My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung, and it will resume after 10 minutes.
1: Clause 16, page 14, line 2, leave out “may” and insert “must”
Member’s explanatory statement
This would require, rather than allow, pension scheme regulations to make provision for circumstances in which a liability owed by a person to a scheme will be reduced or waived. This is to probe further details on what circumstances will be provided for and how the schemes will be designed.
My Lords, I rise to speak to Amendments 1 to 3 in my name. They are probing amendments to draw out some further detail, and I thank the noble Baroness, Lady Janke, for adding her name to them. I put on record my thanks to the Police Superintendents’ Association for raising its members’ concerns with us.
Recurring themes will emerge in our deliberations on this Bill—particularly questions of oversight, of the details and the actual mechanics of when and how the remedy is to be delivered and of how that will impact on members. With these amendments, we are trying to flesh that out.
I recognise that the Bill is essentially an enabling Bill, and it provides powers for schemes to do the detailed work required by the remedy. Therefore, it is one piece of a very complex picture. The Committee will particularly benefit from the expertise of some Members here today, and we hope to probe some key questions and add to the understanding of what impacted scheme members can expect.
Amendments 1 to 3 are simple probing amendments to Clause 16. Currently, the clause provides that a scheme “may” make provision to waive or reduce a scheme’s members’ liability. These amendments would change that word to “must”. The Explanatory Notes state:
“Clause 16 provides that scheme regulations for a legacy scheme may make provision whereby a liability on an individual to repay overpaid benefits … or to pay an amount in respect of underpaid contributions … is reduced or waived.”
In simpler terms, due to the changes and choices that the Bill provides for, some members may end up owing their scheme funds due to their having underpaid contributions or having been overpaid pension benefits.
Clause 16 provides that schemes have the power to waive or reduce those costs for people in certain circumstances, but the Bill does not provide any detail of what those circumstances will be. The Explanatory Notes give the following example:
I signed Amendments 1, 2 and 3 and support the reasons laid out for us today by the noble Lord, Lord Ponsonby. It is be important that all members of the scheme understand how this system will work. As we have heard, it is a complex Bill that will affect many people, so I agree that an estimate of the number affected would be helpful. The transparency and consistency of the scheme need to be clear, and I hope the Minister will be able to provide that clarity. I also agree that it would be helpful to have the Treasury directions on the face of the Bill, rather than outside it, so that there are no misunderstandings and the people affected by this provision understand clearly how it will work for them.
My Lords, I thank the few noble Lords who have spoken for their contributions to this first debate in Committee: the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Janke. I also thank the noble Lord, Lord Davies, who I believe was originally intending to speak.
Before I address the points raised, and as we are commencing Committee, I will set out briefly the core principles which underpin this Bill; in my view, this will provide a nice bridge between Second Reading and Committee. At the core of the Bill are fairness and equal treatment. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available, on a fair and equal basis. This core objective is underpinned by the principles of greater fairness between lower and higher earners, fairness for the taxpayer, future sustainability and affordability of public sector pensions.
I thank noble Lords for continuing to work with me to ensure that these important objectives are achieved through this Bill in support of the vital public services on which we all rely. I also draw noble Lords’ attention to the policy statements covering various key elements of this Bill, which were deposited in the House Libraries on 4 October. I trust that noble Lords will have seen these despite the tight timetable; I am aware that many noble Lords will have only just returned from recess.
These amendments are intended to ensure that a comprehensive remedy is delivered for all members by requiring, rather than enabling, regulations to be made under Clauses 16 and 19. I take the point made by the noble Lord, Lord Ponsonby, that these are probing amendments, but I would like to give a full response and hope that I can answer the five or six questions that he asked. If not, I will certainly write to the noble Lord and, indeed, copy in other noble Lords who have spoken.
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In exercising an ability to reduce or waive liabilities under regulations made using the powers in Clause 16, the Government would expect scheme managers to look at each individual’s circumstances on a case-by-case basis, subject to any provision in Treasury directions under Clause 24(3). The power to make regulations for this purpose in Clause 16 is expressed as a permissive power rather than a requirement as it is important that schemes are able to exercise discretion and to consider the circumstances of individual members.
A blanket requirement to waive or reduce liabilities arising as a result of the remedy would give rise to a difference in treatment between those who were in scope of the remedy, whose liabilities could be reduced or waived, and those who are not in scope, where there is no such possibility. This could result in further age discrimination. It is therefore important that the discretion for schemes remains.
Clause 19 deals with transfers between pension schemes. The approach taken by the Bill is to ensure that members are placed in the position that they would have been absent the discrimination that arose. In relation to transfers, this means that where members move between public service pension schemes they will retain a choice in relation to any period of remediable service. The member will be able to choose whether to receive legacy benefits based on the legacy benefits transferred from the exporting scheme or new scheme benefits based on the new scheme benefits from the exporting scheme. Where a member leaves a pension scheme, they may be eligible to transfer their pension rights to another pension scheme.
Where a cash equivalent transfer value is paid out of a public service scheme and it relates to a period of remediable service, the value will be determined on a “higher of” basis. This accounts for the fact that the member would have been able to choose between two sets of benefits for the remedy period. Clause 19 therefore provides for scheme regulations to make provision about transfers into and out of the scheme in respect of rights in relation to remediable service, both where another public service pension scheme is concerned and where the transfer is between a public service pension scheme and another private occupational pension scheme.
The rules and processes around transfers differ between schemes; for example, some public service pension schemes are more permissive of transfers out into private occupational pension schemes than others. To minimise the risk of unintended consequences, it is therefore important that Clause 19 takes a permissive, rather than mandatory, approach to scheme regulations. This ensures that schemes are able to make regulations that are legally and practically operable, in view of existing processes and requirements in scheme regulations, and avoids the risk that members are disadvantaged as a result of their transfers not being able to be dealt with in line with the policy intent that I have set out.
