I begin by wishing a somewhat belated bliadhna mhath ùr—happy new year—to you, Mr Deputy Speaker, and to colleagues. I include in that colleagues across the House who would have had something positive to contribute to tonight’s proceedings, or to the proceedings earlier in the day, but have been prevented from doing so because they are not able to travel to be here and for reasons that I will never understand are not allowed to participate without being physically present in this place.
The reason we have the Bill here today is that the court has ruled that the way that the Government have treated 3 million of our most valuable citizens is unfair, discriminatory and unlawful—a £17 billion mistake, as the right hon. Member for Wolverhampton South East (Mr McFadden) pointed out. We therefore have to approve either this Bill or something like it very soon. We cannot allow that illegality to continue. We will not oppose the Bill on Second Reading, although there are a number of areas where we have concerns, some of them echoing the concerns raised by the right hon. Gentleman. We may want to raise some of these matters in Committee in due course.
Before I go on to indicate some of the detailed concerns, I will set out some general principles. First, I entirely endorse the comments of the right hon. Member for Wolverhampton South East in that somebody who is giving valuable service anywhere in the public sector is absolutely entitled to a proper wage, to proper conditions of employment, and to a decent pension when they come to retire. This used to be quite a regular source of outrage for those on the Conservative Benches, egged on by their pals in the right-wing press—people like the Rothermeres and the Barclays who do not rely on a state pension, or any other kind of pension, all that much. They used to think it was outrageous that people who had worked a lifetime in the public sector were guaranteed a decent pension when they retired. It is not an outrage that somebody who gives 30 or 40 years of loyal service retires on a decent pension; it is an outrage that so many people who give 30 or 40 years of loyal service do not get to retire on a decent pension.
Although the Bill improves things following the mistake that was made, the Government have not even begun to look at possibly the single biggest weakness in a number
of big public sector public schemes, including the ones that we are talking about tonight—that is, that they are unfunded. That does not mean that there is no money for them, but it means, effectively, that somebody making a pension contribution today is paying not their own pension but the pensions of previous generations that have already retired. They are just hoping that when they come to retire a future generation of workers will be there putting into the pot to pay their pension, while the Government—the taxpayer—have to pick up any shortfall. It is almost like a legalised Ponzi scheme.
I would love to know what the thinking was when the schemes were set up. Why did anyone think that that was a good way to set up an employee pension scheme? It is intrinsically unstable, especially if the number of people employed and contributing to the scheme changes significantly over time, because a smaller number of people are trying to pay the pensions of a bigger number of retired colleagues—and clearly over the years most areas of the public sector have seen a reduction in employment. That is why we have the difficulty in affordability and sustainability that we are trying to address just now. To be honest, I do not envy whatever Government Minister it is who will eventually have to find a fair way of squaring that circle, but we cannot afford to keep ignoring it for ever.
Secondly, I believe in principle that for someone in a defined-benefits occupational pension scheme, a career-average scheme will be fairer than a final-salary scheme. It does not necessarily mean that it is cheaper. It does not necessarily mean that they have to contribute more. It does not necessarily mean that their pension has to be less. It would be quite possible to set up a scheme where the workers did not have to contribute any more and where most of them got the same pension or better than they already had. When I say that I agree with the principle that the Government have stated previously that a career-average model will tend to be fairer to a lot of workers than the current final-salary scheme, that does not mean that I want it to be used as an excuse to cut pensions, to force workers to contribute more of their wages to the pension scheme, or indeed to increase the pension age. We can move to a career-average scheme without having to do any of those things.
The third general point is critical. When somebody chooses to contribute to an employer’s pension scheme on the basis of promises that have been made by the employer, by the scheme administrator or by the Government, those promises must be honoured. Retrospectively moving the goalposts is not acceptable. It is not acceptable for public sector workers with regard to their employment pension, and it was not acceptable for the WASPI women. I know that that means that it takes much longer for any changes to pension schemes to have their full effect, but there is an important question of trust at stake. In October 2010, the Independent Public Sector Pensions Commission said that protection of accrued benefits
“is a prerequisite for reform both to build trust and confidence and to protect current workers from a sudden change in their pension benefits or pension age.”
I know that the Government have said that they want to comply with that recommendation, but it remains to be seen whether the Bill, as it is now or as it may be amended later, achieves that.
The contribution that people have made to their final salary scheme gives them an entitlement to the benefits that they were promised from that scheme at the time that they made that contribution. The fact that there seems to be widespread acceptance now that those promises might no longer be affordable for the public sector finances is not the fault of the workers and it is not the fault of their employers. For decades, successive Governments have failed to provide a public sector pension scheme that was affordable and sustainable in the longer term.
