Scottish Parliamentary Pension Scheme Committee (Bill Proposal)
The next item of business is a debate on motion S3M-2068, in the name of Alasdair Morgan, on behalf of the Scottish Parliamentary Pension Scheme Committee, on a proposal for a committee bill.
I remind members that all contributions should be made through the chair.
I do not often get the chance to contribute to debates, so I am grateful to the Parliamentary Bureau for scheduling the debate in a prestigious slot. Debates at 9 in the morning on a Thursday tend not to bring out the majority of my colleagues, and I suspect that the fact that the debate falls on the morning after the parliamentary journalists dinner has added to that tendency. However, perhaps the attendance shows either that we are not all self-interested in our pensions, or perhaps that our colleagues have lots of confidence in the committee that is looking after the matter.
In any event, I am pleased to present to Parliament the Scottish Parliamentary Pension Committee's report, which recommends that there be a committee bill to replace the existing rules on the Scottish parliamentary pension scheme and the payment of grants to members and office-holders when they leave office. Before I explain why we need such a bill, I thank those who contributed to the process. First, I thank my fellow committee members for their valuable contributions in developing the committee's report. Secondly, I thank the committee clerks and legal advisers, who worked so hard to support members of the committee. I have to say that those thanks are not simply the conventional ones that we give on all such occasions—I genuinely thank the staff and my colleagues for all the work that they put in on this complex issue. Indeed, in this morning's short debate, we will be able only to skim over the surface of the matter.
Thirdly, I thank those who responded to our consultation document. Finally, I thank those who came forward and gave oral evidence to the committee, including the Scottish Public Pensions Agency, the Government Actuary's Department, Sir John Butterfill from the Westminster contributory pension scheme, Alun Cairns, who is chairman of the National Assembly for Wales members' pension scheme, and our own Mike Pringle, who gave evidence on behalf of the Scottish Parliamentary Corporate Body, which administers the current scheme. In particular, Grant Ballantine of the Government Actuary's Department went a long way towards giving an intelligible explanation for, and putting a human face on, what most of us regard as a black art rather than a science. John Butterfill and Alun Cairns showed us the standard of knowledge and expertise that we in the Parliament should expect of any future trustees of our pension fund if we decide to go down the proposed route.
The Scottish parliamentary pension scheme is similar to the parliamentary contributory pension scheme at Westminster and has been in operation since the Parliament was set up in 1999. Looking around the chamber, I see some members—I could even say old lags, if that was a parliamentary term—who have been contributing since the inception of the scheme, just as I have. How time flies when we are really enjoying ourselves. The rules that cover grants for members and office-holders are also similar to the rules that are in place at Westminster. They, too, were introduced in 1999.
Why do we need to change the rules that govern our pensions and grants? First, they were set up under transitional provisions at Westminster and were always intended to be replaced by an act of the Scottish Parliament. Indeed, because of the transitional arrangements, it would not be possible for us to make any changes to the rules that govern pensions and grants without going down the proposed route.
Secondly, and perhaps more significantly, some major legislative changes at United Kingdom level since 1999 have affected all pension schemes. The main ones are in the Finance Act 2004 and the Pensions Act 2004, which have transformed the tax and legal environment in which pensions schemes operate. In fact, some changes have legally to be made by April 2011—doing nothing is not an option.
Having established the need for changes, Parliament set up a cross-party committee to consider and take evidence on the existing rules for the pension scheme and office-holders' grants and pensions, to report to Parliament on its findings and to set out the changes that we consider necessary and the provisions that should be contained in the proposed bill. To seek views on that, we issued a consultation document on 17 October last year to both current and former MSPs and office-holders, and to a wide range of outside bodies with an interest in pensions. We then took oral evidence from a number of experts whom I have already mentioned. We were mindful of the recommendations that had been made by the Senior Salaries Review Body in Westminster in its triennial report on MPs' and office-holders' salaries, pensions and allowances at the beginning of last year, and we were also mindful of the pension arrangements that are currently in place in the other UK parliamentary and assembly bodies.
