With permission, Mr Speaker, I would like to make a statement on the reform of public service pensions.
Seven weeks ago I reported to the House that in an effort to secure agreement, the Government were making a new offer to public service workers. Despite some unnecessary interruptions, scheme negotiators have been working hard to reach detailed heads of agreement by the end of the year deadline that we set. It has not been an easy task, but the Government have demonstrated that they will not shy away from taking difficult long-term decisions in the nation’s long-term interest.
We wish to see pensions for public service workers that are fair and sustainable, that provide dignity in retirement, and that are affordable for the workers and for taxpayers. That is why we committed in the coalition agreement to establish an independent commission to bring forward proposals for reform. Lord Hutton’s magisterial report did just that. We have stuck closely to the recommendations of the former Labour Secretary of State for Work and Pensions.
The case for reform is self-evident. The average 60-year-old lives longer now than in the 1970s. That means that people are living in retirement for longer. The life expectancy of a 60-year-old was 18 years in the 1970s; that has risen to 28 years today. As a result, the cost of public service pensions has risen to £32 billion a year—an increase of one third over the last 10 years.
We have already made some changes that deal with short-term pressures, including changing the basis of pension uprating to the consumer prices index and increasing member contributions by 3.2 percentage points, phased over three years. Those proposals are unchanged. Next year’s contributions increase is almost identical to that planned by the previous Government. The precise details of next year’s increase have been set out by Departments. All increases are tiered by income to protect the lower-paid. The Government will review the impact of next year’s increases, including on opt-outs and equality, before taking final decisions on how future increases will be delivered. Interested parties will have the opportunity to provide evidence and views to the Government.
I know that many Members of the House will be concerned about the pay and conditions of our armed forces. Let me be clear that members of the armed forces will continue to make no contributions towards their pensions and will be exempt from the increases announced at the spending review.
From the beginning of this process, we have committed to ensuring that public service pension schemes continue to offer a defined benefit pension that is based on the size of the worker’s salary and is not dependent on the market performance of a fund. That is not available to most people in the private sector. From the beginning, we have been clear that all accrued rights will be protected in full, and that the taxpayer needs to be properly protected from the risks associated with further increases in life expectancy by linking the scheme normal pension age to the state pension age. In November, we improved the offer to a 1/60th accrual rate, which is an increase of 8%. That is available only in the event of agreement being reached. We also agreed to protection for those who are 10 years from retirement.
I would like to pay tribute to the Minister for the Cabinet Office, the TUC and the scheme negotiators on both sides for their efforts to reach agreement. I am pleased to report that heads of agreement have now been established with most unions in the local government, health, civil service and teachers’ schemes. It will of course now be for union executives and memberships to decide their response.
The heads of agreement deliver the Government’s key objectives in full, and do so with no new money since our November offer. In future, scheme pension ages will match the state pension age and schemes will be on a career average basis; all the agreements are within the cost ceiling that I set in November, and will save the taxpayer tens of billions of pounds over the decades to come.
Because heads of agreement have been reached, the better offer that I made in November has been secured by trade unions for their members, including the “no change” guarantee for workers 10 years from retirement. The heads of agreement also deliver a number of the key objectives set out by the trade unions during the talks. Negotiations on them are now concluded, and we and the unions agree that this is the best outcome that can be achieved by negotiation. It is the Government’s final position, and we will bring forward legislation to the House in due course.
The full details of the heads of agreement in each scheme are today being set out in written statements by each Department. The key changes made are as follows. In the civil service, we have agreed to revalue each year’s contributions by the consumer prices index rather than earnings, allowing an accrual rate of 1/44th to be offered. That will cost the same as our original offer, but with a configuration preferred by the trade unions. As a consequence, the new scheme will be very similar to the Nuvos scheme that is already available in the civil service, except that in future the normal pension age will be linked to the state pension age as it rises. It is therefore deeply disappointing that the Public and Commercial Services Union has rejected the heads of agreement and walked away from the talks.
I have previously made the point that the local government scheme must be treated differently because it is a funded scheme. The Local Government Association and the trade unions have agreed that the pension age in the new scheme will be linked to the state pension age, and their preference is to deliver a career average scheme. Further discussions will take place over the next three months to agree the details.
In the health scheme, we have agreed to a revised revaluation factor of CPI plus 1.5%, which will allow the accrual rate to be improved to 1/54th. In education, we have agreed to a revised revaluation factor of CPI plus 1.6%, allowing for the accrual rate to be improved to 1/57th, along with modest improvements to early retirement factors. All those heads of agreement are within the cost ceiling that I set out in November, but in a configuration preferred by the unions.
