rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 16 April, be annulled (SI 2008/1083).

The noble Lord said: My Lords, this is an important debate. It is of the utmost importance that this House fully considers the impact of any changes that we make to the pension entitlements of local government workers. As my noble friend is aware, these workers are the bedrock of services in our local communities. They will have dedicated many years to public service and it is only right, should they fall into ill health, that responsible employers have proper regard and responsibility for them.

I am thankful to the trade union UNISON for alerting me to serious concerns, which I share, regarding the impact of these regulations on its members. These concerns are particularly important to me as I, too, suffer from ill health and understand the sense of insecurity of those who suffer similarly. The proposed changes alter fundamentally the basis on which a member of the local government pension scheme can claim ill-health benefit.

The regulations make a number of critical changes. First, they make it more difficult for a member to qualify for ill-health benefits. They state that a member must be permanently incapable, for health reasons, of doing their job—as was the case previously—but have a reduced likelihood of obtaining any gainful employment before their normal retirement age. I am concerned that this additional requirement could be open to different interpretations. For example, if it is interpreted as the ability to do a totally different job, regardless of the level of pay, suitability or availability, it is possible that a seriously ill member of staff could lose their job through ill health and then receive no pension or other benefit from their former employment, despite having contributed to the scheme. I would welcome the Government’s assurances that this is not their intention.

Perhaps my noble friend could also explain why the Government have taken this stance for local government workers when it is out of step with other public service schemes, such as the NHS pension scheme and the teachers’ pension scheme. These ensure that a member who retires on permanent ill health will receive at least a pension based on what they earned to the date of their leaving. This would be without an assessment as to whether a member could obtain any other type of gainful employment. I would be grateful if my noble friend would consider whether it would be possible to align the local government pension scheme with other public service pension schemes on this point.

Secondly, there are particular concerns over members who qualify for level 3 ill-health retirement. The level 3 pension is intended for those who are judged permanently incapable of doing their job, but capable of gainful employment within a reasonable time after leaving. The regulations define a reasonable period as three years. They state that, in all cases, benefit will cease after three years without a requirement for the employer to review at this point whether the member is still unfit to obtain regular gainful employment. I am concerned that there has been flawed consultation on this three-year definition. There seems to have been no consultation on the provision to stop the pension after three years. I ask my noble friend if he will set out in his response how this definition was agreed and what consultation there was on this issue. Is he entirely satisfied that the consultation process undertaken by the department was comprehensive and rigorous, allowing for a full examination of the impact of the regulations? Does he believe that it would have been better to issue draft regulations first for discussion by stakeholders?

On consultation, will my noble friend respond to the Merits Committee report, which specifically criticised the department on its consultation process? It stated:

“We feel obliged to record our disappointment at the inadequacy of the information about the consultation process which the Department included in the Explanatory Memorandum; we are concerned that this is not the first time that the Department for Communities and Local Government have fallen short in the content of such Memoranda”.

The third issue that I will draw attention to, again in relation to the level 3 pension, is what happens to a member after three years. I welcome my noble friend’s assurance that it is the Government’s intention that a member who is still unable to be involved in regular, gainful employment after three years should be automatically put into a higher level of ill-health retirement provision and not left with a prospect of either no benefit at all, or having to go through a potentially lengthy appeal process.

Perhaps I can give an example. A member is suffering from a severe depressive illness that makes them permanently incapable of doing their job or any work, to the point that they have to leave, but the medical adviser believes that they will recover sufficiently, say within two years, to do some regular, gainful employment. Under the regulations, the employer would review whether they are still incapable of obtaining gainful employment after 18 months but, at three years, when the benefit stops, there is no requirement to review the case. Can that be right?

Fourthly, under the regulations, gainful employment is defined as paid employment for not less than 30 hours in each week for a period of not less than 12 months a year. However, to date there is no clear or agreed definition of what constitutes paid employment. If we are left with its common usage, a member who is a paraplegic and is deemed capable of working in a call centre would not receive any benefit if they were capable of that employment at the date of leaving. I hope that my noble friend will agree that, for the regulations to be implemented successfully, “paid employment” must be defined and cannot just mean any employment.

