case, I hope that they will support my noble friend’s amendment.

Lord Newby: My Lords, I am genuinely confused. In our view, Amendment 45 establishes pension policy groups. I do not know what the noble Lord’s Amendment 46 will do that our Amendment 45 does not. What is the function of his groups that goes beyond the functions of our scheme advisory board? In tabling this amendment, we thought that we had done exactly what my colleague in another place suggested, which was to take it away and bring forward proposals that did what the noble Lord wanted. My view was that our amendment not only does what the noble Lord wants but goes rather further, in providing for the scheme advisory board to advise the responsible authority on any proposed change in the scheme regulations, not just significant changes.

15 Jan 2013 : Column 601

Lord Eatwell: Perhaps I might respond to the point that the noble Lord has just made. I think that he is being a bit obtuse. Amendment 45 refers to an advisory board to be established for each scheme; it does not refer to general national boards, which would cover a range of schemes that may be within a particular area of concern. This is a different animal. If he thinks that it is the same, it would have been enormously helpful if he had made it clear when he introduced the amendment, which he failed to do.

As I read this, the scheme advisory board refers only to defined benefits schemes. We know that there a small number of defined contribution schemes. Why are they left out? Amendment 45 also states that:

“Scheme regulations … must provide for the establishment of a board”,

which suggests a board related to each scheme, not the overall national bodies referred to in Amendment 46.

Lord Newby: Perhaps I may quote the noble Lord’s Amendment 46:

“The Treasury shall make directions providing for the establishment of a pension policy group for each scheme”.

That is what Amendment 45 says. What is the difference?

Lord Eatwell: Perhaps we are arguing over the definition, but it seems to me that the whole issue of the policy boards was that they were national boards. If we look at the actual boards that have been established, they are national boards, which have a national overview. If that is what was meant by Amendment 45, I am very happy. However, it would have been enormously helpful if the Minister had said so when introducing his amendment.

Lord Newby: I apologise to the noble Lord. There is no doubt in my mind that when government Amendment 45 says:

“Scheme regulations … must provide for the establishment of a board”,

for each scheme, that is the same definition of “scheme” as in Amendment 46. I am sorry if I did not make that clear to the noble Lord. I made in error the assumption that it was relatively straightforward.

Amendment 46 withdrawn.

Clause 7 : Types of scheme

Amendment 47

Moved by Lord Eatwell

47: Clause 7, page 4, line 25, at end insert—

“(3A) A scheme under section 1 which replaces a defined benefit scheme may only be established as a defined benefits scheme.”

Lord Eatwell: My Lords, we come now to a series of amendments that have a common theme. We are all aware that the nature of the new structures defined in the Bill will involve a significant change in the terms and conditions of employees in the public sector and,

15 Jan 2013 : Column 602

to be frank, in many cases a deterioration of those terms and conditions. The Bill is the outcome both of the careful consideration made by my noble friend in his report and of the negotiations between the Government, the Local Government Association, the trade unions and so on, which reached a deal. What is extraordinary about the series of clauses we are about to consider is that one side of the deal has been put in the Bill—that is, the Government side—while the positions gained by the trade unions in the negotiations have been left out. Instead, those are supposed to be covered by the Government’s declaration that they have no intention of changing things. The Minister at the Dispatch Box can say quite happily that everything will be all right, even though this is a Bill which is intended to last for 25 years and no Administration can bind their successors.

Amendment 47 is characteristic of the problem to which I have just referred. The Government promised to provide public sector workers with defined benefit pension schemes in the form of career average pensions. That was the position put in place so skilfully by my noble friend. The striking thing is that the Bill does not honour that commitment because in Clause 7 it provides that schemes created under the Bill can be defined benefit, defined contribution or,

“a scheme of any other description”.

The only restriction on the type of scheme is that it cannot be a final salary scheme, and that of course was the important gain made by the Government in the deal. Where is the gain for the other side? This greatly undermines the security and confidence that public sector workers can have in their pension provision as they will know that this Bill allows the Government to renege on their promise to replace final salary schemes with career average defined benefit schemes. This amendment merely puts the Government’s promise on a statutory footing.

Noble Lords may think that I am exaggerating the concern that workers may feel about the possibility of the Government reneging on their side of the deal, but let me refer to the speech made by the noble Lord, Lord Newby, at Second Reading where he says that,

“although the Government have absolutely no intention to change the basis of the schemes, it makes sense for a piece of legislation which we hope has a long life itself to allow flexibility in the future if there are unforeseen changes”.—[

Official Report

, 19/12/12; col. 1585.]

It does not make sense to create a structure in the Bill that could result in a reneging by one significant side of the deal which has been made on people’s pensions for the next 25 years. If, at some future stage because of changes in economic circumstances, pressures on the public purse or whatever it might be, it became necessary to rethink the position established by my noble friend in his report and say, “I am afraid that because of changes in the world, we cannot even maintain career average defined benefit schemes”, it is not appropriate that the removal of career average defined benefit schemes could be done just on the nod.

It is surely important that if that were to happen the Government of the day should come back to Parliament and say that circumstances have changed and that they have to make another major change to public

15 Jan 2013 : Column 603

service pensions. When a Minister stands up and says that they have no intention of doing so, the immediate thought is that they are going to do it. As the Government have received the agreement of all parties to the change in the structure of defined benefit schemes, they should keep their part of the deal and have in the Bill that the removal of a defined benefit scheme will result in its replacement by a newly designed one. I beg to move.

3.45 pm

Lord Newby: My Lords, this issue has been debated in another place on a number of occasions. There is a technical problem with the amendment over the concept of “replacing schemes”, which is pretty difficult to express in law. The key thing here is not the drafting but the principle that is raised by the amendment.

I am pleased to be able to add my assurances to those of the Chief Secretary and the Economic Secretary in another place. The Government have no—zero—intention of replacing the defined benefit schemes that have been negotiated with different scheme designs. Officials and members’ representatives have worked very hard to ensure that these reforms are sustainable. I am confident that they will last for a generation. The Government would not have invested so much time and energy in developing and legislating for the mechanisms in the Bill if we were intending to do anything other than retain defined benefit schemes. It is not the case that these mechanisms could be amended on the nod. If any future Government wanted to move away from the current defined benefit system, they would have to go through the procedures in Clause 20.

However, that is not really the point. As I have made clear, there is no possibility of this Government wanting to replace the defined benefit schemes that we have worked so hard to develop. We therefore feel that this amendment is unnecessary and I hope that the noble Lord, Lord Eatwell, will withdraw it.

Lord Eatwell: My Lords, that is extraordinary. The noble Lord, Lord Newby, has simply reinforced the argument that I made. We are expected to accept assertions about intentions in the future and that that is to be enough to cover this particular circumstance. I accept that there may be difficult technical issues in drafting but that is not the point, as the Minister himself said.

The point is that those members who have given up their final salary defined benefit schemes, and reached a deal that agrees to the Government implementing career average defined benefit schemes, should have confidence in the Government keeping their part of the deal. It should not just be the Minister standing here and this Government but Governments stretching over the next couple of decades doing this. That confidence would rest in the commitment to maintaining a defined benefit structure.

What I hear from the Minister is an unwillingness to do that. All he will do is say, “I will give assurances”. How can he give an assurance for someone standing at that Dispatch Box, whoever it may be, in 10 years’ time? He cannot, so the point of this amendment, ill drafted though it may be, is to ensure that any Government

15 Jan 2013 : Column 604

of the day changing the status of pension schemes for so many of the public servants who make our lives worth while and secure would have to come back to Parliament with primary legislation to change the nature of the scheme. I did not hear any commitment on the part of the Government to do any such thing and to include such security in their pension provision for those who serve us so well. I shall look at the drafting, but we shall certainly return to this on Report. I beg leave to withdraw the amendment.

Amendment 47 withdrawn.

Clause 7 agreed.

Clause 8 : Revaluation

Amendment 48

Moved by Lord Whitty

48: Clause 8, page 5, line 5, at end insert—

“( ) Where the change is negative, the order shall specify a zero increase.”

Lord Whitty: My Lords, I beg to move Amendment 48 and I support Amendments 49 and 50, which are in this group.

I appreciate that the Minister is a bit pained about this, but the need for this amendment is exactly the area to which my noble friend has just referred. There is distrust out there. In respect of this amendment, the distrust was blown out of all proportion by the sudden decision to replace RPI with CPI. I know that for those who run schemes it is quite a useful change as it has put funding on an easier basis, but for millions of pensioners it has reduced their pension expectations and caused considerable distress. What I am addressing here is the continued anxiety that the Government may once again change the terms on which it is based.

