Pensions Bill

My Lords, I thank the noble Baroness for this amendment. We had a preliminary discussion on this matter in Committee and I am happy to revisit it. I apologise in advance for repeating some of the information that I gave on that occasion, but that is because, unsurprisingly, the facts remain the same. This amendment seeks to impose an additional and explicit requirement on the Government Actuary. If accepted, it would shift much of the responsibility for recommending to Parliament the level of rebate rates for contracted-out salary-related schemes from the Secretary of State to the Government Actuary. I will begin with the rebate rates themselves and the decisions taken at the last rebate review. The timing of the review meant taking decisions ahead of the Government’s response to the Pensions Commission’s major proposals on the future of contracting out. The Government Actuary’s considerations, if accepted in full, would have resulted in a significant increase in the overall cost of rebates from April 2007. I can assure the House that we thought very carefully about whether this would have been the right thing to do. As part of that, we took into account existing fiscal circumstances, as was only right and proper. The rebate rates that we set for the previous quinquennium of 2002-07 represented a significant increase in rebates for all forms of contracting out—around an additional £10 billion over the quinquennium. However, over the same period there was no increase to contracting out in defined benefit schemes, or indeed to the numbers of people who were members of those schemes. While we accept, therefore, that the rebate is important to schemes, it is clear that it is only one of many factors affecting them. We do not agree with any assertions that the level of the rebate should be held responsible for scheme closure or employer insolvency. Indeed, ““a mini-raid”” was the phrase used, I think, which I reject, as I reject the continuing challenge on the so-called ACT raid. We have been over that many times and know the arguments. Taking all this into consideration when we were reviewing rebate rates in 2006, we decided that it would be sensible to adopt a cautious approach, which we estimated would broadly maintain the level of expenditure at that time. We have always said that we would keep the timing of the next review of rebate rates under consideration. The next five-year review of rebate rates is due in 2012 and, although we do not anticipate that the rebate rates from 2007 will have a significant impact on defined benefit pension provision, it remains an option to bring the next review forward if we think it appropriate. I point out that the Government still expect to spend around £50 billion in rebates over the next five years. That is a considerable amount. I now move on to the process by which the rebate rates are set; I hope that it will be helpful if I explain this briefly. Legislation ensures that the level of the rebate is reviewed and subjected to parliamentary scrutiny at least once every five years. The Secretary of State is required to lay before each House of Parliament a report that includes a statement about any changes that he considers are needed to the existing rebate rates. The report takes account of the accompanying Government Actuary’s report to Parliament. This amendment seeks to extend the statutory responsibilities of the Government Actuary and would bind Ministers to accept his recommendation. Currently, the Government Actuary’s statutory responsibility is to provide an independent report to Parliament on his assessment of the cost of providing benefits of an actuarial value equivalent to that of the state benefits forgone by those who are contracted out. This report is confined to actuarial matters, appropriate to the Government Actuary’s role. The Government Actuary’s report is prepared after full public consultation and due consideration of the responses to that consultation. As with all advice from civil servants, Ministers are obliged to give fair consideration and due weight to this informed and impartial report to Parliament. It is, however, for Ministers to take decisions on the level of the rebate, in the light of other relevant considerations and advice. That is rightly the case, given the expenditure involved. It would therefore be inappropriate to fetter ministerial decision-making by removing Ministers’ ability to determine the level of the rebate in light of the broader public policy context and having regard to the prevailing and anticipated fiscal situation.