Discussions on police, armed forces, judiciary and fire service schemes have been a separate process from the start, and proposals will be brought forward in due course.
Let me turn to some other aspects of the deals. All the agreements include a cap on taxpayer costs at two percentage points above or below the scheme valuation. That cap is symmetrical, so employees will benefit if costs fall. As Lord Hutton made clear, with the other aspects of reform now agreed there is no reason to believe that, under normal circumstances, that cap will need to be used. It is there as protection for taxpayers and for workers if extraordinary unpredictable events occur.
In the course of the talks, unions have stressed the importance of ensuring that their members will continue to be able to receive the benefits of their scheme if it is outsourced. That is the purpose of the fair deal policy, the future of which we have been consulting on. Because we have agreed to establish new schemes on a career average basis, I can tell the House that we have agreed to retain the fair deal provision and extend access for transferring staff. The new pensions will be substantially more affordable to alternative providers, and it is right that we offer workers continued access to them.
In addition, the Government will consider what practical options might be available to reform the terms of access to the NHS pension scheme, in particular for NHS staff who move to a non-NHS “any qualified provider” delivering NHS services. [Interruption.] That is something that the trade unions have suggested, so hon. Members should keep quiet and listen. [Interruption.]
Opposition Members never have any answers, so they chunter from the sidelines instead.
At the same time, by offering transferred staff the right to remain members of the public service scheme, we are no longer requiring private, voluntary and social enterprise providers to take on the risks of defined benefit that deter many from bidding for contracts in the first place. Replacing so-called bulk transfers of pensions with continued access to public sector schemes means that we continue to protect public service workers’ pensions, manage the risk to the taxpayer and forge ahead with our ambitious plans for public service reform.
I have made the commitment that these reforms will be sustained for at least 25 years. The Government intend to include provisions on the face of the forthcoming public service pensions Bill to ensure that a high bar is set for future Governments to change the design of the schemes.
What does this deal really mean? For our work force, it means that they will continue to receive the best-quality pensions available in this country—and rightly so. In the private sector, these pensions could be bought only at a cost of one third of salary. This is a proper reward for a lifetime’s commitment to serving the public. The new scheme is fairer to women too. By moving to career average, we will give a better pension in future to those, mainly women, who have low or steady salaries throughout their careers.
The Government have been clear that because we are living longer, public service workers must work a bit longer and pay a little more for their pensions. But in return we have also made an important commitment—that at retirement, those on low and middle incomes will get at least as good a pension as they do now. I can confirm today that we have met that commitment. For people who depend on our public services, it means that most unions will be asking their executives to lift the threat of further strike action while work is done to conclude the final agreement, and I hope that the remaining unions will do the same. For the taxpayer, it means that tens of billions of pounds extra that would have been spent on unreformed pensions over the next 30 years is now available for other pressing demands. These are reforms that significantly improve the long-term fiscal sustainability of this country, and reinforce the credibility of our fiscal stance.
The Office for Budget Responsibility will provide a forecast of the savings in its next fiscal sustainability report. For industrial relations, I believe this shows that it is possible to reach agreement through negotiation in good faith, based on clear objectives. That is the right way to approach relations between government and the trade unions. Sometimes the talks have been difficult, but it has been right to stay at the table. In these difficult times, it is important to show that people can come together to achieve genuine reform, preserving the best of the past, but recognising the realities of the future. This is a fair deal for public service workers, an affordable deal for the taxpayer, and a good deal for the country. I commend this statement to the House.
I thank the Chief Secretary for his statement. Families and businesses who rely on public services, as well as the millions of public service workers worried about their finances and their future, will be relieved to see that real progress is finally being made in these talks. Labour has been clear from the beginning that the Government and public service employees would need to find ways of adjusting to the welcome fact that people are living longer. We said in response to the Chief Secretary’s previous statement on 2 November that any resolution to the dispute needed to be fair to taxpayers, fair to public service employees and genuinely sustainable for the long term, and that that would be endangered by a search for quick cash savings or the playing of party political games.
The vast majority of public sector workers, including dinner ladies, community nurses and police community support officers, retire on very modest pensions; moreover, they are already being hit hard by a pay freeze and worried about mounting redundancies. It was clear to us that tearing up decent public service pension schemes or imposing punitive and unaffordable contribution increases would be entirely counter-productive if it resulted in lower savings and inadequate retirement incomes that only left more people retiring into poverty, dependent on state benefits in their old age.