This amendment relates to the agreement to which my noble friend referred within the local government scheme between the local government unions and the LGA, which the DCLG and, by implication, the Treasury greatly welcomed. At the moment, the provision in this amendment is the understanding carried forward from the previous scheme in that agreement, which is not reflected in the Bill. Without the amendment, Clause 8 appears to allow the Treasury to change the revaluation again, more generally, from the CPI to another index that may in future be created by the Treasury. That would significantly alter the scheme costs and funding and the likely benefits for pensioners and future pensioners. The scheme design proposal in the agreement between the LGA and the trade unions clearly specifies that the revaluation of pensions shall use the CPI. In setting this revaluation, careful consideration was also given to the value of the accrual rate to be used and to the overall scheme design. In other words, it was a balanced package. The overall cost of the scheme contained that balance and should it change again, clearly those arrangements fall.

These designs were put forward to the employers and were agreed with the unions. There was a vote of union members and a whip around local government employers and, in the circumstances, there was

15 Jan 2013 : Column 605

overwhelming support for that agreement. The apparent ability, if we do not adopt this clause, of the Treasury to introduce changes in those arrangements and, in specific terms, to impose a decrease, in certain circumstances, in the accrued pension without consultation or agreement with those affected would seriously undermine the basis of that agreement. One of the benefits—undeserved, in one sense—of the Government’s approach to public service pensions in general was that it forced local government employers and unions to work out what they wanted for the long term. They have done so, and the Government endorsed that agreement. Part of that agreement is that there should be no such reduction and no change away from the CPI. Without provisions similar to those which my noble friend has moved and which are also included in very specific terms in this amendment, the issue of distrust will continue.

This is a relatively simple amendment, but I suspect from the puzzled look on the Minister’s face that he did not even think that the Bill, as it stood, would have allowed a negative adjustment, but it does; while the agreement between the unions and the LGA does not. I therefore hope, for clarification and for some reduction in the degree of distrust out there, that the Minister will be prepared to accept this amendment. I beg to move.

Lord Eatwell: My Lords, my noble friend Lord Whitty has reinforced the issue that I raised in the discussion of the previous amendment. The Government seem to be content to make a deal and then put only their gains in the Bill and cover everything else by declaration of intent. Revaluation is absolutely central to the maintenance particularly of a career averaging scheme. A career averaging scheme requires a structure of revaluation whereby past earnings are revalued to take account of inflation, and earnings related to earlier years of pensionable service will be subject to revaluation year on year—over a very considerable timeframe now that we are looking at a career average as opposed to a final salary scheme, where revaluation is a rather simpler process.

As it stands, the Bill makes this extraordinary statement with respect to revaluation:

“For the purposes of making such an order the Treasury may determine the change in prices or earnings in any period by reference to the general level of prices or earnings estimated in such manner as the Treasury consider appropriate”.

In other words: any way they like. It does not refer particularly to RPI or CPI; it can just be any way they think appropriate.

The amendment tabled in my name and that of my noble and learned friend Lord Davidson would simply require the Treasury to act reasonably in determining the system of revaluation or the particular index structure that it identifies. This imports into the Bill the objective test of acting fairly. If the Treasury plans to be unreasonable and unfair, I would be grateful if the Minister would tell us. It seems to me that the very least we can ask is that the Government—not just this Government but future Administrations—should act reasonably in their selection of a particular index or revaluation scheme. That is the purpose of Amendment 49, which is grouped with the amendment moved by my noble friend Lord Whitty.

15 Jan 2013 : Column 606

Amendment 50 is, if you like, a belt-and-braces amendment. If the Minister were to accept that the Treasury will act reasonably, we would be quite happy to withdraw this amendment. If there is an arbitrary and unreasonable change in the methods of revaluation, the House has to approve such a change by an affirmative resolution. That is the sort of belt and braces standing behind this notion of reasonableness. However, if the Minister is content to say that the Treasury will act reasonably—which also imports, I am advised, the notion of acting fairly—we will be content to withdraw Amendment 50, which is there in case the Treasury is going to be unreasonable and unfair.

4 pm

Baroness Donaghy: My Lords, I support this group of amendments. Lest my noble friend Lord Whitty and I are accused of running or producing the local government show, I want to deal with the Civil Service pension scheme in relation to this subject. According to the First Division Association, the current wording of the Bill does not reflect the discussions with the unions on revaluation, and seeks to extend the Treasury’s control far beyond that which is necessary and prudent. In the light of the FDA and others v the Secretary of State for Work and Pensions and others in 2012, there is no need for this clause to be in primary legislation, as it is better suited to the scheme regulations that will lay down the parameters for each distinct scheme. There is no similar clause setting out the terms of the indexation of pensions in payment, even though that element is consistent across all schemes.

Fundamental to the agreement reached with the Civil Service was the understanding that, as with indexation of pensions in payment, revaluation would never be negative. If the relevant index was negative, as has been the case in recent history, the figure of zero is used and there are no increases or decreases applied. This is vital to the confidence of pension saving. Just as pensions in payment should not fall from one year to the next, a principle held by successive Governments, so pensions being accrued should not similarly be reduced. That reflects existing practice.

The FDA was not informed at any stage that the Government intended to deviate from that approach in the new scheme, and to do so now would be a fundamental challenge to the agreement. The continued inclusion in the Bill of a provision allowing negative revaluation to occur could have a profound effect on member behaviour, and specifically opt-outs. Scheme members are likely to react to an announcement that their whole pension is to be revalued downwards as a result of a negative figure for the consumer prices index in September; their response is likely to be one of mass opt-out. This is a hugely counterproductive approach for the Treasury to take on the pretext of share and risk, and the cost of management mechanisms already accounts for inflation—yet the Treasury wants additional cost to be accepted by members through this provision, which puts participation at risk.

Lord Newby: My Lords, the amendment proposed by the noble Lord, Lord Whitty, raises the important question about how negative growth should be treated in these new schemes. For the revaluation of active

15 Jan 2013 : Column 607

members’ accruals each year the Treasury will lay an order which will establish the changes in earnings or prices. Scheme regulations will then use these changes when applying the revaluation mechanism that they decided on in their proposed final scheme designs. This approach mimics the current arrangements for the indexation of public service pensions in payment; it allows for the agreed scheme-specific variations, but also ensures that the underlying growth measures are transparent and consistent.

As the noble Lords have pointed out, this approach allows for the growth measure to be negative. I am not looking bemused because I did not realise that that was the case; we have never sought to hide that fact. Before explaining the rationale behind this, I should point out that brief periods of negative growth are unlikely to impact significantly upon the total value of any pension, in much the same way that brief periods of unusually high growth would not. After all, pensions are built up over a long period. I should remind the Committee that negative growth is exceptionally rare. It is not the case that in recent times the preferred index has been negative; the CPI has never been negative. The Committee should also be aware that this clause impacts only on those scheme members who are in employment, building up their pensions. It does not impact at all on pensions in payment.

However rare negative growth might be, if scheme members can benefit from the upside risk of revaluation—which they will, since there are no plans to cap revaluation rates—it would be unfair, in our view, for them to be shielded from any potential downside risk. Furthermore, by imposing a revaluation floor, scheme costs would rise and could lead to a breach of the cost cap set out in Clause 11. This is because previous scheme valuations based on standard, long-term growth assumptions would have essentially underestimated the cost of future accruals. If this were the case, it would be likely to lead to an increase in members’ contributions or a reduction in the scheme accrual rate. This would be unfair to anybody reaching pension age when positive growth returns. Their benefits would have been reduced to pay for those people who benefited from the revaluation floor.

It is only right that public servants receive their defined benefit pensions so that they can plan properly for their retirement. However, there is no logic in going beyond this by protecting their accruing benefits from any brief periods of deflation before their pensions come into payment. I believe the approach of directly tracking growth—with no caps or floors—is the fairest way forward. As I have said before, the noble Lord, Lord Hutton, described the idea of an indexation floor as an “asymmetric sharing of risk”. We agree. It is fair to say that the Local Government Pension Scheme does not specify, as the noble Lord, Lord Whitty, implied, that there will be no decrease possible within the scheme rules. My understanding is that it says that the basis of revaluation would be CPI.

Another point was raised about legislating for the measure. I am now coming on to the amendment of the noble Lord, Lord Eatwell, about whether we should legislate for a specific measure and whether the Treasury is being given too much discretion. It has obviously

15 Jan 2013 : Column 608

been the case within the last generation that the basis of measuring prices has changed: it has changed from the RPI to the CPI. Our expectation is that the CPI would continue for a very long time, but these things sometimes change and we therefore believe that the best way of dealing with it is in primary legislation. Incidentally, I am not implying that if the measure changed, the pensions would change. It would simply be that the scheme rules would have to reflect any new measure that came into general use.

Moving on to Amendment 49, it is worth re-emphasising that the annual revaluation will set out the general changes determined by the Government’s preferred measure, which is CPI at the present time. As I said, it is necessary to give a limited amount of discretion to the Treasury to determine the measures, but we do not believe that this is going to be a likely or common thing. It is apparent from the wording of the clause that the estimates of changes must be made in a reasonable and appropriate manner. Any attempt to exercise this discretion in such a way that did not produce accurate and appropriate estimates, with reference to a reasonable index of prices or earnings, could be challenged by scheme members. Any decision which is not reasonable—even without this amendment—could be challenged by judicial review and struck down by the High Court, so we do not believe that this amendment would change the position or provide any additional protection to members.