Fifthly, we understand that the intention was to ensure that no one covered by transitional protection who retires before 1 October is worse off than they would have been under the old scheme. But the regulations seem to require that all those who retire after 1 April will fall under the new definition with its inherent problems, as set out in my earlier point. Can my noble friend give an assurance that those in the process of being retired on ill health will not have to suffer a further period of uncertainty and will be treated in no worse a manner?

Lastly, I will express some concerns about the very premise on which the regulations are based. My noble friend will know that the ill-health retirement package of the local government pension scheme is aimed at saving the scheme considerable money, equivalent to 1 per cent of the pension payroll. That is what we are told. However, the numbers of ill-health retirements in the local government pension scheme have dramatically declined over the past years, and indications are that the trend will continue. I am not altogether sure that it is necessary to treat those capable of some kind of employment in such a penal way. In addition, there are no data to indicate how many future ill-health retirements will fall into which of the three levels. Government costings appear to be based purely on estimates.

The Department for Communities and Local Government has made much of the top-level entitlement, which provides for those who are mostly seriously disabled to receive a lifetime pension based on a 100 per cent service enhancement to normal retirement date. However, CLG’s estimates suggest that only 15 per cent of future ill health retirements will be likely to qualify for this level. It is of concern that there are no scheme data on the level of disability for those who have retired to test this estimate. I would be interested to hear the Government’s assessment and estimates of ill health retirements.

My noble friend knows that this whole issue is of major concern to UNISON and other unions in local government. He will also know that I provided him with some background information on the questions that would be likely to be asked during this debate. I hope that my noble friend can respond positively to my questions. I beg to move.

Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 16 April, be annulled (SI 2008/1083).—(Lord Campbell-Savours.)

My Lords, it occurred to me on my way down to the Chamber that I should declare an interest, although I do not think that I fall into the description given by the noble Lord, Lord Campbell-Savours, of most of the members of this scheme; but I will have a pension, as I have been employed—because that is what membership of the London Assembly was classed as.

I understand, I think, the concern to ensure that an employee who has retired on the grounds of ill health, but who subsequently works again—and I have come across a handful of people in that category over the years—should not be claiming in a way that is seen to be either to the detriment of the scheme, because it takes money out of the fund, or unfair. I came into the Chamber during the previous debate and heard my noble friend Lady Thomas of Winchester refer to honest benefit claimants who are the most angry about those who claim dishonestly. I do not suggest that there is considerable dishonesty, but not everything is perfect.

The noble Lord raised some extremely important points. One of the most important is that regulations that come into effect from 1 April are before us only now, courtesy of the diligence of noble Lord and UNISON. The regulations were first laid on 7 May. The Explanatory Memorandum refers to other parts of the regulations as providing clarity and clarifying certain definitions in other regulations. I take that as code for, “We are now correcting something that we did not get right in the first place”.

I hope that the Minister can tell the House what the policy review group has had to say about these regulations. I looked at the website, because I discovered that such a group existed and that its remit is to comment on this sort of thing. I could not find any comment. That is an extension of the points made by the noble Lord about consultation. The Explanatory Memorandum states that an analysis of responses will shortly become available. I could not find that either; it is not satisfactory that Parliament should be asked to approve, or by default approve, regulations without proper publication of the responses. My lack of technical skill may have meant that I could not find the responses on the website, but if they are so obscure that they are difficult to find, a similar point applies.

My Lords, the noble Lord, Lord Campbell-Savours, has done us all a favour by bringing before us the matter of the treatment of employees who become disabled. To a certain extent, the discussion flows naturally from our earlier debate—quite coincidentally; one cannot arrange these things, but it is fortunate when such a coincidence occurs. I am even less expert than the noble Baroness, Lady Hamwee, but the question seems to me to be how you define disability. The noble Lord, Lord Campbell-Savours, has a real concern there, especially because, if I correctly understand his interpretation of the regulations, that assessment has to be made on day one. An assessment of disability must be questionable at some point in the future. At that point, there must be a thorough and proper review. That is the first thing.

