My Lords, these are minor amendments that have been urged on us by scheme members. They increase the level of flexibility given to schemes and protect the value of the final salary link for benefits that have been accrued in the current schemes. The amendments concern the definition of pensionable
earnings to be used in the new schemes and for the purposes of the final salary link. The current drafting ties the definition of pensionable earnings for the use of the final salary link to the definition of pensionable earnings for the new schemes. We have recognised, however, that in some instances this might not be desirable; for example, the differences between the calculation of career average and final salary benefits might make a shared definition incongruous.
Furthermore, we have listened to concerns that imposing a shared definition means that the value of final salary benefits could conceivably be reduced. This would go against the spirit of the Government’s commitments on the protection of the final salary link. These amendments, therefore, mean that schemes may use the same or a different definition of pensionable earnings for the purposes of the final salary link as that used for the purposes of the new scheme. This does not preclude the option of applying the definition of pensionable earnings that is used in their existing schemes for the purposes of the final salary link, if desired.
However, to make sure that the value of the final salary link cannot be undermined by using a new definition, the amendments contain a backstop protection, which is that the definition of pensionable earnings for the purposes of the final salary link may not result in the amount of earnings being materially less than they would have been had the definition provided for in the old scheme been applied when the new scheme service ended. I hope that noble Lords will find these amendments to be a suitable resolution to this issue.
Paragraph 3 of Schedule 7 sets out which periods of time should be disregarded in determining whether someone has continuity of employment for the purposes of retaining their final salary link. First, any gap, or gaps, of five years or less where the person is not a member of a public service or public body pension scheme should be disregarded. This is directly in line with the recommendations of the noble Lord, Lord Hutton. It allows public servants, for example, to take carer’s leave or to gain experience in the private or voluntary sectors without seeing a detrimental impact on their final salary pensions by losing this link to their future public service salary.
Secondly, and most pertinently to Amendment 30, any gaps of any length of time should be disregarded if a person was in a different public service or public body pension scheme. Again, this is to allow members to gain experience in different areas and to move from one area of public service to another. Crucially, it is also part of the Government’s very clear commitment to public servants to honour their final salary benefits. The amendment in the name of the noble Lord, Lord Whitty, would cut across that commitment. It would be unfair to exclude current members of the local government scheme from final salary link protections, which are being given to other public service workers. Additionally, it would create a barrier to movement between local government and other public service and public body employment.
Under paragraph 2 of Schedule 7, members of existing public service and public body final salary schemes are able to maintain their final salary link
when they move between schemes by transferring their rights to benefits out of their old final salary schemes into their new employer’s old final salary scheme. This amendment would not affect this. However, members of local government schemes should not have to proactively transfer their benefits out of the LGPS to ensure benefiting from the Government’s commitment on protecting their final salary benefits, especially where other public service workers do not have to do this. I hope that the noble Lord, Lord Whitty, will withdraw his amendment.
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