Scottish Parliamentary Pensions Bill: Stage 3
Good morning. The first item of business is a debate on motion S3M-3029, in the name of Alasdair Morgan, on the Scottish Parliamentary Pensions Bill.
I am very glad to open this stage 3 debate on the Scottish Parliamentary Pensions Bill, which I hope will be the final debate on the bill.
After members agreed that it was necessary to reform the 10-year old transitional arrangements under the Scotland Act 1998 and to replace both the Scottish parliamentary pensions scheme and the Scotland Act 1998 (Transitory and Transitional Provisions) (Grants to Members and Officeholders) Order 1999 to reflect various changes in United Kingdom tax and pensions law, an ad hoc committee—the Scottish Parliamentary Pension Scheme Committee—was established just before the summer recess in 2007 to report on the matter. I was honoured to be appointed as the committee convener. The committee took oral evidence from experts in the various disciplines in the pensions field. Committee members are grateful to all those who gave us the benefit of their experience on those matters.
As members know, chamber debates on the bill have been fairly brief. That reflects neither the importance of the bill nor the complexity of the matters that it addresses. Indeed, the very complexity of the subject means that it is inevitable that either a very short or a very long debate has to be held. In my view, the best use of parliamentary time is achieved if parliamentarians deal with the many complexities that are involved in any pension legislation at committee. Indeed, from the outset, members of the Scottish Parliamentary Pension Scheme Committee were clear not only that we were involved in a difficult and technical area, but that we would be subject to close scrutiny. That was only right, given the current economic climate.
Again, from the outset, we made it clear that we had a duty to provide for members and office-holders a modern, equality-proofed range of benefits. We knew that we had to meet the challenge of producing a scheme that was attractive to members and to strike a proportionate balance between the scheme benefits and the actual cost to members and—just as important—the public purse of doing that. I think that we succeeded in doing so.
The bill makes important changes to members' pension arrangements to bring them into line with current taxation and pension provisions. It also sets out arrangements for those provisions to be kept up to date as required in the future, makes changes to equality proof the scheme and incorporates requirements that relate to partners and divorce legislation.
The new scheme removes a potential tension with the Scottish Parliamentary Corporate Body by moving the administration of the fund to a board of trustees who will become responsible for its administration. It provides scheme members with greater choice on how they accrue benefits and increases the options that are available to them on retirement. It also makes special provision for serving members who are approaching the age of 75 to access certain benefits and for death benefits for scheme pensioners who are aged 75 and over.
Furthermore, the scheme permits early retirement from the age of 55 for all members—a provision that is subject to a standard percentage reduction for each year of early retirement—and removes the necessity of a member having to have 15 years' service and other archaic conditions that apply to dependants' pensions.
Under the new rules, the scheme will continue to make provision for scheme members who suffer from ill-health while acknowledging that, with advances in health care, members may recover, at least in part, and therefore be able to undertake once again some kind of gainful work.
Most important, the scheme does all those things without increasing the cost to the public purse. The new scheme was costed by the scheme actuary—clearly an expert in his field—who confirmed that there were no increases in cost to the employer from the proposed changes. If scheme members want to accrue benefits more quickly or to purchase additional benefits, they may do so, but they meet the full cost themselves.
Since we last debated the bill in the chamber, a second ad hoc committee—the Scottish Parliamentary Pensions Bill Committee—has been set up to consider any amendments at stage 2. Those amendments that were lodged were largely technical in nature. Albeit that the committee's public proceedings were commendably brief, I thank committee members for their work in getting up to speed on the contents of the bill.
Even if we agree to pass the bill today, we are still far from the end of the work that will be required to bring the new scheme rules successfully into force. If the bill receives royal assent next month, as I hope it will, the new scheme rules will come into force fully from 1 September. Some rules will commence earlier than that to allow the necessary preparations to be made; perhaps the most important of those rules relate to the election and appointment of trustees to administer and manage the fund and its assets.
The role of the trustees is important: they will undertake a vital job on behalf of all scheme members. I hope that we can proceed to identify and elect suitable candidates as soon as possible. In that regard, I thank the Standards, Procedures and Public Appointments Committee for its on-going work to produce the necessary changes to our standing orders that will allow that to happen.
Other work is under way to rewrite the scheme booklet, provide scheme members with notification of the changes, and give each member the opportunity to state whether they want to remain at the current rate of pension accrual or move to the higher rate. Once the trustees are appointed, they will have to grapple with some staffing and contractual issues, ensure that all the arrangements are in place for the new scheme, and check that all necessary approvals have been obtained and the necessary expert advisers have been appointed. All that needs to be done by 1 September.