One of the first issues to consider was the role of the Scottish Parliamentary Corporate Body, which is responsible for management and administration of the scheme. We recognised that, on one hand, the corporate body is responsible for funding the pension scheme through pension contributions from its budget—in effect, from the public purse—while on the other hand it has a fiduciary duty to act in the best interests of scheme members. The committee believes that there is a potential conflict of interests between those two roles or, at least, a perception of such a conflict. That view was also expressed by the corporate body when it gave evidence. We therefore recommend that, in line with other parliamentary and assembly pension schemes in these islands, a separate board of trustees be set up to manage the scheme in order to reduce the potential for any conflict of interests.
To bring the scheme into line with general changes to pension legislation, we recommend that express provision be made for pension sharing on divorce, which was introduced by the Welfare Reform and Pensions Act 1999, and to take account of the new status of civil partner, which was introduced by the Civil Partnership Act 2004.
On scheme benefits, we recommend introducing a second accrual rate of one fortieth, giving members and office-holders the chance to accrue pension benefits more quickly, but at their own expense through a higher contribution rate of 11 per cent. It is worth emphasising that, although an accrual rate of one fortieth may seem generous—our current accrual rate is one fiftieth—it will be paid for entirely by the members. Indeed, we anticipate that the sum total of changes to the pension fund and the other payments that we deal with in the report will show some benefit to the public purse. I hope that that will be borne out when we publish our financial memorandum—if Parliament decides to proceed with a bill.
We also recommend that the amount of pension awarded on ill-health retirement grounds be linked to the degree of ill-health suffered—we consider that there should be two levels of pension payable. A stringent test should be applicable for severe ill-health pensions, requiring that the member's ill-health must be such as to prevent the member from performing the duties of any paid occupation, not just those of an MSP. The pension received following that test would be the same as that which is provided under the current rules, which is an enhanced pension. A second, and lesser, category of ill-health retirement should be introduced for those who are assessed as being unable adequately to carry out their duties as an MSP but who could carry out other employment of a different nature. Under that category, an ill-health pension based on years of service would be payable with no enhancement.
The committee believes that the table that is used to calculate early retirement benefits, which is based on age and service, could be seen to be discriminatory or, at the very least, inequitable. We therefore recommend removing that table and instead using actuarially neutral factors to calculate early retirement benefits.
That was a scamper through the report. In summary, we think that our recommendations will deliver a modern, affordable and equality-proofed scheme that will provide a range of benefits that strike an equitable and proportionate balance between the level of benefits and the cost to the public purse.
I move,
That the Parliament agrees to the proposal for a Committee Bill under Rule 9.15 contained in the Scottish Parliamentary Pension Scheme Committee's 1st Report, 2008 Scottish Parliamentary Pension Scheme (SP Paper 103).
As members of the Scottish Parliament, all of us are members of a public sector pension scheme whose characteristics are that benefits are defined by reference to final salary, that pension payments are index linked and that the employer's contribution is ultimately paid by the taxpayer.
Like many members, before the Parliament's arrival, I spent most of my working life in the private sector. I was self-employed and had a retirement plan with Equitable Life, so I assure members that I am sensitive to the pressures and problems that many people have experienced with private sector pension schemes and personal pension plans. As we know, many private sector schemes have been closed to new entrants. The recent experience at Grangemouth shows that proposed changes to schemes have even triggered industrial action.
When four of our members were asked to sit on the Scottish Parliamentary Pension Scheme Committee to examine and update our pension scheme—which we inherited from Westminster as part of the devolution settlement, as the committee's convener said—all of us were concerned to ensure that any changes that we proposed as a result would be fair and affordable to members and taxpayers alike, and that they would bring the scheme into line with the new rules in legislation governing pensions, and with wider legislative requirements on age and sex discrimination. We were also concerned that any enhancements to the scheme's provisions would be paid for from members' contributions or from savings that were achieved elsewhere. I am satisfied that the scheme that is recommended in the committee's report meets those criteria. On that basis, I am happy to recommend the proposal to Parliament and to invite members to support the motion.
Alasdair Morgan has thanked everyone else, so I thank him for the excellent job that he did of convening the committee in his characteristically canny and pawky style. As he did, I thank the clerks and advisers who steered us through the thickets of pension law.