The final general point is that we need the Bill because the Government got it catastrophically wrong. They passed legislation that embodied unlawful discrimination. Regardless of what remedy is eventually put forward and agreed, it will have a cost. It will have a direct cost in terms of changes to people’s retirement age, changes to pension contributions, and changes to the pension they get when they do retire, and a substantial indirect cost as a result of the mountain of extra administrative work that will be needed. There should not be any argument about where these costs should fall. They should fall on the Government, not on the workers because it is not their fault, not on the employers, because it is not their fault, and not on the scheme administrators, because it is not their fault either. The Government created the problem and the Government should be making sure that they and they alone carry the costs of fixing it not only in the short term but permanently.
Let me turn now to some of the more detailed provisions of the Bill. The Government’s impact assessment says that there is “a small number of people” who currently have a mix of legacy scheme and new scheme benefits and that that mix is more advantageous than it would be for them to have all of the eggs in one or other of those baskets. Clauses 6(7) and 10(5) will force those people to put all their eggs into one basket. They will lose out. The Government have said that they are only losing out on something that they should not have had, because the Government previously passed a bad law. That is a feeble excuse. I would like the Minister’s clarification on this point. Table 4 on page 68 of the Government’s equality impact assessment—this is not the same as an assessment of impacts, although, presumably, the two should be compatible with each other—says that about 245,000 people have what is termed tapered protection. What assessment have the Government made of the number of people who will lose out from clauses 6(7) and 10(5)? If that number is anywhere close to 245,000, is it right that the Government should just dismiss them as a small number of people? Two hundred and forty-five thousand livelihoods do not seem like a small matter to me.
Clause 5 allows regulations to be made that would let members opt back into a scheme if they opted out during what is termed a “remedy” period. That is only fair as it protects workers from losing out if the rules on which they based their decision are retrospectively changed. Later on in the same clause, subsections (5) and (6) appear to allow the regulations to require the member to provide certain information, including the reasons why they opted out or did not opt out at the time. An excellent briefing prepared for us by the House of Commons Library suggests that those subsections could be used in regulations to restrict the right to reinstatement except when the member can demonstrate that they opted out as a result of that unlawful discrimination.
A similar situation is explicitly set out in clause 24. It allows members retrospectively to pay additional voluntary contributions if they can show, on the balance of probabilities, that they would have done that during the remedy period had it not been for the unlawful discrimination. In both those scenarios, how is somebody supposed to prove, even only on the balance of probabilities, the reasons they did something or opted not to do something seven years ago? Who keeps that information for that length of time? Who will they have to convince—the Government or individual scheme administrators? If it is individual scheme administrators, how do we ensure that there is consistency and fairness in the way that different applications to different schemes are applied?
Most importantly, where will the legal risk lie if, as seems inevitable, somebody is aggrieved that they have been prevented from opting back into a scheme or from making backdated additional voluntary contributions and takes legal action? Will the legal risk lie with the Government who caused the problem or with the pension fund administrators who are desperately trying to fix it?
One further query concerns the admittedly hugely complex interplay that has been mentioned among the amount of money that someone contributes to a pension, the amount of money they get as a pension, and their tax liabilities when they are paying into a pension and when they are collecting it after they retire. Again, I do not want to give the impression that I doubt the Government’s sincerity; I appreciate that they are entirely sincere in trying to ensure that tax consequences do not undermine the intention behind the Bill. All too often, however, I have seen the irrational way that the UK tax system works, even before the Bill has been enacted, so I genuinely do not have a good feeling about it. It concerns me that in passing the Bill, we will be relying on clause 11 of the Finance (No. 2) Bill, which is still in Committee and has not received Royal Assent, to sort out the problem that the Bill creates in relation to the potential impact on someone’s pension annual allowance. I do not like the idea that we are deliberately giving Second Reading to a Bill tonight while relying on a Bill that is somewhere else in the parliamentary system to fix the problem that we are creating. It does not seem to be a good way to do business.
After Second Reading and several days of Committee in the Lords, the Government had to come back with 123 amendments on Lords Report, and we have just been told that they are preparing an unknown list of amendments to table on Commons Report. That should make us all wonder how many other serious flaws that nobody has yet spotted are still lurking in the 116 pages of the Bill. The Bill should receive its Second Reading tonight, but I fear that many further amendments may be required before it is close to being fit for its stated purpose.
8.12 pm