We have come a long way in working to produce a modern and attractive pension scheme that is fit for the 21st century and which complies with the relevant legislation from tax to equalities.
I move,
That the Parliament agrees that the Scottish Parliamentary Pensions Bill be passed.
Like most members in the chamber, I should declare an interest, both as a current member of the scheme—and potential member of the new scheme—and as a taxpayer. I, too, highlight the point that Alasdair Morgan made about this necessary change being made at nil cost to the public purse, or at least as best the estimates can determine. As Alasdair Morgan also said, the debate is the culmination of a detailed piece of work to introduce a highly technical but necessary bill to bring the pension and grant schemes up to date.
Members of the Scottish Parliament are not alone in looking at pension provision and seeking to find cost-efficient and effective ways in which to plan for retirement, whenever that may come. In November 2008, the Pensions Act 2008 introduced measures that included a duty on employers to automatically enrol all eligible workers who were not already members of a good-quality workplace pension scheme into such a scheme and to provide a minimum contribution. The 2008 act also allows for the establishment of a new scheme—currently it is known as the personal accounts scheme—which is a simple, low-cost pension savings vehicle that is aimed at those who do not have access to a workplace pension scheme.
Everyone needs to plan for their retirement. With that in mind, I turn to the work that was undertaken on the Scottish Parliamentary Pensions Bill. I thank Alasdair Morgan and the members of the Scottish Parliamentary Pension Scheme Committee for the work that went into producing the bill as introduced. Pensions have become shrouded in jargon and regulatory complexity. As the convener of the Scottish Parliamentary Pensions Bill Committee, which scrutinised the bill at stage 2, I can say that our task was made more straightforward than it could have been by the input and obvious determination of the members of the scheme committee to make the provisions of the bill practicable, workable and relatively understandable. As Alasdair Morgan hinted, a lot of the work was done prior to the public proceedings of our committee.
Before the stage 2 proceedings, the committee held an informal meeting with the bill team to give members an insight into the policy development behind the bill. Also, to aid our scrutiny, we sought explanation of and clarification on the various provisions in the bill. A couple of weeks later, with committee members having had the opportunity to chew over the information, formal consideration took place.
The only amendments at stage 2 were those that were lodged by the member in charge—in the main, they were technical and tidying-up amendments. For example, it was important to make it clear that pension credit members of the scheme are prevented from becoming remunerated trustees of the scheme. Any member who benefits financially from the scheme should not receive financial benefit as a trustee. Deeming the amendments to be eminently sensible, the committee was content to accept them.
I appreciate the point that Alasdair Morgan made in saying that, even if the bill is passed today, our work to ensure that all the new arrangements are put in place is not an at end. Like him, I thank the Standards, Procedures and Public Appointments Committee for its on-going work to produce the necessary changes to standing orders. In addition, I thank the clerks to our committee.
I am pleased to have had the opportunity to contribute to the process and to today's debate. I ask members to support the motion to pass the bill at decision time.
As a member of the Scottish Parliamentary Pensions Bill Committee, I thank the other committee members—Bill Aitken, Nicol Stephen and the convener, Keith Brown—for their contributions. Again, like other members, I thank the bill team for all its work and help in giving us briefings throughout a complex process. Sarah Robertson was the committee clerk and, as we have heard, Alasdair Morgan was the member in charge of the bill.
Some may ask why we should have a new pension scheme, but our scheme needed a radical spring clean, not least because of UK legislative changes such as the Finance Act 2004 and the Civil Partnership Act 2004. Some may also ask why we should improve pension conditions for MSPs when thousands of Scots are losing their jobs and final salary scheme pensions. However, the improvement from fiftieths to fortieths in the accrual rate for our pension scheme will be fully funded, as we heard, by increasing member contributions from 6 to 11 per cent. As we know, that figure was not a back-of-the-envelope job that was plucked from the sky; it was established by an independent Government actuary. We have heard previously that actuaries have been defined as those who found accountancy too exciting, but the actuarial profession is important.
We can argue that there are five key principles behind the Scottish Parliamentary Pensions Bill: it must be modern, equality proofed, attractive to members and cost neutral, and it must involve a pooling of risks. Clearly, the cost to the taxpayer is a key factor. In that regard, I flag up, as other members have done, that the reduction in the pension provision for new incumbents in the roles of Presiding Officer and First Minister will bring substantial savings for the taxpayer. Independent advice and evidence suggested that those savings could be more than £900,000 over a four-year period. I found the consultation on the bill to be comprehensive and enlightening, and it was important that it involved members, ex-members and experts from across the country.