As members know, economics is described as "the dismal science" and actuaries are described as people who found accountancy too exciting. However, being a member of the committee was interesting. I learned much about a complex subject, and the most important fact that I learned was that all pension schemes—our own, others in the public sector and private sector schemes in the wider world—must be fit for purpose. Pensions represent deferred remuneration to the employer and a savings scheme to the employee. We must ensure that pensions for everyone in our society are fair and balanced, that the rules of schemes and plans reflect society as it is and how people live, and that schemes seek to give people security and dignity in retirement.
I am satisfied that our scheme meets those tests and that the proposed changes are fair, balanced, reasonable and affordable. On that basis, I am happy to support the motion.
I do not want the debate to sound like an Oscars ceremony but, like previous speakers, I thank the clerks and particularly the expert witnesses who guided the committee through the minutiae of a complex subject.
It is difficult to say much more than that, although there are many reasons why we members can be regarded as being in a privileged position. Given the wider issues concerning pension schemes, to which Mr McLetchie referred, we are fortunate to be beneficiaries of a good and effective pension scheme that, because of the proposals in our report, will be brought into line with the rules and regulations and which will, critically, place no greater burden on the public purse than it currently does.
As I look round the chamber—I apologise in advance for what I am about to say—it is interesting to see that most members sitting here are perhaps of more mature years. Perhaps there is an element of vested interest in our being here, in that increasing age does concentrate the mind in such matters.
With those brief remarks, I support the report and the motion in Alasdair Morgan's name. Again, I thank everyone who was involved in helping us work our way through the subject.
Pension debates are necessary, but are never the most popular occasions; indeed, their attractiveness is probably proportionate to the age profile of MSPs. The presence of younger members would, indeed, be a sign of remarkable foresight.
The time is right for such a pension review and revision. As a member of the SPCB in the first and second parliamentary sessions, I was involved in approving the original pension scheme. I pay tribute to the parliamentary officials who have ensured its smooth working, because there was no real guide or precedent in this newest of Parliaments. Although the original scheme had some anomalies that have had to be sorted out, most of the original decisions were sound.
However, after nine years, it is the right time to put the whole system to the test, and to update and improve the scheme on the basis of experience. There were no Scottish Parliament pensioners when we started out, and their numbers are not yet great, but I am sure that time will soon cure that problem of scarcity.
The Scottish Parliamentary Pension Scheme Committee and its clerks certainly spread the net widely in their evidence taking, which involved meetings, a lunchtime drop-in session and evidence from trustees of other parliamentary schemes, as well as the oral and written evidence that they received, which the committee has used well.
I wish to address my remarks to a particular aspect of the proposed changes. So far, responsibility for management and administration of the pension scheme has rested on the shoulders of the SPCB. Guardianship of the Parliament's pension fund provision is, in fact, only one part of the massive range of corporate body responsibilities that cover the day-to-day working of everything that takes place in this building, from clerking, information services, security, staffing, legal and other services, repairs and maintenance, to every daily activity here. The decision making and ultimate responsibility lands on the agenda of the corporate body. Indeed, that fact of life was especially onerous during the long drawn-out saga of the construction of this building.
I therefore welcome report recommendations 1 to 9 regarding changes to the management and administration of the pension scheme, which propose that trustees be appointed to manage and administer the scheme. That will bring the Scottish Parliament scheme into line with the UK Parliament and National Assembly for Wales schemes, which have separate bodies dedicated to management of their members' pension schemes. The appointment of trustees will ensure that there will be no perceived conflict of interests, and will allow the trustees to be dedicated specifically to considering pension matters. The separation of the roles of employer and scheme sponsor is a sensible way forward for both the SPCB and future trustees. I welcome that recommendation.
The report also set out several consequences of such a division of responsibility and gives clear signposts for future decisions and for the relationship between the SPCB and the trustees regarding assets and liabilities. The report also signposts how the trustees should be appointed and how many there should be; how many staff they should have to advise and assist them; and how the trustees should report to Parliament.
I commend the committee for its balanced approach and for its acknowledgement of the continuing role of the SPCB through standing orders and the process of making changes through parliamentary action. If Parliament agrees to this pension scheme proposal, I wish all future trustees well in their work and decision making, which will affect the wellbeing of every present and future member of our national Parliament. Well done, the committee.