Lord Eatwell: I have listened very carefully to what the Minister had to say. Of course, my amendment does not in any way restrict any necessary flexibility in the future in adjusting the manner in which revaluation takes place. However, it would—if I may use the term—sensitise the Treasury when making decisions of this sort to be aware that it is required to act in a reasonable and fair manner.

At the moment, the expression in the Bill provides the Treasury with such a carte blanche—

“estimated in such manner as the Treasury consider appropriate”—

that not even the words “reasonably” or “fairly” appear in the Bill. All we were trying to do was to avoid any rounds of judicial review over these matters and instead to ensure that when Treasury officials look at the calculation of an index—whether they are moving to geometric means or whatever they are doing—they consider very carefully whether this would be deemed reasonable in the public domain. The Minister himself has used the expression “reasonable and fair” in referring to what the Treasury will do, so surely this amendment has either no effect or a positive effect. We may disagree about whether it has no effect or a positive effect, but it does no harm and reinforces what the Minister has said. Surely, he would regard that as a good thing.

Lord Newby: My Lords, this question of putting “reasonable” into the Bill came up in a number of contexts on the Financial Services Bill. It would be perfectly possible to spatter this Bill, that Bill and every Bill with “reasonable”. The view that we took then, and which I take now, is that, of course, the Treasury always operates in a fair and reasonable way, but because it already has a broad legal obligation to do so it is simply unnecessary to put it into the Bill.

15 Jan 2013 : Column 609

Lord Whitty: My Lords, I thank the Minister for that. I am very glad that he is not bemused. Regrettably, his certainty and clarity in at least part of what he said does very little to assuage anxiety about the possible undermining of this scheme. Indeed, he has just said that the CPI is the preferred index at present. We have had the CPI for only 10 minutes. That reminds me of one partner in a long-standing relationship referring to the other as “my current boyfriend”. The Minister’s comments raise alarm, anxiety and uncertainty to an even greater extent than I presumed would be the case when we started this debate. I do not think that the noble Lord has answered that question.

On the question of whether past practice in the local government scheme has had a special provision for having a floor or negative valuation, certainly there has been no negative downward movement. When the new agreement was reached, the presumption was that that would not be the case in this measure either. Whether I need a clause on the front page of primary legislation is arguable. Nevertheless, it would have been helpful to seek an assurance that that understanding between the employers and the trade unions would stand. However, I will read the rest of what the noble Lord says. Meanwhile, I beg leave to withdraw the amendment.

Amendment 48 withdrawn.

Amendments 49 and 50 not moved.

Clause 8 agreed.

Amendment 51

Moved by Lord Whitty

51: After Clause 8, insert the following new Clause—

“Basis of valuation

(1) Within six months of the passing of this Act, the Government shall establish a review body to assess the appropriateness of current methods of valuation of a pension scheme’s liabilities and assets, and, if appropriate, to recommend changes that provide a broader base of valuation.

(2) The review body shall report within 18 months of the passing of this Act.”

Lord Whitty: My Lords, unfortunately, I have lost my notes at this point. I would describe this amendment as a probing amendment but it is actually more of a kite-flyer. It raises a very basic issue about how pensions are valued.

At the moment, certainly in relation to the local government scheme and probably others, a pension scheme has to be revalued every three years, which is a fairly substantial exercise based on all sorts of actuarial presumptions working out the value of the current assets, the value of future flows into and out of the scheme, and making an estimation of the future liabilities of the scheme. Those future liabilities can stretch over 80 years or so for future pensioners and, depending on the nature of the scheme, their dependants. Given that, it is important that it is properly reflected in the way in which that evaluation is carried out.

15 Jan 2013 : Column 610

4.15 pm

This amendment suggests that we should look again at the basis for that evaluation. The reason for that is very specific and relates to the valuation of long-term future liabilities. Because of the need to provide absolute, copper-bottomed certainty in the wake of the Maxwell crisis, the actuarial profession got around to finding the safest possible way of discounting future liabilities. It ended up using the current rate on gilts, which is now the norm for all public sector schemes and most private ones.

Noble Lords will know that, in the wake of the financial crisis, the current yield on gilts is close to zero. That has a serious effect on the way in which schemes are seen, particularly by commentators outside the pensions area. The pensions press and financial press delight in looking at particular schemes and rating them in terms of what is often, but erroneously, called the solvency ratio. They rate a scheme in terms of whether it is 120% funded, in which case we can all relax, or it is 60% funded, in which case we all get the jitters, or it is somewhere in between.

The use of those ratios also gets turned into something else. Commentators on a scheme look at the difference between the discounted future liabilities and the current assets and describe it as a gap. Sometimes the gap is very large and causes significant alarm, not only to the trustees of the scheme but to the employers, who look at it and think that a major increase in their contributions will be required fairly soon, and to the beneficiaries and potential beneficiaries, who say, “This scheme looks very dodgy, I might as well withdraw my money”. In that sense, it is a misleading interpretation of the situation. Unfortunately, as a result of the alarm caused by this, some private sector schemes have closed or closed to future entrants or seriously curtailed benefits, and this largely explains the reduction in the number of large private sector schemes. In reality, in any normal sense of the word solvency, income is unlikely to be exceeded by outgoings for at least the next 20 years in most of these schemes; any company viewed in those terms would be said to be solvent.

I am arguing not just about the way in which we rerate liabilities but about all the bases on which we value schemes. This point was made in the debate on the Queen’s Speech by the noble Lord, Lord MacGregor of Pulham Market. He blamed it all on quantitative easing and, in a sense, he was right. He claimed that the two tranches of quantitative easing effectively knocked £300 million or so—at a stroke—off the value of private and public pension schemes. Actually, nothing had gone wrong with those schemes: the liabilities had not increased, the potential beneficiaries were not going to live any longer and the investment strategies of the schemes’ trustees were not actually performing any worse than they previously were, although other factors might have reduced the value of the assets at the same time. Actually, the notional way in which they discounted had hugely increased the liabilities and had therefore made the scheme appear unviable.

Lord Flight: I thank the noble Lord for giving way. Perhaps I might suggest that the real cause of the trouble is the IFRS accounting standards that require

15 Jan 2013 : Column 611

companies to disclose pension liabilities discounted at government gilt yields. That, in turn, has made companies pay contributions to cover the resulting alleged deficits. As the noble Lord points out, that has led companies to close their final salary schemes and to the false rate of interest resulting from QE. However, the real problem has been the uncritical acceptance by Governments of both persuasions of what I believe to be profoundly wrong IFRS accounting standards.

Lord Whitty: I thank the noble Lord for that intervention. I had not expected to agree with him this afternoon, particularly on subsequent amendments, but I agree with him on that issue. It is important to recognise that the acceptance of those accountancy standards is causing the problem. That is why the noble Lord, Lord MacGregor, in the speech to which I referred, suggested that the Bank of England, government actuaries and the accounting profession sat down and looked at those assumptions. Slightly more tangentially, the Treasury Select Committee in another place has also touched on this point.

I am suggesting that the Government take the initiative whereby, once the Bill is passed by this House in whatever form, they set up a review looking at whether the present conventions and the way in which these public service pensions are assessed are correct—although there is a wider application—and whether we are getting a seriously misleading impression that has a detrimental effect. As the noble Lord said, there has been a devastating effect on large numbers of private sector providers.

The amendment would have no effect on the rest of the Bill but would give the Government a lever to look at the issue again and provide for expert assessment, which, given that the newly formed schemes are not coming in until 2014, could come into place before the first revaluation of those schemes. I hope that the Government will take this matter seriously and have a look at it. I certainly hope that the House and anyone involved in looking at public and private pension schemes will recognise that this is a serious problem. I beg to move.

Lord Newby: My Lords, perhaps I might start by saying that the Government take the issue seriously, and it clearly is serious. However, I wish to set out the ways in which different public servants’ pension schemes are, and will be, valued when the Bill comes into effect.

As noble Lords are aware, the majority of the main public service schemes are unfunded. There is no pot of assets that can be valued; future benefit payments are paid out of general tax revenue. They need to be valued in a different way from funded schemes. It is important that these schemes are valued to ensure that contributions paid reflect the costs of employing staff. The Government therefore carry out valuations of unfunded pension schemes to determine the level of contributions. This is done using a number of assumptions and methodologies that adapt to changing circumstances and improvements in the method. These valuations will also be used to set the level of the employer cost cap. The assumptions used in these valuations take account of the risk profile faced by government in

15 Jan 2013 : Column 612

providing pension benefits. The valuations can therefore be different from those used by typical private sector funded schemes, where the primary purpose of valuations is to provide security to member benefits.