I flag up two key developments in the bill: unmarried partners will be recognised in the scheme, and there will no be no loss of pension for surviving spouses who remarry or cohabit. In other words, the spouse pension will continue for life. That is a good example of a modern, caring and equitable scheme. Of course, it is similar to other schemes, such as those at Westminster or the National Assembly for Wales; those bodies were a number of years ahead of us in revising their schemes.
There are other important factors in the bill. I echo the point about trustees. It was important that we sorted out that issue. Of course, the bill will set up a new system for trustees that could well involve existing members and ex-members and which will prevent a potential conflict of interest as far as the SPCB is concerned.
Mandatory changes had to be incorporated in the bill, such as the minimum pension age of 55. That was done under the Finance Act 2004 and the Pensions Act 2004, and it will be effective from next year. It is important to flag up, too, the important new changes to pension sharing on divorce. The Welfare Reform and Pensions Act 1999 gave courts powers to split pension benefits on divorce, and the Civil Partnership Act 2004 extended that provision to civil partners. Finally, transfers into the Parliament pension scheme must be from a registered pension scheme. That is a straightforward provision, although it also now allows office-holders who are not MSPs to transfer in a sum from another registered pension scheme.
The bill provides an essential uprating of our current pension scheme and it is equitable to members, their partners and, more important, taxpayers by being cost neutral in its improvement of pension conditions for MSPs. The overall package represents a saving to taxpayers. I endorse the bill, which will be supported by Labour members.
It may be regarded as surprising that it has taken so long for the initial parliamentary pension arrangements under the Scotland Act 1998 to be revisited, but it is entirely appropriate that it should have been done. Like other members, I offer my thanks not only to the officials involved but to the members who initially dealt with this somewhat complex matter, who ultimately made the bill team's duties fairly easy.
It is important to stress that implementing those pension changes was not only desirable, but likely to be a legal necessity. The Pensions Act 2004 changed a great deal, and this bill, which I expect to be passed today, recognises the changes that took place as a result of the 2004 act. Perhaps I have raised an eyebrow occasionally at some aspects of equalities legislation, but in this case, where the pension fund will provide appropriate protection and security for surviving spouses and civil law partners, it is entirely appropriate that existing legislation should be amended.
It is worth stressing the cost neutrality of the proposals that are before members. Indeed, as David Stewart said, there will be an appreciable saving under certain headings, which should let the taxpayer see that consideration has been given to the public purse. It is unlikely that many of the beneficiaries under the fund in the years ahead will accumulate the necessary 40 years for the maximum pension—that is the nature of pension funds of this type. However, Presiding Officer, you may wish to defy my reasoning on that matter and assume the full pension. In all seriousness, I doubt whether anyone else would go in that direction.
The important point is that, under the bill's proposals, members will be able to opt for a higher pension. They will have to fund it themselves, though, and their contributions will reflect that. It is also important to stress that there must be a degree of detachment in the operation of the fund—as the one who chairs the SPCB, Presiding Officer, I am sure that you would agree with that—so the setting up of the trustees is a positive step in that direction.
The ill-health provisions in the bill are not so much imaginative as a necessary recognition of the difficulties that can arise from time to time in the course of anyone's career. The added years provision will allow members, at their expense, to ensure a wider and greater pension benefit. Again, that provision should be applauded.
Looking at the matter in a detached way when one is a beneficiary is always difficult, but the bill that is before members allows the public to recognise that, while the benefits have been increased, members have approached the matter in a detached and realistic manner and that the saving to the public purse is measurable, as are the potential benefits for beneficiaries. I have great pleasure in indicating that the Conservative party will support the motion at decision time.
I, too, thank Alasdair Morgan in particular for the great deal of work that he put into the bill and the Scottish Parliamentary Pension Scheme Committee. I also thank my fellow committee members who undertook stage 2 consideration of the bill, and the officials and advisers involved in the bill team. Clearly, a substantial amount of work was required to produce the bill and give the associated advice for a very technical and complex area.
Since the establishment of the Scottish Parliament in 1999, significant legislative changes have made a bill of this kind necessary. However, the opportunity was also taken to look at how the existing pension scheme had been working and to assess whether any improvements or flexibilities might be introduced. Members have referred to important pieces of relevant legislation, such as the Finance Act 2004, the Pensions Act 2004 and the Welfare Reform and Pensions Act 1999, which introduced pension sharing on divorce so that ex-spouses can get membership of a pension scheme in their own right or get a transfer value from the scheme. That also applies to the new status of civil partner that was introduced by the Civil Partnership Act 2004.