The second thing that causes concern is the definition of “proper employment” for a person who has suffered disability. It is all very well to say that a man is capable of working in a call centre, but that presumes that there is somewhere such as a call centre for him to work in. He may be technically defined as capable of employment in certain circumstances when in fact there is no suitable employment. I would like some explanation from the Minister of how that problem may be dealt with.

In my experience, most people would prefer to be employed than not, but if you are in this semi-disabled category—if I may put it in that way—where you can do some forms of work but not others, access to suitable forms of work is critical. I would like some assurance from the Minister that that will be properly dealt with.

Having said all that, I think that the circumstances give an opportunity to review the general position of the local government pension scheme, because local government employees, on the whole, do remarkably well out of it. The scheme is still running according to historic definitions of when one is eligible to draw a pension, when we are looking at an extended working life for the vast bulk of employees who will be eligible for the state pension scheme. There is no doubt that, at some point, the local government pension scheme will have to be looked at in the context of people’s greater expectation of life and—dare I say it?—greater capacity to continue working beyond pension age. I am not sure how many of us here today are in that category, but I suspect that quite a number of us are. I merely make that point.

The pension scheme costs £177 per household, annually, across the country. People living ordinary lives, particularly if their income has become squeezed by developments beyond their control—and, at present, beyond the control of the Government—will wonder about that if we do not have a scheme that is moving in the same direction as pensions generally. That is not specifically what these regulations are about, but since the opportunity is here, I mention that background reality. I have no doubt that there will come a time when the department, the Local Government Association and employees will be obliged to look at that much wider and more significant issue.

My Lords, I am grateful to my noble friend Lord Campbell-Savours for raising the issue, for the way he has raised it, and for giving me advance sight of the important questions put to him by UNISON in particular and, in general, by other trade unions involved in discussions on the important business of the local government pension scheme. I am also grateful to the noble Baroness, Lady Hamwee, for her constructive comments, observations and questions, and to the noble Lord, Lord Dixon-Smith, for raising issues in his usual way. I suppose I ought to declare a past interest in that I, too, was a contributor to the local government pension scheme—in Wirral, I think. I subsequently commuted my payments into the parliamentary scheme. I am sure that that was a sensible move.

Hear, hear.

Thank you very much.

We know the value of the schemes and that they are, as the noble Lord, Lord Dixon-Smith, said, good, robust schemes. They need to be carefully reviewed from time to time. I am grateful for the opportunity to explain the Government’s position on the recently concluded reform of the scheme, as it applies in England and Wales. Many points have been raised during this debate, and I will deal, in particular, with those raised by the noble Lord, Lord Campbell-Savours, after I have explained the background to how we arrived where we have. It will take some time because this is very complex. I apologise in advance for that. I would not normally detain the House at great length on this issue, but I respect those who have raised questions, and they deserve as many answers as I can give.

We need to put the regulations in context. If we do not, noble Lords will fail to grasp their individual importance and their broader significance for the scheme as a whole. The scheme, which I will refer to as the LGPS for convenience, is a public service pension scheme. Its benefits and administrative arrangements are set out in secondary legislation, made under powers in the Superannuation Act 1972. The LGPS is available for local authority employees in England and Wales, for civilian employees of police and fire authorities, charities, schools and educational establishments, including universities, as well as for employees of private sector contractors who are admitted under special arrangements to scheme membership.

Noble Lords will note that the LGPS is a funded, final salary pension scheme. Employee contributions yield from April 2008 is expected to be on average some 6.3 per cent of pay, while employers currently have been contributing on average some 15.5 per cent of payroll. The most recent data show that employees paid £1.6 billion and employers paid £4.6 billion. Benefits paid amounted to £4.7 billion. The 89 separate LGPS funds, managed and invested by local authorities in England and Wales, had a market value of £130 billion as at 31 March 2007. Income from investments totalled £3 billion in the financial year, 2006-07

Employee contributions to the LGPS range from 5.5 per cent of pay for those earning up to £12,000 a year to 7.5 per cent of pensionable pay for members earning more than £75,000. In between, there is a graduation of contributions linked to pay. Employers’ contributions are variable and depend on the assets and liabilities of each employer in each pension fund, as calculated every three years by independent actuaries appointed by each pension fund authority. For local authorities, whose contributions will be paid from their own budgets, there are issues of affordability, sustainability and inescapable costs, which may affect council tax bills.