We will be looking at the detail of these proposals on the basis of the tests that we have set out. In particular, can the Chief Secretary offer clarification on the following points? Can he set out the timetable for further consultations and negotiations for each of the four schemes discussed today? When will he come forward with details for the police, armed forces, judiciary and fire service pension schemes? For each scheme, can he give us the new schedules for contribution increases across the schemes, the timetable according to which they will be introduced and how he will ensure fairness and affordability for lower-paid employees, especially those who work part time?
For each scheme, can the Chief Secretary give us the new accrual rates and methodologies for uprating pensions, and say what the timetables for introducing them will be? What assessment has he made of the impact of the changes on the number of public sector employees opting out of the schemes, and the implications of that for future scheme income and viability, as well as future pensioner poverty and the demands on state benefits?
How will the Government ensure that older workers, especially those in physically demanding jobs, are not forced to work beyond a point that would be detrimental to their health, or their ability to do their job? What will the Government do to maintain the morale and engagement of public service employees doing vital work for our country at a time of falling real pay, heightened job insecurity and significant changes to their pensions? Although we are pleased that there is agreement on a fair deal, there is a genuine fear across the public sector that the Government intend to use that deal more as they privatise parts of our NHS and schools, as well as other parts of our public sector. Crucially, how will the Government make good on their promise to deliver a deal that is secure and sustainable for the next 25 years, so that in future we do not face the uncertainty, anxiety and disruption that we have seen over the past year?
The Chief Secretary has made much of Lord Hutton’s review of public sector pensions. We have always said that Lord Hutton’s report provided an important starting point for negotiations, and we have always recognised that change is needed. However, Lord Hutton has also stressed the need to approach these issues in a careful and balanced way, with particular care for the affordability of any additional contributions for lower-paid public service workers, and to avoid fuelling a race to the bottom on pension provision. However, the Government have made it much harder to make progress on many of Lord Hutton’s sensible long-term recommendations by seeking to impose, prior to any negotiations, a steep 3.2% rise in contributions and a permanent switch in the way in which pensions are uprated—from the retail prices index to the consumer prices index—neither of which formed part of Lord Hutton’s recommendations.
However, it is good to see that the Chief Secretary recognises that he needed to do more to address the genuine concerns about his plans over the last 10 months—concerns about the need to do more to protect lower-paid public service employees from unaffordable increases in contributions; about the need to reassure older employees worried about how long they will have to work; and about the need to ensure that people who dedicate their working lives to our public services can expect a decent income in retirement. However, it must be a matter of regret for everyone in this House that it took 10 months of stalemated negotiations and strike action that resulted in closed schools, cancelled operations and disrupted lives for families and businesses around the country, for us to reach this point, just five days before Christmas.
The last Government agreed and established a framework to negotiate reform and manage long-term costs; this Government chose to tear that up and take an aggressive and provocative approach to this serious and sensitive issue. For months the Government have refused to engage in constructive talks to address the issues concerning public service employees, engaging instead in unhelpful megaphone diplomacy. Major changes to public service employees’ current contributions and future security have been announced without warning and imposed without negotiation. Last month’s strikes could and should have been avoided. In short, the Government have displayed negotiating skills similar to those that we saw at the European summit, being more interested in going for the cheap headline than putting in the hard graft necessary to get an agreement that works for everybody.
Clearly the Government still have a lot of work to do over the next few weeks. Ministers and employers will need to clarify the details of their latest proposals, and trade unions will rightly want to inform and consult their members. Reaching a final agreement will be a difficult and delicate process, and we must hope that it is not jeopardised by provocative tactics or inflammatory rhetoric, as we have seen in previous months. We hope that further progress will be made and that early in the new year the Chief Secretary will be able to return to the House and report that a fair and sustainable agreement has been reached, and that we will not see further industrial action. That is what the Opposition want to see, and it is what the country wants to see as well.
I am not sure that the hon. Lady was listening to anything that I said in my statement, because I have already answered almost all the points that she raised. She certainly seems to have forgotten that this is the season of good will. She said that the Opposition’s position was clear, but she did not say what it was. As she and her party have opposed most of the reforms, perhaps they should have the good grace to admit that they got it wrong. It is no doubt uncomfortable for the Labour party that many of its union paymasters have been willing to come to an agreement in the interests of their members—and, indeed, in the national interest.
Lord Hutton’s contribution was significant; indeed, he is the only Labour Member—or former Labour Member—who has made a contribution. It is worth telling the hon. Lady that he welcomes the deals that we have announced today. She asked a question about the agreement put in place by the previous Government, so let me tell her what Lord Hutton said about that cap and share deal:
“Cap and share cannot take account of the increases in cost of pensions over recent decades because people have been living longer. Also, untested, complex cap and share arrangements cannot of themselves, address the underlying issue of structural reforms, nor significantly reduce current costs to taxpayers.”
