Pensions Bill

My Lords, we fear that if we were to set up such a body it would rather act as a destabilising influence, compromising the successful implementation of our reforms and casting doubt on the valuable consensus we have built. With respect to the issues on public service pensions raised in both amendments, noble Lords should be aware that the Government are in the process of reforming these schemes to ensure their long-term affordability and sustainability. In order to inform this process, we have been closely monitoring the actual and projected costs of public service schemes on an ongoing basis. We have a number of mechanisms in place to ensure that this assessment remains open and transparent. For example, the Government have regularly published the latest estimate of the total unfunded liability, along with a detailed technical note explaining how this has changed during the preceding financial year, as well as detailing the assumptions underlying the estimate. Copies of the latest estimate and technical note are available in the Library of the House. Since 2004, the Government have also published an annual evaluation of the sustainability of projected expenditure on public service pensions in the long-term public finance report. The latest report and projections published by the Treasury in December 2006 demonstrate that annual cash payments are projected to remain completely affordable in the long term, rising gradually to 2 per cent of GDP in 50 years’ time. To ensure further transparency, the Government also publish the assumptions on which the long-term public finance report projections for public service pension expenditure are based, and these assumptions are available on the website of the Government Actuary’s Department. Finally, this Government ensure that individual public service pension schemes are themselves monitored on a regular basis through built-in mechanisms such as the annual Resource Accounts. If noble Lords have not had a chance to peruse them, I would recommend them as a very good read with lots of detailed information on the state of individual schemes. These reports are published on a regular basis and are prepared by professional actuaries based on long-term assumptions that are reviewed and updated in each valuation. Given that public service pensions are currently undergoing major scheme reforms, these schemes are entirely affordable and their cost to the taxpayer is rigorously monitored in an open and transparent fashion. I do not believe it is necessary to establish a commission to further review these issues or to undertake a further commitment to publish unfunded pension liabilities. Perhaps I may pick up on some of the more detailed points about public sector pensions. I agree with the view taken by my noble friend Lady Turner on this. The Government regard public service pensions as a key part of the remuneration package of public servants aimed at maintaining a high quality public sector workforce. We should share that aspiration. However, like other employers, the Government have to manage the increasing pension costs associated with rising longevity and therefore all major public service pension schemes have been under review since the pensions Green Paper of 2002 and, as a result of those reviews, reforms in these schemes are now well under way. They will fully ensure the long-term sustainability of the schemes. Of course it is right that these matters are kept under review. If issues relating to longevity change dramatically because of medical science or any other reason, it is appropriate for these issues to be revisited. Thus far, the following reforms have been achieved. In May 2006, the Teachers’ Pension Scheme reached agreement with the teaching unions on a set of reform proposals, and a new scheme has been operating since January 2007. Cost sharing with employees and capping of employer contribution rates form a part of the scheme’s regulatory framework. The NHS employers expect to implement new arrangements for the NHS Pension Scheme by 2008, and the Cabinet Office has announced that the new Civil Service scheme will be implemented at the end of this month. Reforms proposed in the NHS, Teachers’ and Civil Service pension schemes introduce mechanisms such as cost sharing, which will ensure that any future increases in costs will be shared fairly between employers and employees. In addition, cost capping mechanisms will ensure that there will be an upper limit on the costs to the taxpayer, should costs increase. Reform is also well under way or has been completed in the other public service schemes. The Local Government Pension Scheme announced a series of reforms in November last year, and new arrangements for that scheme are expected to be in place in 2008. New schemes for the Armed Forces, police officers and firefighters have already been introduced. Establishing an independent commission to report on the terms, benefits and affordability of public sector pension schemes will change the context of negotiations currently under way and, in doing so, could delay the benefits resulting from these reforms. Public service pension schemes are monitored on a regular basis through built-in mechanisms such as the Resource Accounts as well as scheme valuation reports. Alongside these reviews, the Government have, since 2004, as I have said, set out the financial sustainability of spending on public service pensions in the long-term public finance report. We are addressing public sector pension schemes. We have in place arrangements to review assumptions and to take stock of how these reforms will work and progress. We do not need a standing commission to do that. We do not need the proposals in Amendment No. 34 because the data requested there are routinely available to noble Lords.