This issue is central to the reforms recently concluded for the LGPS. I shall briefly explain that process as a backdrop to my comments on these regulations. The Government’s policy towards the LGPS is well established, having begun in 2004 and culminating in the introduction of a new scheme, which came into full effect on 1 April this year. Throughout the reform exercise it has been made clear that the Government are committed to providing decent final salary pensions, matched by the need to ensure that the pensions being provided remain secure, affordable, viable and, more importantly, fair to taxpayers. A key principle throughout the reform process has been not to impose additional costs from the scheme reforms on taxpayers.

To help to achieve those objectives the necessity has been to achieve an effective and affordable balance between the cost of providing those pensions by employers and taxpayers, as against the level and quality of pension benefits received by scheme members. All the principal stakeholders—the Government, the employers, the LGA and trade unions—believe that the new scheme is an essential component of a modern reward strategy. It is flexible, attractive and accessible, and provides an equality-proofed range of defined benefits which come at a cost-envelope that is acceptable to employees and employers.

As required by Section 7 of the Superannuation Act 1972, the Government have conducted all the necessary statutory consultations to introduce the new scheme and the provisions which are the subject of this debate. Following a national costed options exercise in mid-2006, a statutory consultation exercise on the new benefit structure for the scheme began in December 2006 and the new arrangements were set out in regulations introduced, as noble Lords observed, in April 2007.

The new scheme’s benefit provisions, which were in place some 12 months before the new scheme as a whole came into effect, were the product of detailed discussions with key stakeholders, including local authority employers and trade unions. Having the regulations setting out the benefits available in the new-look scheme in place a year before the operative date of change was done specifically to allow for the updating of administration systems, to provide sufficient time to notify the active members of the changes and, importantly, to make any necessary technical amendment to those regulations.

A key part of the new LGPS benefit structure involved the provision of new, tiered employee contribution rates, better death-in-service rights, extended pensions for partners, an ability to commute part of a pension to a tax-free lump sum and better targeted ill health benefits. These involve the provision of two tiers of ill health benefit awards for eligible members in the scheme. The top tier provides 100 per cent enhancement to members’ accrued retirement benefits where the employee leaves employment because they are permanently incapable of their local authority employment and are independently medically assessed as not likely to work in any other employment before 65, their normal retirement age.

A second tier provides a 25 per cent enhancement for those assessed as permanently incapable of their current jobs but who are likely to become capable of gainful employment at some stage before 65. In response to representations received to a previous consultation, Ministers decided in April last year that a further level of benefits would be considered outside the scheme, as had been suggested by stakeholders in discussions held up to that point.

To provide provision within the benchmark costs for the new scheme, 0.1 per cent of payroll was allowed on the advice from the Government Actuary’s Department—GAD. The Communities and Local Government letter of 4 April 2007 to stakeholders in England and Wales explained the steps in full. However, it has not proved possible to take that approach forward, so we brought forward draft proposals for a third tier of ill health benefits. I will return to this third-tier pension benefit later.

Noble Lords will be interested to learn that there was overwhelming support for the new scheme from trade union members. For example, UNISON members in July last year voted 97.1 per cent in its favour. That ringing endorsement was matched by the GMB and other unions. The LGA and local government generally also endorsed the package. An important element in reforming any occupational pension scheme and particularly one administrated and funded at local authority level is cost. Accordingly, with the support of stakeholders, the communities and local government department was advised throughout the formative and consultative phases of the exercise by the Government Actuary’s Department. Following the costed options exercise of 2006, to which I referred earlier, the GAD costed the elements of the new benefits package as affordable and sustainable and which met the wishes of stakeholders.

The new scheme benefit package, on the basis of future accruals, finally totalled 19.5 per cent of payroll. This was apportioned between employers at 13.2 per cent of payroll and employees at 6.3 per cent of pensionable pay. Noble Lords should note that the total cost envelope of 19.5 per cent was accepted by all. It delivered the affordable and viable reform package required and produced an acceptable range of improved benefits. Its acceptability to the LGA indicated that its cost to scheme employers was also acceptable and that it was seen as being fair to taxpayers.