That is why we could not rest with the position agreed with the previous Government.
The hon. Lady asked a few questions about the timetable. As I said in my statement, the timetable for reaching heads of agreement is finished. Negotiations on the heads of terms have finished, and as I said in my statement, those heads of terms are agreed by most unions in all schemes. That is a good result, which I hope she would welcome. The other schemes—for the judiciary, armed forces, police and so on—will be agreed in due course. For the firefighters the deadline is 20 January; for the police service the second round of the Winsor report, due at the end of January, will take forward that process.
I think that the hon. Lady still opposes the increase in member pension contributions, but I have to tell her that, as a consequence of today’s announcements, that is continuing. She asked a question about the relationship between accrual rates and revaluation factors. I listed the precise accrual rates and precise revaluation factors for each scheme in my statement; I do not propose to repeat them now, but they will certainly be available in Hansard later. As for older workers, one of the reasons why the trade unions favoured the relationship in question between accrual rates and revaluation is precisely that it works more strongly to the advantage of older workers. We will bring forward legislation, I hope in the next Session, that will include the changes that we want to make to ensure the 25-year guarantee.
The truth about this exchange, as with so many others, is that there are two parties on this side of the House acting in the national interest and one party on the other side that seems to find it increasingly hard to see even its own self-interest. While we on this side of the House are working together to build confidence in the future of the British economy, Labour Members are fighting with each other, as they lose confidence in their own leader. As a result of this statement, at least the hon. Lady can assure the Leader of the Opposition that if he falls on his sword there will be a good pension available to him. All that the British people will see is a party that has not a shred of economic credibility left.
By far the most important point in this statement—the one that the Chief Secretary touched on only briefly—is that it demonstrates to the markets that the Government will remain committed to sound public finance. Does that not stand in contrast to a number of eurozone countries, not least France, which are finding such measures extremely difficult to implement, and are paying the price in much higher debt service costs?
I hesitate to enter into any specific diplomatic disagreements of recent weeks, but my hon. Friend makes an essential point. The ability to negotiate such changes strengthens our fiscal credibility as a country, as well as the long-term sustainability of our public finances. To those who want to see that this Government are capable of making changes that reassure the markets and build confidence—not just in the short term, but in the medium term—this agreement is an essential building block. It is one that other European countries have not always been able to achieve—and again, it goes to show that this Government are making the right decisions in the national interest.
Is not the truth of the matter that even with this settlement, public sector workers will pay more, work longer and receive less, that the Government have bullied into submission a number of trade unions, and that those that refused to submit have not walked away from the talks but have been refused access to them? Does the Chief Secretary not accept that his role in all this is to destroy the industrial relations climate in this country, possibly for a generation?
The hon. Gentleman is wrong in everything he says. The fact that a coalition Government of Liberal Democrats and Conservatives have been willing, through a process of painstaking negotiation, to reach agreement with the unions on difficult decisions actually strengthens the industrial relations climate in this country. We now have a good, fair foundation for the relations between the trade unions and the Government; it is a relationship not between paymaster and servant but between two organisations working together to secure the best interests of their members.
Will my right hon. Friend confirm the number of trade unions that have reached agreement, and tell us what will happen to those public sector workers who are in unions that have not reached agreement? Their pensions are clearly under threat.
I think that there are 28 unions altogether, of which 26 have signed up to the agreement in principle, although it is fair to report that they now need to take the issues back to their members and executives. Unite has reserved its position in a number of areas, and the PCS has refused to sign up, which is deeply disappointing. In the teachers’ scheme, all the unions were present at the discussions and have agreed in principle, although four unions have asked to reserve their position pending sight of the technical annexes that will accompany the heads of agreement.
For anyone who wishes to have a pension, these are among the best pensions available. It would be right for people to stay in their pensions or to join them, and I hope that no Member of the House will encourage anyone to opt out of their pension on the basis of this agreement.
I congratulate Ministers and the trade union leaders on what is clearly a win for the taxpayer, a win for the public sector workers and a win for the public. This is good news at Christmas, and it gives us the prospect of a much more prosperous and secure new year. May I ask what Ministers will now do to ensure that three key messages get down to the workers, and not just the leaders? They are that this is a better deal for the low paid, for women and for older workers; that this is a secure deal for the next century; and that everyone’s accrued rights are protected. The workers need to understand that, as well as the bosses.