However, the Local Government Pension Scheme is in a different position. As has been discussed, it is a funded scheme, with benefits paid out of one of 89 different LGPS funds in England and Wales. These funds, as we have discussed many times in our consideration of the Bill, are individually managed. Valuations of the funds perform a similar function to those in unfunded schemes by assessing whether fund assets will be sufficient to meet liabilities and setting the contribution rates to be paid into the funds. This valuation process is managed at the local level and is dealt with in greater detail in Clause 12.

The amendment would place a statutory obligation on the Government to appoint a body to carry out a review of the way in which valuations are carried out in the public service schemes. This is unnecessary for either the funded or unfunded schemes. Under Clause 10, Treasury directions will set out the details of how valuations of unfunded schemes will be carried out. The Treasury will be obliged to consult the Government Actuary before these directions are made to ensure that they are fit for purpose. The Treasury has also committed to involving other stakeholders, such as public service employers, scheme actuaries and trade unions, when considering the approach to valuations.

Turning to the funded schemes, the Bill already provides for a greater level of scrutiny of LGPS fund valuations. Clause 12 specifies that employer contributions to these funds must be sufficient to ensure the solvency of the funds, which is an existing feature of the regulations. The clause also requires that contributions are set at a level that will ensure the long-term cost efficiency of the scheme. This is a new provision, which aims to prevent employers deferring the payment of any costs needed to meet the long-term liabilities. The clause will ensure that local fund managers take this approach. It requires an independent review of each fund’s valuation and the employer contribution rates that result from it. These reviews will result in a report covering all the LGPS funds, which will be made public.

The Government intend to publish a single report for the local government scheme in England and Wales. This will allow straightforward comparisons to be made across each of the 89 funds in the scheme. This new and enhanced level of scrutiny will provide a consistent basis for assessing the assets and liabilities of all LGPS funds, improving their transparency and management of these funds.

In addition, the scheme advisory board proposed by Amendment 45, which we have just debated, may also oversee and advise on the management of pension funds in the local government schemes. These boards will play a role in ensuring that the schemes—and individual LGPS funds—are well managed. As such, there will be an ongoing role for pension boards in the scrutiny of pension fund management and valuations.

Under the existing provisions in the Bill, there are a number of ways in which we can achieve what the noble Lord, Lord Whitty, seeks to achieve. I will go away and look again to make sure that I am not

15 Jan 2013 : Column 613

missing anything or whether we do need a belt and braces. I am not sure that we would do it in the way that the noble Lord suggests and I am not sure that we need to do it, but this is definitely a serious issue. The Government want to make sure that nothing in the Bill means that we cannot take that initiative if we decide to do so anyway. I will go away and look at it again. If I think there is anything further that I can usefully say, I will write to the noble Lord, but I am not absolutely guaranteeing the letter.

Lord Whitty: My Lords, I am very grateful to the Minister. I am glad that the Government see this as a serious issue and I am grateful to him for setting out what will be the procedure and structure of valuation in the future, specifically for the LGPS and more generally. I should have said at the beginning that my comments were primarily related to funded schemes, but of course post-2014 will bring a lot of the other public service schemes closer to being fully funded schemes—not quite in most cases. This means that the ratio between liabilities and assets and their correct valuation will be an important issue for all funded defined benefits schemes.

My amendment was intended to allow the Government at some future stage to look at the way in which these schemes would in future be assessed. I do not disagree with the mechanism but, as the noble Lord, Lord Flight, says, some of the presumptions and the passive acceptance of the accounting conventions could mean that the schemes looked seriously underfunded when in practice they were not. There may be other problems with the conventions and it would be wise for the Government to undertake this review whether or not it is seen as part of this Bill. I think it is something that the Government need to deal with.

I am grateful to the Minister for indicating that he is prepared to look at this again, and I think that in some contexts the Government will need to do so. Meanwhile, I beg leave to withdraw the amendment.

Amendment 51 withdrawn.

4.30 pm

Clause 9 : Pension age

Amendment 52

Moved by Lord Eatwell

52: Clause 9, page 5, line 18, after “age” insert “or deferred pension age”

Lord Eatwell: My Lords, this group of amendments deals with various issues associated with pension age and the way it is adjusted relative to movements in the state pension age.

First, perhaps I may speak to Amendments 52, 55 and 57. These are minor amendments tabled to address what we see as a drafting anomaly. If it is not an anomaly, it would be very helpful if the Minister could explain why. The exemptions outlined in Clause 9(2) refer only to a person’s normal pension age, not to their deferred pension age. We believe that this means

15 Jan 2013 : Column 614

that the exemptions will apply only to active members of pension schemes and not to those who have moved on from their occupation and are classified as deferred members. In another place when this point was raised, time ran out, as it tends to there, and the Minister did not address this question at all.

I now turn to much more substantial amendments. Amendment 56 would insert a caveat with respect to changes in pension age. It says that such changes would not apply to members of a public service pension scheme who would be exempted from the operation of subsection (1) as a result of a scheme-specific capability review—in other words, those who do not come just within the broad categories of the fire and rescue services, a police force or the Armed Forces. There would be a scheme-specific review looking at the necessary capabilities of workers within a particular scheme. After all, some public sector workers not covered by the broad categories in Clause 9(2) have physically demanding jobs and it would not be appropriate to increase their pension age in line with the planned increases in the state pension age. For example, we could refer to mental health nurses, who occasionally have to physically restrain patients, and paramedics might also be considered.

However, what is really important with respect to the examples I have just given is that capability reviews are already under way. In fact, the Department of Health is undertaking the working longer review in relation to the NHS. This will make recommendations about the appropriateness of certain NHS staff working beyond the age of 65. However, the Bill does not exempt any NHS staff from the state pension age link; nor does it make any provision for the findings of a review—including the working longer review, which is now under way—to be taken into account, even though the review has not yet published its conclusions. Therefore, effectively the Bill makes this aspect of that review redundant, and the people working on it might as well just pack up and go home because the Bill effectively excludes any recommendation that they might make with respect to changes in the pension age of specific workers in the NHS. Amendment 56 would insert a caveat into Clause 9 so that a change in pension age would not apply to members of public service pension schemes who should be exempted from the operation of subsection (1) as a result of a scheme-specific capability review.

In another place the Government rejected this review on the basis that the amendment would create confusion and uncertainty. Why it would do that when you have specific capability reviews I am at a loss to understand. Secondly, the reason that certain professions are excluded is not just because of physicality but because they perform a specific public function. Again, that could clearly be undertaken and expressed in the terms of reference of a capability review, wherever that might take place. In this case the Government really have to think very carefully again. They set up the working longer review. They recognise that, in some specific cases not covered by the generality of Clause 9(2), there are cases where the link to state pension age should not be made and yet the Bill does not provide the means of incorporating the results of appropriate reviews.

15 Jan 2013 : Column 615

I shall now speak to Amendment 59 which is also in this group. This refers to a recommendation made by my noble friend Lord Hutton in his review that the link between the state pension age and the normal or deferred pension age should be kept under review and should be reviewed regularly. The report recommends:

“The Government should increase the member’s Normal Pension Age … in most schemes so that it is in line with their State Pension Age”.

That, after all, is one of the key themes of this Bill. Then the report says,

“However, the link between the SPA and NPA should be regularly reviewed to make sure it is still appropriate, with a preference for keeping the two pension ages linked”.

Therefore, it should be reviewed in the light of circumstances. This Bill is implementing one half of my noble friend’s recommendation and leaving out the other half for a regular review.

A regular and independent review into the state pension age link would help to ensure that public service schemes remain sustainable if life expectancy is rising or whatever happens to it. One of the great mysteries of academic life is that one would expect demographers always to be incredibly accurate because they have such a range of data. They know how many people have been born in a particular year and they should be able to look forward to what will happen. However, one learns that demography is a very inexact science and demographers make—and admit that they do—a lot of mistakes and their circumstances change. After all, their profession would die if they did not have new things to worry about as the world changes. We need the possibility of a regular review of the link with the state pension age so we can ensure that members are being treated fairly and that the funding of the schemes, where they are funded, and the provision for non-funded schemes fit within the framework of the Government’s finances.

In another place the Government recognised the recommendation of the noble Lord, Lord Hutton, and said they expected reviews to be undertaken as and when future changes to the state pension age are announced—so they expect it to happen. However, it was not necessary to put it in the Bill as the Government will in due course make announcements about the review process, which is not desirable as it would restrict flexibility. How does it restrict flexibility? This is one of those blanket excuses, like “it is unnecessary”. It does not restrict flexibility at all; it just says, as the Government have conceded, that it would be desirable to have a review whenever the normal pension age is changed.

I have a particular question for the Minister in this respect. Suppose there is a review and it finds that the link is not working and something has gone wrong. What would happen then? Without having the review on the face of the Bill, it seems to me that the Government would have to return with primary legislation. Therefore, we are increasing the flexibility of the Bill by removing that threat to the flexibility of the operation of the Bill as a whole. I beg to move.