Looking ahead, an LGPS policy review group was established to play a key role in decisions about the future of the scheme and, in particular, to prepare arrangements—required to be in place for March 2009—to deal with sharing future cost in areas in the scheme between beneficiaries and providers. That tries to answer some of the points which the noble Lord, Lord Dixon-Smith, is concerned about. That work is continuing.

Subsequently three further sets of regulations have been introduced, as promised by the Government, to complete the regulatory framework for the scheme. The LGPS (Administration) Regulations 2008 brought forward the administrative processes from the earlier 1997 LGPS Regulations, and the LGPS (Transitional Provisions) Regulations 2008 made the important arrangements for members to include benefit rights built up prior to 1 April 2008 in with their calculation of pension building up to 1 April 2008.

Finally, I turn to the provisions set out in SI 2008/1083, the LGPS (Amendment) Regulations 2008, and hope I may delve into a little detail on just a few of its important elements.

Strategically, this statutory instrument is the final component of the newly reformed scheme I have described. Its main elements include several essential technical amendments, an example of which is the substitution of three separate regulations with restructured formats to make our policy intention clearer. These apply to a definition which allows members to use an alternative pay period other than their last year’s pay when calculating a member’s pension to protect those where earnings actually reduce in the last few years of their employment; a refined definition of benefit calculation where members leave early without immediate entitlement to benefit and become what are described as “deferred members”; and a definition of “eligible children” for entitlement to survivor benefits in the case of the death of a parent who was a member of the scheme.

A clarification of contribution bands for the tiered contribution bands is now provided in response to helpful comments from stakeholders, along with how these will be indexed in line with inflation on a yearly basis. Some terminology changes are provided for improved consistency, such as changing the word “salary” to “pay”, and defining active members by reference to the new administrative regulations which were made and laid in February 2008. Lastly, a completely new provision has been made to provide scheme members with an essential third tier to the previous two tiers introduced in April last year.

Turning in detail to the ill health provisions I referred to earlier, it may be helpful if I set out the Government’s regulatory intentions for the new tier of ill health benefits in the LGPS. This final element of ill health provision meets the Government’s commitment made when the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 were laid before Parliament in April 2007. I explained earlier the elements of the first and second tiers in the benefit regulations. The new third tier of ill health benefit, now provided in the regulations we are discussing today, applies to a local government employee who leaves his current job because he is permanently incapable of doing that job but who is judged medically capable of obtaining other employment within three years. It provides a mandatory pension until the pensioner member obtains gainful employment and it is not intended that the payments should continue for ever. Third tier payments, therefore, will be reviewed after 18 months to assess the member’s employment status. Payments cease where gainful employment has been found. But if it is shown that work has not been obtained following the review, the employer must seek a further medical opinion.

The regulations provide for two outcomes when a second medical opinion is received. First, there is the opportunity to uplift the member to the enhanced second tier. Alternatively, payments will stop if the member remains medically assessed as being capable of employment within the three years of leaving their job. When payments cease, the member becomes a pensioner member with deferred benefits. The member’s final scheme retirement pension will not be reduced because of third tier payments.

An essential feature of the new three tier ill health retirement provision is the publication of statutory guidance to assist practitioners, both administrative and medical, in the operation and application of the new provisions. In November 2007, draft guidance covering the two tiers in force at that time was circulated to all interested parties to enable them to make preparations for the provisions that came into effect on 1 April 2008. A later version to reflect the addition of the new third tier is presently out for informal consultation with stakeholders. Subject to their comments, a statutory consultation exercise will commence at the end of this month on a revised version, and it is hoped that the formal statutory guidance will be in place soon afterwards.

