My Lords, I start with the amendment of the noble Lord, Lord Whitty. As he says, the LGPS differs from the unfunded schemes in several respects. While the current fair deal does not technically apply to that scheme, a similar principle is contained in the Local Government Act 2003. That Act requires the Secretary of State to make a direction to specify how pension issues are to be dealt with when staff are transferred out from a best value authority.
The noble Lord is understandably concerned to understand how the Government intend to implement the new fair deal policy for the LGPS, given this existing provision. The Department for Communities and Local Government is currently considering how best to do it. Should it prove necessary to amend the 2003 Act to implement the new fair deal policy, I can assure the noble Lord that the Government will do so at the earliest possible opportunity. I hope that I have given him the answers that he was seeking.
As regards the amendment of the noble and learned Lord, Lord Davidson, the Government have stated a number of times—both in this House and the other place—that we are committed to reforming the fair deal. There are provisions in the Bill to facilitate this. Indeed, the government amendments in this group are concerned with fair deal, which I shall come to in a minute, and work is under way to determine how this commitment will be implemented.
However, consultation closed only yesterday on some of the final policy details of fair deal. We are in the final stages of planning for its implementation. Therefore, in our view there is no need to refer to fair deal in the Bill in the way proposed and we believe that the amendment has serious flaws. As drafted, it would commit the Government to bringing forward proposals for ensuring that compulsorily transferred members of public service schemes can remain in those schemes. It would also seem to commit the Government to bring forward the proposals for the purpose of ensuring that compulsorily transferred staff can remain in their schemes, effectively committing government to implementing the proposals. However, it would not be appropriate to give any member of the scheme an unconditional right to remain an active member if their contract of employment was transferred to an independent contractor. While, of course, it is the Government’s aim that transferred employees would have a right to remain in the scheme when transferred out of the public sector, this right cannot be unconditional. While in the vast majority of circumstances it will be appropriate for fair deal to apply, there may be some cases when it would not.
There have been examples in the past, notably during the financial crisis, of highly paid specialist financial staff who have been brought into government for a time- limited period, and then transferred to independent employers. Although it may have been right to offer these staff access to the schemes while working in government, it would not be appropriate to allow them to retain access to the schemes when they leave, especially as the taxpayer is ultimately responsible for paying these pensions.
Similarly, on the wording of this amendment, a member of staff who was transferred out and then voluntarily moved off the public service contract to do purely private work could remain a member of the public service scheme. Again, this would not be right. The public service pension schemes are in place for those doing public service work, not for everyone who was once engaged in public service work at some point in their career.
These examples demonstrate that the implementation of the fair deal is complex. The Government are carefully considering these complexities to ensure there are no unintended consequences when the policy comes into force. Given this, it is the Government’s view that the fair deal commitment should not be on the face of the Bill. However, I can assure noble Lords that the fair deal will be implemented when we have done all the necessary work.
I hope that I can explain why government Amendment 42 is necessary. This amendment is concerned with people who are admitted to a public service pension scheme but who are not part of the main public service workforces listed in Clause 1. For example, it could apply to staff employed by a hospice who are offering services under a contract to the NHS and whose employer would like them to have the advantage of the NHS Pension Scheme. It is important to note that this amendment does not affect any of the main workforces in Clause 1. It can apply only to other people who are admitted into the scheme under the extension power in Clause 24.
Under the proposed new fair deal, a range of private and third sector bodies will be able to participate in these schemes in future. The amendment is concerned with ensuring that the schemes can be appropriately modified to reflect differences in the structure and nature of those diverse bodies. First, the amendment clarifies that scheme regulations may make special provisions in respect of people who are allowed to participate in the public schemes. The health and local government pension schemes already have a wealth of experience in providing for admitted bodies. The special provisions that are currently applied to those schemes include requirements for indemnities, guarantees, additional record-keeping, et cetera. These provisions are needed to ensure that the body meets the costs of participating in the scheme. The amendment would also allow for modifications that have already been made in respect of admitted bodies in the National Health scheme to be carried forward to the new schemes. Such modifications currently relate to about 60,000 scheme members and it is important that these can be maintained.
Secondly, the amendment allows for modifications to be made where bodies are admitted to the schemes in the future. Where scheme regulations provide for it, the responsible authority will be able to issue a direction to modify how the scheme applies to the staff of a body that is brought into the scheme. The NHS Pension Scheme currently makes between 100 and 150 such directions every year. Allowing for modifications to be made via an administrative direction will ensure that the scheme is applied appropriately in each case without the need to legislate for every single one or the delays that that would cause.
The Bill provides that a direction may be made only for permitted purposes. Those are that the modification is necessary to protect the public purse from costs arising from that body participating in the scheme, where additional information requirements are needed to allow the scheme and the risks to be managed properly by the scheme manager or to reflect the nature of the employment or the structure of the employer. This is not a new or novel power. The Secretary of State for Health has had broader powers to modify the health pension schemes since 1967. For those who wish to study the details, those powers are to be found in Section 7 of the Superannuation (Miscellaneous Provisions) Act 1967. The power explicitly set out by this amendment is more restrictive in scope than this existing power, which provides unfettered scope to modify the existing health schemes. The important safeguards set out in our amendment will ensure that any modifications are appropriate. Allowing bodies to participate in the schemes under Clause 24 will usually be as a result of fair deal. In such circumstances it would not be appropriate for modifications to alter members’ benefits in any way. Modifications that relate to fair deal transfers will, therefore, be limited to ensuring that employers meet their liabilities in full or provide the information necessary to run the schemes properly. I hope I have succeeded in explaining why we think that that amendment is necessary.
Amendment 43 relates to the locally administered public service pension schemes. Under Clause 24(3), scheme regulations may specify bodies or persons that may be permitted to participate in the scheme. It is
anticipated that the regulations will prescribe the types of body that may be permitted: for example, a body that is providing services related to the main scheme workforce or a body that staff are transferred to under fair deal. Clause 24(5) then provides for an administrative determination to be made to extend the scheme to persons employed by such a body. Clause 24(8) requires an up-to-date list of persons to whom the scheme has been extended.
All these functions sit with the responsible authority. Our amendment allows for the functions in Clause 28(5) and (8) to be delegated to the scheme manager in a locally administered scheme. This is subject to any condition that the responsible authority considers appropriate. This reflects current practice in the local government scheme, in which it is the local authority that determines to admit a body to its pension fund. There are more than 5,000 admitted bodies in the local government scheme, and local authorities are best placed to determine their eligibility to participate in the scheme and to assist in administering the list of those who participate. They will do so within the limits of the scheme regulations set by the responsible authority. In turn, it is the local authorities that will be responsible for managing and administering the scheme for that body. They will collect data, contributions and provide benefit information and pensions to members.
I commend Amendments 42 and 43 to the House.
6.30 pm