Lord Kennedy of Southwark: My Lords, I speak to Amendment 53, which is in my name. When the noble Lord responds to this group, I hope that he will be able

15 Jan 2013 : Column 616

to give the Committee some assurances in respect of the Government’s understanding of the special situation that firefighters find themselves in. They put their lives at risk on a regular basis to help and to protect members of the public and their property. I also hope that the noble Lord will confirm that he accepts and understands fully that maintaining high levels of fitness is crucial for firefighters and that there is evidence that, as we get older, cardio-respiratory fitness declines over the whole population. Therefore, asking firefighters to work until they are 60 in these front-line roles is not sensible and not safe for firefighters or the public.

I would like the noble Lord to comment on the review that has been undertaken by Dr Williams and his committee on the normal pension age for firefighters. The committee and Dr Williams were appointed by the previous Fire Minister, Mr Bob Neill, the Member for Bromley and Chislehurst in the other place. Let us be clear that the Department for Communities and Local Government’s document Firefighters’ Pension Scheme: Heads of Agreement in 2012 includes a requirement for the national pension age to be subject to regular review, informed by research carried out by the firefighters’ pension committee. I think that the Bill, coming at this time and relating to firefighters, has pre-empted the review, and that seems odd to me.

These decisions are really important and should be informed by evidence-based research, so I want to understand how the Government will use the research that they commissioned to inform the decisions that they make and the proposals that they will bring before Parliament.

4.45 pm

Baroness Donaghy: My Lords, I shall speak to Amendment 54. At Second Reading I referred to ambulance service staff. I am hoping for the inclusion of ambulance service staff in the protected uniform services section of the pension regulations. I propose that the Bill should refer to ambulance service staff providing 999 responder services as opposed to referring to particular occupational groups such as paramedics, as there is a large number of non-registered ambulance staff who provide 999 responder services and registered paramedics who fulfil administration and managerial roles.

It is well documented that the main cause of ill-health retirement in the ambulance service is muscular-skeletal injuries and mental and behavioural disorders. These occupational hazards are not limited to staff working in paramedic grades and above but can be experienced by all staff providing 999 responder services. In addition, as a cost-saving measure, many ambulance services have created new support roles for 999 staff. Although the level of clinical intervention is different from that of a registered paramedic, their exposure to hazards and highly distressing circumstances remains the same. You have only to walk through the town centre of practically anywhere in the UK on a Saturday night to know that. They should be exempt from working longer.

The current NHS job evaluation scheme recognises these occupational hazards in job profiling for ambulance service staff. All ambulance grades that provide 999 responder services receive the same job evaluation

15 Jan 2013 : Column 617

level on the factors that contribute most to ill-health retirement. For example, an ambulance practitioner at the bottom of the


genda for



band 4 and an advanced ambulance practitioner on the top of band 6 score the same job evaluation level on physical effort, emotional effort and working conditions despite there being a difference of 19 pay points between these two jobs. The factors that heighten the risk of ill-health retirement remain the same.

In 2008, NHS Pension Scheme research indicated that the average retirement age in the NHS was 63, while in the ambulance service it is estimated that only one in 100 front-line staff reach normal retirement age. Staff working in the ambulance services are four to six times more likely to retire on the grounds of ill health compared with the rest of the NHS. A UNISON freedom of information request has shown that between 2008 and 2011 the average age of ambulance staff retiring on the grounds of ill health was 52. Muscular-skeletal injuries and mental and behavioural disorders—for example, post-traumatic stress disorder—represent more than 50% of the reasons for ill-health retirement. For that reason I believe that ambulance service staff providing 999 responder services should be included in these regulations.

Lord Sharkey: My Lords, I rise to speak in support of Amendment 56. I also have great sympathy for Amendment 54 in the name of the noble Baroness, Lady Donaghy. As the noble Baroness has so eloquently said, the working conditions and physical requirements of ambulance service staff who are 999 responders are very similar to those of the other exempt categories. However, the problem may be that there are quite a few other occupations whose members feel there is an equally strong case for inclusion within the exempt categories. Some of these occupations were discussed when this issue was debated in the Commons. I have heard Northern Ireland prison warders and staff in secure psychiatric institutions mentioned in this context and I know there are other claimants, too.

It is obviously very difficult to make judgments about which groups, if any, should be included alongside the uniform groups recommended by the noble Lord, Lord Hutton. I am not at all certain that it would be appropriate to add one particular category to those groups without considering, in detail, the claims of the other groups. That is not to say that there are no other groups that should be exempted from the standard state retirement age. In fact, I am personally convinced of the case put forward for ambulance service staff who are 999 responders. I think a sensible approach to this is contained in the amendment of the noble Lord, Lord Eatwell, to which he has spoken so forcefully. It is surely sensible to give the Secretary of State the power by order to include other occupations in the exempt groups if he thinks the case has been objectively made and thoroughly examined by a scheme-specific capability review.

A very similar, or perhaps even identical, clause to that of the noble Lord, Lord Eatwell, was put forward by Chris Leslie in the Commons. I have read Hansard carefully and the Government’s response did not seem entirely convincing. I am glad that our different rules of procedure in this House will enable the case for

15 Jan 2013 : Column 618

Amendment 56 to be put once more and I am glad that the Minister will have the opportunity to reply in full. I hope that when he does reply he will find himself in sympathy with Amendment 56.

Baroness Wall of New Barnet: My Lords, I, too, would like to support in particular Amendment 53 and to some degree Amendment 54, especially with regard to the front-line staff in the ambulance service. I am sure the Minister is aware that in the private sector the task of the job and the onerous nature of that task is always directly related to age regarding how pensions are dealt with. Very often there is mood music around that says the public sector wants to be treated differently from elsewhere. As I know from my work with ICI, there were always certain jobs that were absolutely prescriptive in the task of the job and the risk of the job being associated with the age of individuals. We are really asking for that responsibility to be taken by employers in that context.

Lord Newby: My Lords, although these amendments all have a common theme, they are quite specific, so I will start with Amendments 52, 55 and 57. It is important to note that the link between the normal pension age and state pension age in most schemes is not the only provision in the Bill which is designed to manage the longevity risk. The link between the deferred pension age and state pension age in all schemes is just as important. This link is universal, with no exceptions. It therefore applies to former members of the police, firefighters and Armed Forces schemes with deferred pensions in those schemes.

There are two reasons why the Government have not extended the exemption from the state pension age link for these workforces to apply to the deferred as well as their normal pension ages. First, it would not be fair to other former public servants whose deferred benefits would not be payable until state pension age. We have been clear that exceptions to normal pension age have been made for police officers, firefighters, and members of the Armed Forces because of the unique nature of the work they do, which we value very much. Once police, firefighters and Armed Forces personnel leave their jobs and no longer carry out those unique duties, there is, in our view, no justification for them to be able to take their deferred benefits earlier than anyone else.

Secondly, there would be cost implications. As we are all aware, increases in—

Lord Eatwell: Perhaps I may deal with that first point about leaving the scheme. I accept that in the case of somebody becoming a police officer at the age of 20 or 21 and leaving at 25 the noble Lord has a good case. But let us suppose that the police officer leaves at the age of 55. Is the case the same? Here is someone who has worked in a physically onerous profession for all that time—34 years, let us say. He has moved to another job because an opportunity has come up but he has performed that physically onerous task for a considerable time, which will have had an effect on his overall well-being. Would it not therefore

15 Jan 2013 : Column 619

be reasonable in that case for the deferred pension age to be the same as for those who stay on for just a few years more?

Lord Newby: My Lords, the noble Lord gives an example. I was literally just about to give another example. I will come back to his example. My example concerns a former police officer who leaves service aged 35 to work as an office-based local government worker for the rest of their career. It is by no means an unusual or impossible example. Should their police pension still be available, unreduced, at 60? That is the question, particularly when a local government colleague sitting at a nearby desk must wait until the state pension age to take his or her full pension. Surely the answer can only be no. The strength of that argument is greatest if someone left the police after a year aged 22 and is weakest if they left it aged 59. I agree with that. The argument is not exactly the same at every age.

However, in looking at this, the noble Lord, Lord Hutton, recommended that we should go to the provision that we have indeed gone to, which is that all deferred pensions are payable in full from the state pension age. If we were to move towards what the noble Lord suggests, we would have an extremely complicated position where there were grades of deferment, if you like. We wanted first of all to have a relatively simple approach. We have followed the recommendations of the noble Lord, Lord Hutton, and we think that we have come up with a sensible, practical solution. We understand the argument, but we have deliberatively taken the view that deferred pension age should be the same as normal pension age.

On Amendment 53 in the name of the noble Lord, Lord Kennedy, the noble Lord was asking about the position of firefighters and the Williams review, and where we had got to with that. The starting point, as we know, is that firefighters continue to have their normal pension age at 60, as set out in the new Firefighters’ Pension Scheme in 2006. The Williams review of the normal pension age recognised that, as long as firefighters maintain their physical activity levels and adopt a healthy lifestyle, there is no reason why they cannot maintain operational fitness levels until the age of 60. The report does not call for a change in the normal pension age. However, as the report recommends, firefighters who wish to retire early will continue to be able to do so from 55, with an actuarial adjustment to their pensions. There were other detailed recommendations within the Williams review and the Government are still considering them.