I am grateful to my right hon. Friend for his words of praise. He makes an important point about the need to get this message across directly to public sector workers. I hope that the unions that have signed up to the heads of agreement, following consultations with their executives in many cases, will now be part of the process of explaining the new deal to their members. The Government will also continue with the efforts, which we started after my statement on 2 November, to communicate directly to nurses, teachers, civil servants and local government workers, so that they understand directly from the Government what the terms of the agreement are.
In regard to workers who are transferred to another organisation, can the Chief Secretary confirm that their right to stay in their pension scheme will apply to all pension schemes? Will that be time-limited in any way? If the organisation to which they are transferred is taken over or changes ownership, will they still have the right to remain in the public sector pension scheme?
Yes, they will. I think that I can reassure the hon. Gentleman on all the points that he has made. What we are saying is that we do not want bulk transfers any more, in which the new providers have to set up their own scheme. Instead, the people to whom he refers will continue to be part of the public sector scheme—the NHS scheme, the civil service scheme or whatever—with the new provider, rather than the taxpayer, paying the employer contribution into the scheme. This will create a more secure footing for those people to be on. It is important to be able to give full reassurance to the hon. Gentleman and, through him, to the members of those schemes that he is concerned about.
I congratulate Ministers and the unions on this excellent settlement, particularly because of the way in which it will benefit the lowest paid and part-time workers, many of whom are women. Will my right hon. Friend tell us how many women are likely to benefit from the settlement? Does he also agree that the hon. Member for Leeds West (Rachel Reeves) cannot welcome the proposals because of her union paymasters?
I cannot give my hon. Friend a precise figure for the number of women workers who will benefit, but about 60% of the public sector work force are female, and all those people will benefit from the terms of the scheme. Unfortunately, women workers tend to be among the lowest paid at the moment, and tend to have steady rather than rapidly rising salaries, but they will particularly benefit from the scheme that we are putting in place under the agreement announced today.
I hope that the Chief Secretary to the Treasury’s remarks about reaching a settlement through negotiation will not have been lost on his colleagues on the Treasury Bench who were gagging for further industrial action. If he believes that negotiation is the right way forward, will he continue to talk to those unions that still need to resolve important points of detail in the interests of their members?
No one on the Treasury Bench wanted to see industrial action; in fact, the only people who seemed to welcome it were some of those on the Opposition Benches. Of course, we are talking about heads of agreement, and further fine details within each scheme remain to be resolved over the coming weeks. That process will continue to involve the unions, precisely as the process has done up to now. The agreement on the heads of terms is complete; that process is over, and this is the final position. On the question of the fine details, however, I can give the hon. Gentleman a positive answer.
I congratulate my right hon. Friend on the hard work that he has put into this process and the unions that have worked so hard to put a deal in place. What message does he have for the PCS union, whose own strike ballot had only a 32.4% turnout and which is now agitating for further strikes?
The Minister for the Cabinet Office and Paymaster General tells me that there were 14 meetings in which discussions took place between the civil service employers and unions, and that the general secretary of the PCS did not turn up to any of them. That is a deeply disappointing position to be in. I hope very much that the PCS will rethink its position, because it will not have the support of its members—as that ballot showed—and it will certainly not have the support of the general public if it chooses to inflict further industrial action after an agreement has been reached.
Will the Chief Secretary to the Treasury stop trying to demonise the PCS, and recognise that it is representing its members, which it has a democratic right to do, and that its general secretary has attended a great many meetings? According to the PCS’s calculations, the average civil servant will pay £63 a month more to work for longer to get less. He has twice told the House that billions are being saved, but that can be done only at the expense of hard-working public sector workers. Is he really proud of this?
I am very proud indeed that we have managed to achieve something that Members on both sides of the House thought would be very difficult, if not impossible, to do—namely, to reach agreement between the Government and many of the trade unions on the long-term reform that is necessary to ensure that public sector workers continue to get the best possible pension schemes long into the future. The previous arrangements were unsustainable, but this one is sustainable, which is why I am confident in offering the House a 25-year guarantee that no party in the House will need to revisit these arrangements over that period.
The Leader of the Opposition claimed recently that the Government were imposing a 3% tax rise on the lowest-paid workers. Will my right hon. Friend take this opportunity to clarify for my constituents that, under the Government’s offer, the lowest-paid workers will make no extra contribution whatever?
Yes, I am happy to confirm that. We set out at the beginning that no one earning less than £15,000 should see any contribution increase at all. In fact, through the consultation process, better terms were able to be offered in some cases. In particular, my right hon. Friend the Secretary of State for Health was able to offer better terms to lower-paid workers in the health sector. This demonstrates once again this Government’s commitment to supporting the lowest paid in these difficult times.