Like other members of the Scottish Parliamentary Pension Scheme Committee, I pay tribute to the committee clerks, who helped us through a difficult and complex procedure, and to Alasdair Morgan. I echo Hugh O'Donnell's observation: it is interesting that with some notable exceptions the members who are present for this debate are of a certain age. I suggest not that those members have a growing interest in the subject, but that they bring commendable experience and wisdom to the proceedings.
As Alasdair Morgan and other members said, the pension provisions for members of the Scottish Parliament are rooted in the Westminster scheme. Since the Parliament was created, various changes have been made to the Westminster and National Assembly for Wales schemes and to the law, which require us to examine and update our scheme. The Parliament has come adrift from its colleague Parliaments at Westminster and in Wales, which provide the comparators for our scheme, and we will be adrift of legal requirements unless we make changes to our scheme by 2011.
It is worth recording that because members of the Scottish Parliament receive only a percentage of the salary that Westminster members of Parliament receive, they get only a percentage of the pension that Westminster MPs receive. Given the other changes to which I referred, that means that MSPs' pensions are a percentage of a percentage. I hope that some day the Scottish Parliament will gain confidence and self-respect in its efforts to rectify the anomalies of lower pay and lower pension. I do not suggest in any way that Westminster parliamentarians do not deserve their remuneration—far from it—but it cannot be right to believe that MSPs work less hard or carry less responsibility than do members who serve in Westminster. I hope that the matter will be addressed in the future.
It is worth repeating that the committee's findings were unanimous, and noting how little commentary on or disagreement with the proposals there was. I am sure that some people outside Parliament will disagree with the proposals—some people might even disagree with the proposition that MSPs should receive a pension. However, everyone needs to plan for his or her retirement. This comment, from the website of the association of former members of Parliament, was pointed out to me recently:
"Few voters or even newspapers ever realise that the average length of service for a Member of Parliament is about 8 years. Sooner or later the guillotine falls. Either the voters feel like a change and sack them, or their local parties deselect them. Or their constituency boundaries change … Their secretaries and staff also lost their jobs too. What happens to the losers then? Nobody knows … Many sacked MPs suffer serious problems in getting other jobs."
Members of all parties know from experience that many colleagues who have not returned to the Scottish Parliament have struggled, sometimes for a long time, to find alternative employment. To try to offset some of those problems, the committee recommended that MSPs should be able to choose—I stress "choose"—to accrue pension rights more quickly than they can do under the existing scheme. However, as Alasdair Morgan said, MSPs will have to fund those accelerated benefits themselves. The cost to MSPs would be an extra 5 per cent of their salary, which would take their contributions to 11 per cent. That is the basis on which we recommended an option to have an accrual rate of one fortieth per year. It is crucial that individual members understand the cost of making that choice. My point about accrual is linked to my point that by definition our profession brings job uncertainty.
It is right that the committee proposed the removal of the rule whereby a member must have 15 years' service before he or she becomes eligible for early retirement, especially given that a person's parliamentary career can be very short. Under the proposed new arrangements, members who are over 55 would be able to access their own funds, some of which might have been transferred from other pension funds when they entered Parliament. Therefore, a member would have access to funds at a critical stage of his or her life and career. Under the current arrangements, that cannot happen until a member has served 15 years, which seemed wrong to the committee. Any pension payable under the proposed new rules would be reduced by 4 per cent for each year in which the member was retired before they were 65, for the whole life of the pension, so it would be no soft option. That substantial penalty was recommended following advice from the Government actuary.
As David McLetchie, Hugh O'Donnell, Alasdair Morgan and Andrew Welsh indicated, the changes strike the right balance between the interests and needs of members and the interests of the public purse. They are modest improvements at one level and necessary revisions of the law at another level. They are sensible and measured recommendations and—as Alasdair Morgan said—they will come at no cost to the public purse. I encourage members to support them at decision time.
Before I close the debate, I have a further request from Hugh O'Donnell. I can allow you to make a brief comment, Mr O'Donnell.
Thank you, Presiding Officer. I formally apologise to all who are present in the chamber for my late arrival in the midst of Mr Morgan's opening remarks.
Thank you for that courtesy, Mr O'Donnell.