Lord Kennedy of Southwark: I thank the noble Lord. I will not press him further on this. He is right: the review has just come out and we are in the middle of debating the Bill. However, would the Minister agree to meet with representatives of the Fire Brigades Union and me between now and Report? The Williams report raises a number of issues that have a direct bearing on this, and further discussion is important.

Lord Newby: My Lords, I am always willing to meet the noble Lord. However, I will do so on the basis that we are not reopening the whole of the scheme. The

15 Jan 2013 : Column 620

Williams review has made it clear that there is no reason why the retirement age should not be 60. That, certainly, is not up for discussion. If there are other issues around it we can discuss those, although my initial view is that it is highly unlikely that anything else he is discussing would require amendments to primary legislation, although it may require amendments to the scheme rules. On that basis, I am very happy to have a meeting.

The next amendment in this group is Amendment 54, tabled by the noble Baroness, Lady Donaghy. It looks at further exemptions from the state pension link. We have set the current exemptions in line with historical precedent and the Hutton review. There are no other groups that are currently recognised in such a way through their normal pension age provisions as the three set out in the Bill. In fact, as a result of the previous Administration’s reforms, new employees in all other groups of public servants already have a normal pension age of 65. This includes ambulance service staff under the most recent changes to the NHS scheme, which were agreed to by unions.

As we are all aware, this Bill seeks to rationalise provisions across the public services, not to add further diversity. We are trying to move away from the general inconsistencies in the current schemes, which lead only to unfairness for subsections of particular workforces. That is not to say that we do not recognise the physical nature of the work that is carried out by groups such as ambulance service staff, or the risks attached to that work. The schemes introduced under Clause 1 have been developed very carefully with this in mind. They follow extensive discussions with members, trade unions and other member representatives to ensure that they best meet the needs of all members of each scheme. This includes ambulance service staff in the development of the NHS scheme. It would be wrong to reopen those negotiations—not least because, as my noble friend Lord Sharkey alluded to, there are many groups with degrees of stress in their job that are greater than those in others. We could spend a vast amount of time assessing afresh all those groups. Over the years that work has been done and it has led to the schemes we have now. It was also looked at again by Hutton. I am therefore extremely unwilling to start a long process of looking at a raft of groups when they have been considered before. I understand only too well the stresses and strains faced by 999 responders, but other groups face stresses and strains as well. As I say, we have decided that the three groups which are already exempt from the normal retirement age provisions are the only ones that we believe are in a distinctly different category from any others.

Amendment 56 also relates to this issue, but the difference from this amendment is that it would allow any group to be exempted from the state pension age link should a capability review recommend it. Presumably that would mean that the pension ages for these groups would be set out in secondary legislation. I have just explained why I do not agree with the spirit of the amendment. The link was a key feature of the Hutton report and was a cornerstone of the constructive discussions we held with unions and member representatives over the course of 18 months. The outcome of those discussions was the proposed final

15 Jan 2013 : Column 621

scheme designs, including the universal retirement age link which the Bill honours in full. We have no plans to reopen those designs, although we have made it clear that we will review the link to the state pension age as and when future changes to the state pension age are announced. The DWP White Paper published yesterday says that we intend to hold a review every five years, so the link will be reviewed when a review is announced.

The Bill as it stands takes a sensible future-proof approach to review the provisions when it is most appropriate to do so; that is, when there are other pension age changes that affect public servants. Naturally, those reviews will take into account any evidence submitted by interested parties—

Lord Eatwell: I understand what the noble Lord is saying, but can he tell us what the status of the working longer review in the NHS is?

5 pm

Lord Newby: The noble Lord has an uncanny ability to ask me a question as I am getting to the relevant paragraph. I was about to say that the capability reviews are not reviewing the pension age link. They are considering the implications of working longer in the light of increased longevity and looking at how people are deployed as they move towards retirement. There is no question of these capability reviews reaching the conclusion that people should retire earlier as a block; rather they say, “If there are professions which have a significant physical component, how can we make sure that, as people move towards retirement age, the proportion of their work which has a significant physical element is reduced?”. A simplistic approach is to say, “Why can we not have firemen doing desk jobs from the age of 55?”. It is not as simple as that because there are not enough of those jobs, but that is the basic thought process we are going through in the reviews.

This is a challenge not just for public sector workers, but for the whole of society. People are living longer and the pension age is going up. Some people who are doing physical work will not be able to maintain the same degree of intensity at the age of 67 as they could at 47 or 27. As a society, how do we deal with this? What sort of mechanisms can we put in place to enable people to work towards a later retirement age in a way that avoids their facing undue stress?

To take an extreme example that does not cover the public services, I have a number of lawyer friends in their early 60s. Traditionally, solicitors in big firms would be forced out at that age because they were not earning as much as they did when they were 40. A very welcome development is that partners, with the encouragement of their firms, are thinking about what they can do that does not necessarily mean that they are expected to generate the profits and income that they did 20 years before, and in this way they can keep their expertise. That is at a different level from the public sector but it is still entirely welcome. The working longer reviews, about which we are talking here, look at exactly that kind of thing for people in the public sector. It is not about pension age but about how to ensure that we manage people who, as they move into their 60s, may not be able to work at the same intensity as they did when younger.

15 Jan 2013 : Column 622

Finally, I turn to Amendment 59 regarding the reviews of the pension age provisions in the Bill. The Government have made a clear commitment to undertake these as and when future changes to the state pension age are announced. These reviews will look at, among other things, whether the provisions remain appropriate in light of scheme members’ longevity. This will ensure a consistent cross-government approach to all pension age policy and follows the recommendation by the noble Lord, Lord Hutton, that the provisions should be kept under review.

The state pension age review process that I have mentioned should mean that the core principle of this amendment, to ensure the public service pension age provisions continue to track appropriately changes in members’ longevity, will happen automatically. The work on state pension age reviews is still in its early stages. Yesterday the DWP published a White Paper that proposed a review every five years. We are still at a consultation stage and it may be that we move on from that but I do not know.

It would be premature at this point to seek to lock down the details of the reviews for public service pension ages. The state pension age reviews will obviously apply to more than just the pensions established in the Bill. It is therefore important that the Bill does not restrict the flexibility to design those reviews. Even though the reviews are not in the Bill, this does not restrict the powers to change the pension age provisions. Changes to state pension age will require primary legislation, so any consequent changes to this Bill could be made in at the same time.

Furthermore, it would be misleading to put reviews in the Bill and give the impression that these provisions may be continually changed when that is not the intention. The Government believe that we have appropriate provisions at the moment and we do not plan to change them. It is important that these are made clear to members so that they can plan for their retirement. I therefore urge the noble Lord to withdraw the amendment.

Lord Eatwell: My Lords, I note the comments in general of the noble Lord, Lord Newby, and I am grateful for the support of the noble Lord, Lord Sharkey, for Amendment 56 in particular. This strengthens the position of those administering public service pensions by incorporating the notion of a specific capability review and therefore providing a standardised mechanism across the various sectors in public service. These could be utilised both to include groups in the exemption and, indeed, to confirm that groups should not be included in it.

The examples given by the Minister, of changes in working practices among his lawyer friends, indicate just the sort of thing that a capability review would take into consideration. It is regrettable that he has dismissed this in rather a cavalier manner, by just saying that it would make the thing too complicated. People’s lives are complicated. People lead very different lives, and we need a degree of flexibility to take account of those differences that they encounter. Simply having a one-size-fits-all approach to the public services, which is the case in the Bill—with the exception, of course, of the uniformed services, which we discussed

15 Jan 2013 : Column 623

earlier—does not seem to future-proof the Bill, a factor that the Government are so continuously concerned with. What will happen is that some real anomaly will appear; it will become a scandal and suddenly a matter of major press interest. You can just imagine the sort of the thing: for example, some elderly ambulance worker being unable to assist a prominent celebrity in distress. You can imagine how the tabloids would go for that. Or it could be a much more serious scandal. Being able to perform capability reviews would provide a degree of flexibility, which is exactly what future-proofing this sort of legislation really means.

The Government are being a bit blinkered over this. They are standing on the podium of simplicity, but simplicity does not always make for true effectiveness. However, I am sure that the noble Lord, Lord Sharkey, and I will return to this on Report. I beg leave to withdraw the amendment.

Amendment 52 withdrawn.

Amendments 53 to 57 not moved.

Amendment 58

Moved by Lord Eatwell

58: Clause 9, page 5, line 38, at end insert—

“(4A) A person’s normal or deferred pension age under a scheme under section 1 will not change by operation of this section unless 10 years’ or more notice of the change has been given.”

