I am going to make some progress, if I may.
The second and third tests of Lord Hutton were fairness to public servants and fairness to taxpayers. The Government have worked hard to ensure that the reformed pensions are fair and continue to provide a generous level of retirement income for public servants as a fair reward to a career spent serving the public. The Government made a commitment that these schemes
would be at least as generous at retirement for those on low and middle-income earnings. We have delivered that commitment in a number of ways.
First, clause 16 allows transitional protection to be provided for those who have already had a long career in public service and are approaching retirement. I said in November last year that the offer provided that those within 10 years of their normal pension age on 1 April this year would not see any changes to their pension, nor the date at which they can draw it. The Bill ensures that the current final salary schemes will remain open to people who are covered by the transitional protection criteria in those schemes. Most of the proposed final scheme designs include the transitional offer as we set it out; however, the local government scheme in England and Wales has chosen alternative arrangements as sought by their trade unions and employers.
Secondly, we have honoured our commitment to retain the final salary link for people who have already built up some service in final salary schemes, as the provisions in schedule 7 make clear. Although these people will move on to CARE schemes by 6 April 2015 at the latest, their accrued years of final salary benefits will be calculated and paid at their final retirement salary—not their 2015 salary.
Most importantly for low and middle-income earners, we are putting the fairness back into public service pensions. Clause 7 provides that the new default for public schemes will be based on career average earnings, rather than on final salary. Final salary schemes are unfair to the majority of the work force as they disproportionately reward those who progress to senior roles compared with the majority of staff who have more consistent career paths. These outmoded schemes provide lower effective benefit rates to the people that carry out the core front-line work in our public services—the nurses, police officers and our armed forces whose work is so valuable to everyone here.
Career average schemes are fairer to the members and to taxpayers alike. Under final salary schemes, it is the taxpayer that picks up the cost of those high flyers who attain high salaries by the time they leave public service. Such members can receive twice as much in benefits per £1 of contributions that they have paid towards their pension. This is clearly unfair, which is why this Bill will not allow final salary schemes to continue after 2015. For members, pension benefits will be based on the amount that they earn over their career. That means their pension benefits will directly reflect the contributions that they and their employer make over their career.
The Bill ensures that these pensions remain among the very best available—and rightly so, if we are to continue to be able to recruit and retain the right people to undertake these crucially important roles. A key objective of the reforms is to ensure a fair balance of risks between scheme members and the taxpayer. To achieve this, Lord Hutton recommended that the Government establish a mechanism to control the future costs of pensions.
Clauses 10 and 11 establish an employer cost cap in the public service schemes. This will provide backstop protection to the taxpayer to ensure that any unexpected risks associated with pension provision are shared between employers and scheme members. With foreseeable longevity risk controlled through the pension age link, this really
is a backstop, which under normal circumstances should not need to be used. Everyone in a public service pension scheme will see their pensions reformed along the same lines. I do not believe in special cases at a time when we are reforming the pension arrangements of those that provide essential services to the public.