The 2 million public service staff who took action last month will note that the Government have given no ground on the imposition of a 3% tax grab on their pension contributions. The Chief Secretary has said that the heads of agreement are not the actual agreement, but the basis for further detailed negotiations. What are his deadlines for starting and ending those negotiations, and when will the millions of scheme members who must, in the end, decide on their future have something put in front of them to which they can say yes or no for themselves?
It is a matter for the trade unions to discuss their individual processes of engagement with their members. We have worked well with many of the trade unions in this process, but that does not extend to my being able to describe their internal processes to the right hon. Gentleman.
I congratulate everyone who has been involved in reaching the heads of agreement. This will give hard-working public sector workers the certainty that their pensions will remain among some of the very best available. Will my right hon. Friend explain how the move to career-average earnings will benefit women and low-paid workers in particular?
I am grateful to my hon. Friend for her comments. It is an important point, on which I am glad to have the chance to expand. At the moment, final salary schemes in the public sector work disproportionately to the advantage of people who are highly paid or who see a big increase in their salary at the end of their careers, and the contributions of lower-paid workers subsidise the pensions of the highest paid. On a career average basis, each year’s earnings is what it is and the contribution to be made is treated as what it is; pension is built up year by year on the basis of what people have earned and contributed. That means that each individual’s contributions are valued in a more similar way than they are in the inequitable schemes in place at the moment.
The underestimation of life expectancy that occurred in the 1970s and the pension holidays of the 1980s put huge pressure on the pensions industry, both public and private. I welcome the fact that the right hon. Gentleman has set a high bar, but as part of that, will he ensure that pension holidays are no longer possible in the invested schemes, as that would mean building in a correction in case we underestimate longevity?
The hon. Gentleman makes an important point, which I am sure will have been heard by the Local Government Association and the local government trade unions as they continue their talks on that scheme. I am not going to set out particular rules at this stage, but he makes an important point about the need to ensure that the schemes continue to be funded to meet future life expectancy.
I congratulate the Chief Secretary and indeed the Minister for the Cabinet Office and Paymaster General on the successful negotiations, particularly in respect of the protection for low-paid workers. Is the Chief Secretary as disappointed as I am that the PCS union has not only walked away from this agreement but has continually misled its members by telling them that the Government were not interested in meaningful negotiations. How does that sit with so many other unions that have signed the heads of terms today?
I do not know quite how disappointed my hon. Friend is, but I am certainly very disappointed in the stance of the PCS. I hope that it will come round in time to seeing this as a beneficial and positive agreement. It is striking that, in the end, other trade unions have looked at the interests of their members and put those first rather than be too worried about the rhetorical position of a small minority of unions.
Will the right hon. Gentleman now answer the earlier question about the level of opt-out likely to arise from settling these schemes? I am thinking particularly of the local government scheme, which is a funded scheme that will be adversely affected by high levels of opt-out. Will he be clear about what work has been done on this matter and whether there are remaining concerns for trade unions and employees?
At the start of the process, the Office for Budget Responsibility forecast opt-out rates resulting from the contributions increase as being about 1% of pay bill. Of course, because the local government scheme is a funded scheme, one thing we are allowing is that savings delivered by long-term reform, such as increasing the retirement age or moving to a career-average basis, can be used to cover the cost of some of the contribution increases. It is therefore possible that once the final local government scheme is put in place, local government workers will face little or no contribution increase because they are in a funded scheme.
The number of new starters in the private sector who can look forward to a defined benefit scheme is very small. The number of open defined benefit schemes is decreasing, but that should not deflect us from our wish to continue to provide defined benefit pensions in the public sector, which are a right and proper part of the reward for a lifetime’s commitment to serving the public.
The Chief Secretary said of the civil service scheme: “It is disappointing that the PCS and Unite have not supported the heads of agreement and walked away from the talks”. Some might argue that they had been excluded. Be that as it may, he made a virtue of staying at the table, so what is he going to do to re-engage with Unite and the PCS to avoid giving the impression that it is his Government who are simply spoiling for a fight?
I would have welcomed from the Scottish National party—as from the Labour Front-Bench team—a recognition that opposition to these reforms was wrong and a welcome of the fact that we have reached agreement. Sadly, Salmond and Serwotka are the duo who continue to reject public service pension reform. The position of Unite is more nuanced, as it has signed up to the agreement in the local government sector and reserved its position on the health sector, pending consultation with some of its lay members. If that proves to be positive, the union would be welcome back at the negotiating table.
An inflation-proof pension of £20,000 a year taken at the age of 67 would cost about £500,000 to purchase on the open market, yet the average pot in the private sector is about £30,000 for those people who have any provision at all. This difference is exacerbated by the charging structure in the UK fund management industry, which cripples private provision. Now that the Chief Secretary has more time on his hands, having concluded these negotiations, will he address this issue with colleagues because it is a disgrace?