Lord Eatwell: This is another amendment dealing with the issue of retirement age, but here it is a question of giving notice of a change in retirement age. The essence of this is that if people are aware a significant time in advance that their retirement age is going to change, then they have the opportunity of making provision for that change. If it is only a few years before the date at which they retire, it is much more difficult for them to change their circumstances or their arrangements in the light of the changed pension age.

This amendment is necessary because the Bill links the normal or deferred pension age in public service pension schemes to the state pension age and the state pension age can be changed in law with no protection for those approaching retirement. The Government have recently imposed changes to the state pension age when they gave women in their 50s only six years’ notice of an increase. I think that was excessively short. That meant that women in those circumstances had a relatively short time to make adjustments in their circumstances appropriate to the new change in the pension age that they face.

This amendment would ensure that if the Government were again to act in this arbitrary manner with respect to an increase in the state pension age it would not have a similar rapid knock-on effect for public service pensions. When the noble Lord, Lord Turner, carried out a review of state pensions for the previous Government, he recommended that a 15-year notice period be given before changing the state pension age, and the Pensions Policy Institute, which also looked at this with some care, recommended a 10-year period. During the Second Reading debate in another place, a Conservative Member, Mr Richard Graham, the Member for Gloucester, said:

15 Jan 2013 : Column 624

“The Bill also protects everybody who is within 10 years of retirement, which is very important for so many of our constituents who are in their 40s and early 50s”.—[Official Report, Commons, 29/10/12; col. 114.]

Unfortunately, this Conservative Member had actually got it wrong because there is no such protection in the Bill for those within 10 years of retirement. Given that he was a Conservative Member, perhaps he had had some whispers from the Front Bench that there was an intention to include such a provision and this was left out by an oversight. So now we are giving the Government the opportunity to rescue their omission. Providing that the Government are not planning to increase pension ages with less than 10 years’ notice, they surely can have no objection to this amendment.

5.15 pm

Once again looking at its consideration in another place, the Minister in the Commons said that it was correct to consider changes that will impact people’s lives, and therefore there should be appropriate transitional protections. For example, members who were within 10 years of their normal pension age on 1 April 2012 will see no change, so that is a transitional arrangement where the number of 10 years has been incorporated. Unfortunately, the Minister was not willing to take into account the need to give people adequate time to adjust to changing circumstances by making this a general condition. Possibly that was a mistake, perhaps a slip or omission, which the Government can now take the opportunity to correct with this amendment. I beg to move.

Lord Newby: My Lords, we agree with the underlying concept of this amendment that the pension age for those close to it should not change without sufficient notice. When normal and deferred pension ages change, there must be consideration of how such changes will impact on all those who are most affected. However, I hope I have made it clear that a key pillar of the Bill is the clear link that it will provide between the normal pension age and the state pension age. The DWP’s White Paper on state pension reform, published yesterday, sets out that future changes to the state pension age will be subject to a 10-year notice period. It therefore follows that the normal pension age changes will be subject to the same minimum notice period while the link remains in place. Therefore, from the noble Lord’s point of view, fortunately this amendment is unnecessary.

Lord Eatwell: I think that the Minister is right.

Amendment 58 withdrawn.

Amendment 59 not moved.

Amendment 60

Moved by Lord Newby

60: Clause 9, page 6, line 9, leave out from “1995” to end of line 13

Amendment 60 agreed.

Clause 9, as amended, agreed.

15 Jan 2013 : Column 625

Amendment 61

Moved by Lord Eatwell

61: After Clause 9, insert the following new Clause—

“Fair Deal

A member of a public service pension scheme is entitled to remain an active member of that scheme following—

(a) the compulsory transfer of his contract of employment to an independent contractor; and

(b) any subsequent compulsory transfer of his contract of employment.”

Lord Eatwell: My Lords, this is part of the deal that was made between the Government, the local authorities and the trade unions in putting together the agreement that was reached following the report by my noble friend Lord Hutton. It is a part on which the Government seem to be reneging. I really think that this is very important. This so-called fair deal amendment will ensure that a member of a public service pension scheme who is compulsorily transferred from his contract of employment to an independent contractor will be entitled to remain an active member of that scheme; and, indeed, if there is any subsequent compulsory transfer of his contract of employment, he could still remain a member of that scheme. This was a key part of the agreement reached with public sector employees and their representatives—this notion of a fair deal for outsourced workers. It would ensure that all public service workers compulsorily transferred would stay as active members.

As I say, the Chief Secretary to the Treasury confirmed the Government’s commitment to the new fair deal in July, in a Written Statement. He said:

“I can … confirm that the Government have reviewed the fair deal policy and agreed to maintain the overall approach, but deliver this by offering access to public service pension schemes for transferring staff. When implemented, this means that all staff whose employment is compulsorily transferred from the public service under TUPE, including subsequent TUPE transfers, to independent providers of public services will retain membership of their current employer’s pension arrangements.”.—[Official Report, Commons, 4/7/12; col. 54WS.]

Where is that promise on the face of the Bill? This is a promise that the Chief Secretary to the Treasury made, but it now seems to have evaporated. Where has it gone? As it stands, the Bill is very one-sided in how it reflects the negotiated agreement. The Government are happy to include the size of the agreement which suits them—for example, the requirement that no schemes are final salary schemes—but are not forthcoming with their corresponding promises made to public sector workers.

The Minister has repeatedly said that the Government’s word is adequate for protection of workers, and that government promises do not need to be enshrined in legislation. But if we take what the Chief Secretary to the Treasury said, surely the public would be rather bemused that that promise was made in terms and it has now evaporated. It is not there—where is it on the face of the Bill?

One issue to which we have continuously referred is that of the future-proofing of the Bill. Future-proofing does not mean not sticking to a deal or not making coherent commitments; it means having a degree of

15 Jan 2013 : Column 626

flexibility over major changes in circumstances discussed and agreed by the parties to the agreement. It does not mean just leaving part of the agreement out, as seems to be the case here.

Given the Statement from the Chief Secretary to the Treasury, I feel that this amendment could have been moved by him, and indeed I move it on his behalf.

Baroness Donaghy: My Lords, I support my noble friend Lord Eatwell on this important amendment. This was a key part of the national agreement between employers’ unions and the Government. In the local government scheme, which is a funded scheme, employers choosing to withdraw from that scheme could leave substantial costs relating to future fund income to be paid by the council tax payer. Information is already coming in that some higher and further education employers, and recently an academy school, are seeking to find ways in which to get around their obligations to provide the local government pension scheme for support staff. We should bear it in mind that those jobs are often low paid and part time. We should also remind ourselves that having an occupational pension will make sure that those people are self-sufficient when they retire and do not become dependent on the state. So it is in all our interest that these schemes are upheld.

The news that we are hearing is that shared services companies are being created, or that people are attempting to create them, as a way of getting round the obligations that they entered into by allowing their staff to remain in the local government pension scheme. I remind the Minister that, as I am sure he is aware, a big drift away by employers could undermine all the schemes.

Lord Newby: I thank the noble Lord for moving this amendment on behalf of my colleague, the Chief Secretary. I am sure he will be very pleased when I tell him that he did so. The Government are completely committed to the fair deal policy and to its reform. Commitments have been made, both in this House and in the other place, to ensure that members of the schemes who are compulsorily transferred to independent contractors can retain membership of those schemes.

The noble Lord asked about the provisions in the Bill that are relevant to achieve this. Clause 26 will extend access to the existing civil service pension scheme to allow those members who are compulsorily transferred out to stay in the scheme. Clause 22 will allow scheme regulations to make provisions for pensions for other employees who would not otherwise be members of the scheme. The policy will be delivered via the contracts made with independent providers. This will ensure that members of the schemes will be entitled to accrue future benefits through the scheme after the first tender and any subsequent retendering.

There are specific reasons why the proposed amendment cannot be accepted. The Government are currently considering when and how the new fair deal policy will be implemented. We are also consulting on how the new fair deal should be applied to those who have already been transferred out of the public sector under the old arrangements. It would be premature to put something on the statute book while this work is under way.

15 Jan 2013 : Column 627

The amendment also captures the Local Government Pension Scheme. We have been absolutely clear that the principles of the new fair deal policy should apply to the reformed Local Government Pension Scheme, but the policy has always operated differently in that scheme. The Department for Communities and Local Government will bring forward detailed proposals in due course; again, in our view it would be premature to legislate while this work is under way. However, if the noble Baroness, Lady Donaghy, has some specific instances which she can show us of how the current arrangements might be being subverted, we would obviously look at exactly what is going on and how we might deal with that. My guess is that the most effective way of doing it would not necessarily be via this amendment. Obviously, however, because we are committed to the principle, if that principle is being undermined, we would want to look at how that is happening and what we could do to stop it. With those comments, I hope the noble Lord would feel able to withdraw his amendment.