UNISON presented a paper to the House of Lords Merits Committee commenting that the regulations as they stand are unworkable, that a key element was not consulted prior to the regulations being laid, and that the regulations are wrong in principle. It will come as no surprise to the House that the Government do not agree. UNISON has been involved in the extensive discussions and consultations that have continued since before 2006 and which led to the new three tier ill health provisions in the new-look scheme. Its comments do not reflect that a mandatory pension that UNISON sought for its members has been provided, as well as a specific statutory provision for older scheme members. At the request of trades unions, there are transitional protections to deal with cases currently being considered. These are also protections for those members who have to reduce their hours because of their medical condition, and this reduction in hours is not taken into account when calculating ill health retirement benefits, so a protection is in place.

UNISON is also of the view that elements have been added to the regulations after the consultation period. It is entirely sensible and correct that final regulations will alter somewhat from proposals circulated at the consultation stage for comment and discussion. Indeed, it is a mark of good governance that consultation responses are considered carefully and adjustments made to proposals in the light of those responses and other considerations that arise in the preparation of the final regulatory formulation.

We do not agree that the regulations are unworkable. It is essential to see all three tiers of ill health provision as a new pension-benefit package. The complete set of ill health provisions will provide improved and better targeted benefits for those most in need of financial support at a time when they are most in need of support, are incapable of performing their current job, and have no prospect, or a reduced prospect, of future employment before their normal retirement age. The new regime also recognises that those leaving employment, because they cannot undertake their current local authority job but can do other work within a period of three years, need financial support while seeking alternative employment.

Department for Communities and Local Government officials have already met representatives from UNISON and the GMB to discuss the regulations in some detail, and careful account has been taken of the representations made. I understand that the Communities and Local Government Minister is arranging to meet a delegation from the unions to discuss these and other matters concerning the scheme, and I assure the House that full and careful consideration will be given to their views and that action can be taken by way of subsequent amendment to the extant provisions where these are necessary and affordable and legally comply with the scheme.

I accept that there are elements that some will not like. In any new pension regime, this is almost inevitable as the provisions, when set in statute, must balance fairness and affordability. It was, however, essential that the third-tier ill health payments, as agreed with the stakeholders, remained within the agreed cost envelope of 0.1 per cent of payroll, as I mentioned earlier.

The level of the third-tier benefit, with its attendant checks and balances through employers’ review steps, must therefore accord with the level of resources allowed in the planning and design of the scheme reform. Crucially, all the tiers are affordable and fair to scheme members, employers and consequently taxpayers.

Finally, a high-level ill health monitoring group is already in place, with the agreement of Ministers, to establish national ill health monitoring arrangements. Key stakeholders from employers and trade unions are represented, including the LGA, the LGE, UNISON, the GMB, Unite, and human resources and occupational health professionals. I assure the House that the Department for Communities and Local Government will carefully monitor the experience of the new ill health regime and, where necessary, adjust it.

I stressed at the outset that our policy was to provide a good quality final salary scheme, that ill health pension awards were an essential component of that approach, and that provisions that govern these awards must be affordable, viable and fair. My noble friend Lord Campbell-Savours asked about the provisions that are now available in the scheme and how they relate to other public service schemes. Noble Lords suggested that it was out of step with the National Health Service and teachers’ pension scheme.

We should remember that each public service scheme deals with very different occupational groups. Indeed, the LGPS scheme has to deal with a very wide range of occupational groups. This means that it is entirely reasonable that the benefit terms of each scheme will address the requirements of each occupation differentially. The benefit make-up, funding and costs of each scheme are different, and so are their administration and management. It would not be appreciated too much if the top-rate employee contribution in the NHS, where it is 8.5 per cent of pay, was applied to the local government pension scheme, where it is 7.5 per cent of pay. The provision of the top tier in the scheme, which provides 100 per cent enhancement of a person’s future service pension rights and is payable for life at any age, is not replicated in any other public service scheme. In some respects, the LGPS members have a lead.

My Lords, I am indebted to my noble friend for his comprehensive response and for the work that has been done in his department to ensure that the information has been made available to us, and I thank noble Lords who intervened. I know my noble friend wants to go off to Brighton to hear Mr Gore Vidal, who we all admire so much. I wish him the best, and I beg leave to withdraw the Motion.

Motion, by leave, withdrawn.

House adjourned at 6.39 pm.