I am not sure that I would accept the description of having time on my hands. The hon. Gentleman’s point is a serious one, however, particularly on the charging structure. This has been looked at by the Minister of State, Department for Work and Pensions, my hon. Friend the Member for Thornbury and Yate (Steve Webb) in the context of the new National Employment Savings Trust scheme, and the Financial Secretary has been considering it. If we can find things to help reduce those costs, we will certainly go ahead with them.
The truth is that this Government are indulging in a race to the bottom on pensions. The fact is that the 11% of private sector workers currently in a defined benefit scheme will find pressure being brought to bear to reduce the benefits of those schemes as a result of the Minister’s forcing down of public sector pensions. Will he tell the House how it can possibly be in the national interest to force more pensioners into poverty, resulting in hundreds of thousands if not millions of pensioners in the future having to rely on means-tested benefits?
I have to say that that is the most shameful scaremongering about what we are offering that I have heard. What we are offering public service workers are the best pensions available to any work force in the country. Most public service workers will continue to have a very good pension in retirement. People on low and middle incomes will in most cases receive a better pension at their retirement age than they could under the current schemes. I hope that, on reflection, the hon. Gentleman will join us in explaining and selling this deal to the many hard-working public servants in his constituency rather than misrepresenting it.
Given that Lord Hutton has said that it is “hard to imagine” a better offer than the “generous” one put forward by the Government, has my right hon. Friend received any imaginative proposals from the shadow Chief Secretary about public pension reform or indeed about how she would pay for it?
I am disappointed that despite a number of written questions from me and the questions put today, the Chief Secretary cannot do better than the OBR estimate of 1% of the pay bill in respect of reduced contributions. In his statement, however, he said that the Government would “review the impact of next year’s increases, including on opt-outs and equality”. Does that mean he will tell us in a report to the House about the impact of these changes on equality so that we can know whether or not his confidence that this is a good deal for women is true?
I am grateful to the hon. Lady for picking up on that point. We will certainly look at the impact on opt-outs of the first year’s contribution increase. That will allow us to make adjustments to how we deliver the increase in years 2 and 3. I will be happy to share the relevant evidence in an appropriate form, perhaps in a statement or debate in the House.
The Chief Secretary will be aware of the demanding and dangerous job done by prison officers up and down this country. Will he clarify the state of negotiations with the Prison Officers Association on the normal pension age for prison officers in the context of the difficult and important job they do?
I join the hon. Gentleman in expressing gratitude for the hard work that prison officers do for the country, and in recognising the physically demanding nature of some of that work. There is a specific outstanding issue in the arrangements relating to mechanisms allowing prison officers to retire before reaching the state pension age, and we are continuing to engage in discussions with the Prison Officers Association to deal with precisely the point that the hon. Gentleman has made.
I agree that, while we are securing very good pensions for public service workers, we must not neglect the fact that many millions of private sector workers have no pension provision at all. That is what the NEST scheme is intended to address. The opt-in arrangement for a new basic pension scheme, which will be rolled out over the next five or six years, will enable those millions in the private sector who currently have no provision to build some up for themselves. I hope that, in due course, my hon. Friend will join us in promoting that scheme to constituents.
Would not the negotiations have proceeded more quickly and smoothly had the Chief Secretary’s party not colluded in the constant denigration of public sector workers, and the setting of one group against the other? The Chief Secretary is still doing that today in seeking to create a huge divide between public and private sector workers, and to make one group envious of the other.
Opposition Members seem to be making increasingly desperate attempts to find new ways of saying that they do not agree with what we have offered. It would be simpler for them to say that they welcome the agreements that we have reached in many areas.
I said in my statement, but will happily repeat for the hon. Lady’s benefit, that the contribution made to the country by public service workers such as teachers, civil servants, nurses, local government workers, firefighters and prison officers is enormously important. That is why one of the Government’s objectives has been to ensure that they continue to receive better pension provision than any other work force in the country, which is absolutely right. I hope that, on reflection, she will choose to welcome that.
I entirely agree. That is one of the abiding reasons why both the hon. Lady’s party and mine have sought to reform public service pensions for many years. As a result of the inequities in the current system, the contributions of hard-pressed low-income workers subsidise the pensions of the wealthiest public service workers. The new deals will mean that that will no longer happen.
Large increases in pension contributions combined with a continuing pay freeze will lead to a severe squeeze on living standards for nurses, teachers and other public service workers. What impact will that squeeze have on the wider economy, particularly in regions where there is a high proportion of public service employment?