Amendment 12 would also require rights to be varied in a specific way. But it is not appropriate to mandate one particular approach to the treatment of transferred rights in the primary legislation here. That is why, for example, subsection (4) sets out a different approach, backed up by the safeguard in subsection (5) to ensure that the value of the rights is protected. Accordingly, Clause 19, read as a whole, provides a comprehensive suite of powers to enable schemes to make appropriate provision in regulations to take account of the wide variety of circumstances that may occur. That is appropriate and necessary here to ensure that schemes have the flexibility they need.
Any regulations made under Clause 19 are subject to Treasury consent and, under Clause 24, must be made in line with any provisions on transfers in Treasury directions. This ensures an additional level of assurance and consistency, where required.
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“where a pensioner member has been overpaid their pension benefit and reimbursing the … scheme would cause hardship, the pension scheme could write off part of the liability.”
That is a welcome example, but it appears only in the Explanatory Notes. There is no level of detail reflecting that, or indeed any of the possible circumstances, in the Bill itself.
So, I have number of questions for the Minister. Can he provide more detail on the circumstances in which the Government would expect relief to be provided under this clause? Secondly, has the department estimated how many people may be affected in this way? Thirdly, I know the Minister will tell us that the Government’s aim is to provide the schemes with discretion to support their members, but should not every scheme at least be required to set up provisions to provide relief where necessary? Furthermore, on the question of when a waiver or reduction would be necessary, are there situations in which the Government would expect every scheme to provide relief, such as where financial hardship is caused? In this case, would it not be appropriate to include those details in the Bill?
Another question concerns Clause 24, which provides that the powers under this clause must be exercised in accordance with Treasury directions. So, the Treasury intends to provide some directions to the schemes on these issues, but outside the Bill and away from parliamentary scrutiny. What plans do the Government have to consult on the directions and the circumstances this clause may be applied to, so that the schemes reflect the actual situations experienced by members?
I know that the Minister is only too aware of this issue and, in many ways, we keep coming back to it. This is a complex Bill and we have a number of hours to look into that complexity. Clause 16 recognises that the impacts may need to be mitigated. What we are seeking is clarity on the protection and assistance that will be available. I look forward to the Minister’s explanation. I beg to move.
Before considering the specifics of noble Lords’ amendments, I thought it would be helpful to remind this Committee about the practical effects of stating that regulations “must” be made as opposed to “may” be made. When an Act states that regulations may be made for a particular purpose, it grants whoever is responsible for making those regulations a power to make them. In all likelihood, they will make those regulations but, if it is not necessary or appropriate, they can choose not to. Where an Act states that the regulations must be made, it imposes a duty on that person to make those regulations. If they do not, they are breaking the law even if those regulations are not necessary or not the most appropriate course of action in a particular set of circumstances. Accordingly, it is appropriate to exercise caution about occasions when a duty to do something is imposed since otherwise it could lead to unintended consequences and possibly to unmeritorious litigation about whether a particular duty has been complied with.
Amendments 1, 2 and 3 proposed by the noble Lord, Lord Ponsonby, would require, rather than allow, pension scheme regulations to make provision for a liability owed by a person to a scheme to be reduced or waived. The amendments put forward by the noble Lord, Lord Davies, would amend the Bill so it requires, rather than allows, pension scheme regulations to make provision for transfers into and out of a scheme in relation to remediable service.
As a general point, there are 17 new public service pension schemes in scope of Chapter 1 of the Bill. For each of those schemes there are also connected legacy schemes. Pension provision for these workforces has evolved considerably over several decades. In view of the complex landscape—which the noble Baroness, Lady Janke, referred to earlier—that has resulted from this, it is particularly important that schemes have flexibility to deal with some of the more specific circumstances in which members may find themselves. Therefore, the Bill enables rather than requires regulations to be made in Clauses 16 and 19.
As set out in the consultation response published in February 2021, the Government are committed to taking a proportionate approach to the recoupment of overpaid benefits. The powers provided by Clause 16 allow the Government to uphold this promise. Put simply, when a member owes overpaid pension or lump-sum benefits to a scheme, Clause 16 provides a power to allow scheme regulations to make provision to reduce or waive that member’s liability.
The reasons for the inclusion of Clause 16 should be spelt out, and they are threefold. First, the clause provides that contributions owed by or to a member may be reduced to reflect tax relief that was paid or due on those contributions. The purpose of this is to ensure the member is placed in the correct position net of tax. Secondly, it provides that contributions owed by the scheme to a person under Clause 14 may by agreement be waived. This is to ensure that members who become legacy scheme members under Clause 2(1) and owe contributions as a result, can have that liability waived until they make a choice under Clause 9 whether to receive legacy benefits or instead elect to receive new scheme benefits. Where a member knows they want to receive new scheme benefits, this will allow them to avoid having to pay legacy contributions in the interim period. Corresponding provision is also made for amounts owed by the scheme to the member to be reduced or waived with the member’s consent. Finally, the clause allows schemes to reduce or waive amounts owed by members where that arises other than by choice of the member and requiring the payment would cause undue hardship or prejudice. This is for a small group of members who had tapered protection and will be placed in a worse position regardless of whether they choose legacy scheme benefits or new scheme benefits in relation to their remediable service.
Clause 16 is part of a package of measures intended to mitigate such circumstances. Therefore, it is expected that the responsible authorities and scheme managers will consider using this power in conjunction with the power in Clause 21 to pay compensation and the power in Clause 23 which permits responsible authorities to make regulations setting out the process by which relevant amounts may be paid such as, for example, in instalments.