Lord Eatwell: My Lords, I looked carefully at Clauses 22 and 26 and they seem to be enabling clauses. They enable members who are compulsorily transferred to retain their membership of a public sector scheme, but they do not ensure that they will. That is the import of our Amendment 61. It seems to me that it was also the import of the Chief Secretary’s Statement. He said very clearly that following transfers, those members “will retain membership”. He did not say that they “may” or “could”, or that “facilities will be made available for them to”, but that they “will” retain membership. The Bill certainly does not make that provision.

The noble Lord also said that considerations are under way to find a means of implementing the Chief Secretary’s promise in an appropriate manner. I must say that it would have been a jolly good idea if that had been done before we got to this stage of the Bill, but people are busy and I understand that. Let us hope that this is resolved by Report, so that the Government can then bring forward the results of those considerations in the form of an appropriate amendment in order to keep their fair deal promise. They have made the promise, and we want to see that promise in the Bill—as, I presume, do they—in an appropriate form. If those considerations could be expedited over the next couple of weeks, we look forward to considering an appropriate fair deal amendment on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 61 withdrawn.

5.30 pm

Clause 10 : Valuations

Amendment 62

Moved by Baroness Donaghy

62: Clause 10, page 6, line 20, at end insert “and Treasury directions would not apply to individual Local Government Pension Scheme funds”

15 Jan 2013 : Column 628

Baroness Donaghy: My Lords, in moving Amendment 62, I wish to speak also to Amendment 65. Clause 10 sets the Treasury powers to dictate to the individual public service schemes how they are to conduct their valuations and the assumptions, data and methodology they should use. I seek to clarify two issues through amendment to the wording of this clause.

The first issue, contained in Amendment 62, is that the Local Government Pension Scheme in England and Wales consists of 89 funds. Each fund appoints its own actuary and agrees with that actuary the assumptions and methodology most appropriate to its specific fund. Funds vary significantly in their size, demographics and proportion of active contributing members to retirees and those who have left with deferred pensions. It would be unworkable for the Treasury simply to impose central assumptions on individual funds.

The Local Government Pension Scheme regulations already set out when funds have to undertake valuations, while control of fund valuations is set out in Clause 12. Therefore, I seek to amend Clause 10(2) to make clear that these valuations do not apply to the Local Government Pension Scheme, as the Government have already acknowledged. The Bill states:

“Such a valuation is to be carried out in accordance with Treasury directions”.

I want Amendment 62 to amend the subsection so that,

“Treasury directions would not apply to individual Local Government Pension … funds”.

The second issue, in Amendment 65, is that the assumptions, methodology and data used in scheme-wide valuations will determine the cost of the scheme. To ensure that the assumptions used in scheme valuations are robust and appropriate will require the input of scheme pension boards and scheme managers, which is why I seek to amend Clause 10(4). I beg to move.

Lord Eatwell: My Lords, my noble friend Lady Donaghy has identified a considerable problem with cost control as expressed in Clause 10—the valuations section of the cost control part of the Bill. My noble friend’s amendment is very direct and clear with respect to the Treasury directions that she would like to see. My Amendment 63 takes a somewhat more ameliorative and subdued approach to dealing with this problem. However, it would ensure that Treasury directions are tailored to each local government fund and would therefore be much more accurate, rather than the possibility of a single set of directions being expected to apply to 89 local government funds which have significantly different characteristics. After all, each local government fund has its own assets and investment strategy. Different employers are involved and, crucially, most of the funds have different demographics. This means that each valuation needs to take into account the individual characteristics of those funds.

Considerable concern has been expressed about Clause 10 by well informed persons who are much better informed than me. For example, Alison Hamilton, the chair of the local government committee of the Association of Consulting Actuaries, said:

“Clause 10 certainly gives me cause for concern. … It is very important that the valuation takes account of the local demographics, and the local investment of the assets backing those pension

15 Jan 2013 : Column 629

funds. I attended a meeting where the Bill team tried to give some sort of reassurance that the valuation would be carried out as a one-size-fits-all under Treasury directions. That was not intended for the local government pension scheme. I would like the Committee to explore that and get something drafted”.—[

Official Report

, Commons, Public Service Pensions Bill Committee, 6/11/12; col. 169.]

Similar concerns have been expressed by the National Association of Pension Funds. I will not repeat what it said as it echoes what was said by Ms Hamilton.

When faced with this argument in the other place, the Government acknowledged that there was merit in it and stated that the Treasury would,

“take into account the individual nuances and features of the various … schemes”,—[

Official Report

, Commons, Public Service Pensions Bill Committee, 13/11/12; col. 347.]

when setting directions. They felt that the clause already allows enough flexibility for directions to take account of the differences between schemes. However, our amendment simply states what the Government’s intention apparently is—that the Treasury directions should not be based on, or be rigidly bound by, but should take into account,

“the individual nature of each of the different funded schemes”.

That is in accord not only with what is obviously sensible practice, according to the views of experts, but with what Ministers claimed in another place was their intention.

Lord Whitty: My Lords, I strongly support Amendment 62 and the other amendments that have been spoken to. I have a simple amendment in this group—Amendment 64. Clause 10(4) states:

“Treasury directions … variations and revocations … may only be made after the Treasury has consulted the Government Actuary”.

My amendment probably reflects my general suspicion of the Treasury, which is deplorable, as the Minister is indicating. Nevertheless it is shared by many in the pensions industry and beyond. I would have thought that it should be agreed with the Government Actuary’s Department that the Treasury or that department should come to an accommodation on what the basis for the variations, revocations and directions should be.

I accepted the Government’s argument that in relation to other sorts of consultation—for example, consultation with stakeholders—regrettably, agreement, or certainly consensus, is not usually the outcome. However, as regards an issue relating to the basis of valuation between the Treasury and the Government’s own actuary, surely the Bill should state that those provisions are agreed rather than that the Treasury may act after what may be quite a superficial consultation with the GAD. I hope that that was the Government’s intention anyway but I wish to make the position clear through my amendment. I hope that the Government will agree to it.

Lord Newby: My Lords, the Bill makes provision for pension scheme valuations across all the public service schemes. These will be carried out in accordance with Treasury directions to ensure that valuations are carried out on a clear and consistent basis.

15 Jan 2013 : Column 630

Amendments 62 and 63 seek to clarify how Clause 10 will apply to the valuation of the individual funds in the local government pension scheme or to disapply the provisions of the clause to those valuations. The Government are well aware of the concerns referred to by the noble Lord, Lord Eatwell, and other noble Lords who have spoken, that this clause will be used by the Treasury to impose inappropriate valuation assumptions on individual LGPS funds. The amendments would ensure that this could not happen by removing these funds’ valuations from the scope of the clause or requiring the Treasury to take account of the nature of individual funds when making directions.

I hope that I can reassure noble Lords that these amendments are not necessary. First, the Government have no intention of making directions relating to the valuations of individual LGPS funds. This commitment has already been made in this House and in the policy paper published by the Treasury in November 2012, copies of which are in the Library. Secondly, Clause 10 needs to be read in the light of the Bill as a whole. It is clearly intended to deal with valuation at the scheme level, as can be seen from Clause 12, which makes provision for valuations at the level of individual pension funds. While that clause would provide for greater oversight of the local fund valuations, it will not mandate how they are to be carried out. Accordingly, we do not think that Amendment 63 is necessary.

In relation to the Local Government Pension Scheme, Clause 10 will be used only—I repeat, only—to set directions of how the model fund, an aggregation of the scheme costs at the national level, will be valued. We need to do that for the operation of the cost-control mechanism at a scheme level in LGPS but it will not directly affect the contributions paid into individual funds.

Turning to Amendment 64, Clause 10 already requires that the Government consult with the Government Actuary before making directions on scheme valuations. That amendment would add an additional requirement that the Government Actuary agrees the directions rather than just being consulted. The intention is to ensure that these directions form a sound basis for the scheme valuations and the Government, of course, support this aim. However, the Government cannot accept this amendment, as it does not achieve this aim and has unwelcome consequences.

The aim of the Government Actuary’s Department is to be,

“a highly valued principal provider of actuarial analysis and advice to all parts of the UK Government and other relevant UK and overseas public bodies”.

The highly valuable, actuarial advice that it provides is independent and professional and this aim would be compromised by the amendment. If this change were made, the Government Actuary’s decisions would inevitably influence the policy on valuations and he could come under pressure to determine elements of the directions themselves. This would fundamentally compromise his position as a truly independent adviser. This is not an outcome which anyone, including the Government Actuary, wants to see.

Amendment 65 highlights the importance of Treasury directions that will be made under Clause 10. These directions will set out the detail of how valuations of

15 Jan 2013 : Column 631

public service pension schemes should be carried out. Everybody has agreed that these valuations are of vital importance given their implications on both employer contributions and the employer cost cap. As such, all scheme stakeholders will need to be involved as the valuations are developed. However, the statutory consultation requirement that would be imposed by this amendment is unnecessary. I can reassure the Committee that we will seek to discuss these directions as they are developed. All stakeholders, including scheme managers, their actuaries, pension boards, and member representatives, will be given the opportunity to participate in this process.