There is a squeeze on living standards and, indeed, on our economy for a combination of reasons, including the crisis in the eurozone and the catastrophic mess that the hon. Lady’s party made of the economy. I think she should start by admitting that.
I congratulate the Chief Secretary on reaching an agreement. The last thing that any of us want is a regular five-yearly salami slicing of public sector pensions. What aspects of the deal will make it future-proof over the 25-year period to which he has referred?
That is an extremely good point. Under the earlier cap and share arrangement, there would have been a three-yearly salami slicing of pensions: every three years, public service workers would face the prospect of increases in their contributions and reductions in their benefits. The principal feature of the new scheme, which protects them from that prospect, is the link between the normal pension age and the state pension age. As the state pension age rises, so will the retirement age for public service workers. That arrangement, which Lord Hutton recommended, is the best and simplest way of protecting public service schemes from the longevity risk in the future, which is why those schemes are fundamentally sustainable.
The right hon. Gentleman said that agreement had largely been reached in the negotiations, and that it would now be referred to trade union executives and, perhaps, individual members, through a ballot. Does he agree that, according to the democratic process, those individual members have as much right to reject the offer as to accept it, and will he tell us what attitude the Government would adopt to such a rejection?
Members of trade unions do indeed have that right, and it will be for the unions to decide their individual processes. I made clear in my statement that the negotiations on the heads of terms had been completed, that this was the Government’s final position, and that we were proceeding to draft legislation on that basis.
Most of my constituents will never have access to a public sector pension, and if they have any private sector pension provision, it is likely to be neither guaranteed nor linked to inflation. Given that the cost of public sector pensions is now £32 billion a year and has increased by a third over the last 10 years, should not the agreement be warmly welcomed? Without it, we would leave a huge pension liability to be paid off by our children and grandchildren in the future.
The hon. Gentleman has described the position precisely. Over the next 20 or 30 years, the agreement will save taxpayers, including his constituents, tens of billions of pounds which it will be possible to use for other purposes. I recognise that many of his constituents in the private sector do not have access to pension provision, and I hope that that problem can be addressed, not least by means of the NEST scheme.
I hesitate to use the word “veto” at the Dispatch Box, even in answer to the hon. Lady’s tempting question. It is traditional for Scottish schemes to proceed by analogy with our United Kingdom schemes. I hope that that will continue, and that the intransigent opposition of the Scottish Government to any pension reform will cease. Of course, as with contributions, if the Scottish Government choose to proceed differently they will have to bear the cost.
This excellent deputy Chancellor is very self-effacing, but he has achieved a considerable feat in bringing the negotiations to a successful conclusion. Does he agree with the Opposition spokesman, the hon. Member for Leeds West (Rachel Reeves), that what he did in putting the national interest first should be considered equivalent to what the Prime Minister did in Europe?
I am very grateful to my hon. Friend for that comment. Over the last few months, I have sometimes felt less like a Chief Secretary than a chief negotiator. I certainly think that, in this as in every other aspect of our policy, the Government as a whole have indeed put the national interest first.
Will the Chief Secretary specify the actuarial reductions involved in all four pension schemes? Have they changed? What will the consequences be for shift-working public sector employees, whose life expectancy does not generally match the national average, if they opt out of schemes?
The actuarial factors have not changed. Early retirement pensions will still be calculated on an actuarially fair basis, although of course that in itself changes over time according to the actuarial assumptions. The only exception is the teachers’ scheme. There has been discussion about modest enhancements to early retirement factors at the cost of the accrual rate for retirement ages over 65, as and when the state pension age exceeds 65. The teaching unions made that a priority in their negotiations, and we have chosen to agree with them.
I hope the Chief Secretary is beginning to realise that the very thing that is likely to destabilise some pension funds is the decision of members to opt out of them.
The right hon. Gentleman has made great play of the position of the PCS and that of my own trade union, Unite, but has made very few comments about the Prison Officers Association, except when the issue was raised by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont). The Chief Secretary said that two unions had not signed the formal heads of agreement. Will he confirm that the POA has not signed it?
I interpret the position of the Prison Officers Association more positively, which is why I did not mention the association in my statement. However, as I said to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who is no longer present, there is a specific outstanding issue in the arrangements relating to mechanisms allowing prison officers to retire before reaching the state pension age, and we are continuing to engage in discussions with the Prison Officers Association.
I bow to none in my respect for the work of prison officers. I think it right for my right hon. Friend the Minister for the Cabinet Office and Paymaster General to continue to engage in those discussions, because this issue is both important and specific to that particular work force.