The Finance Act 2004, which was introduced on 6 April 2006, replaced with a single set of rules eight existing taxation regimes affecting the rights of pensioners. The bill that is before us is necessary because the transition arrangements in the Finance Act 2004 run out in April 2011. If the bill had not been introduced, there would have been uncertainty about how parts of the Scotland Act 1998 (Transitory and Transitional Provisions) (Scottish Parliamentary Pension Scheme) Order 1999 comply with the tax rules.
It was therefore right and appropriate that the Parliament acted. As far back as 17 October 2007, the Scottish Parliamentary Pension Scheme Committee published its consultation document and invited comments from all interested parties. The consultation sought views on a number of issues. Some views covered the mandatory changes brought about by the Finance Act 2004, which I have referred to, and others covered the sort of discretionary changes that other members have referred to—such as contribution limits, the maximum pension available, the amount of the tax-free lump sum on retirement and the amount of death-in-service gratuity.
The changes that will improve the scheme and make it more flexible are made at no additional cost to the taxpayer. However, some improvements, if individual MSPs want to opt in to them, will cost the MSPs quite a substantial sum. It is worth flagging that up to MSPs, because they will have to take important decisions before the scheme is introduced in September.
The report of the Scottish Parliamentary Pension Scheme Committee was published on 29 May 2008, and the proposal for a committee bill was agreed by Parliament after the debate on 26 June 2008. The report, which had the draft bill attached, is a substantial document. There are 57 pages of technical information, and a full set of explanatory notes running to 92 pages, together with a five-page supplementary set of explanatory notes.
All in all, this is a substantial, important and necessary piece of legislation. There is cross-party support in Parliament, so the bill is likely to receive widespread or unanimous support this evening at decision time. On an issue of this nature, that is appropriate. Because of the complex and detailed work that has been done, it is a good piece of legislation that deserves such a level of support.
The progress of the bill has shown how flexible and powerful are the Parliament's committee procedures for bills. I thank my fellow committee members for their diligence and consideration; I think that they even enjoyed parts of it. For example, in an evidence session with the scheme actuary, David McLetchie declared:
"This is a lot more entertaining than I thought it was going to be."—[Official Report, Scottish Parliamentary Pension Scheme Committee, 11 March 2008; c 68.]
At last night's Burns supper, Mr McLetchie gave the toast to the lassies, so it is perhaps appropriate that he made that comment when we were discussing the idea that women were more expensive than men. I hasten to add that that is because of women's general longevity and consequent cost to a pension scheme.
I thank again the Scottish Parliamentary Pensions Bill Committee for its scrutiny of the bill at stage 2, and the Finance Committee and Subordinate Legislation Committee for their work.
This has been a sensible use of parliamentary time in meeting the requirements of UK legislation. The one important provision that I would like to highlight again is the provision for the appointment of trustees. As David Stewart said, trustees will—as time passes—represent the full spectrum of members of the scheme. They will be tasked with a range of duties and will be equipped to take decisions to ensure the health of the scheme and to ensure best value for money.
Members may be interested to note that measures relating to the scheme will come before Westminster later this year. I expect that amending regulations will be made by the Department for Work and Pensions and that an order under section 104 of the Scotland Act 1998—and I know that all members will be familiar with that section—will be made by the Scotland Office. Those measures are primarily designed to ensure that the reserved occupational pensions regulatory regime, as currently applied to the scheme, will continue once the bill is commenced. They also seek to ensure consistency with how the equivalent Westminster pension scheme is regulated.
The proposed Westminster instruments will amend the regulatory framework that is applied to public service pension schemes. They are needed because of structural changes brought about by the bill. Many of the existing legal requirements and exemptions that are applied to public service pension schemes refer to schemes constituted by Westminster legislation. Following the bill, the rules of our scheme will be contained in an act of the Scottish Parliament, rather than, as for the existing scheme, in a Westminster instrument. The amending instruments will ensure that relevant regulatory requirements and exemptions continue to apply to our scheme.
I believe that the Westminster instruments can be made and can be in place to coincide with the rules of the new scheme coming into force. I know that members have been worried about that, so I hope that I have been able to put their minds at rest.
It is worth saying again that, all in all, the changes that the bill will bring about will produce significant savings to the public purse.
I thank the clerks and the hard-working bill team, and I commend the bill to Parliament.
Thank you—and I thank all members for keeping their speeches brief, which has given us a few extra minutes for the next debate, which is heavily subscribed.