Report on the Public Service Pensions Bill

public-service-pensions-bill-report.pdf (8.43 mb)

Executive Summary
Key Conclusions and Recommendations
Introduction
Key Issues from the Evidence
Clause-by-Clause Consideration of the Bill

Executive Summary

The Public Service Pensions Bill aims to put in place the legislative framework for major pension reform across the public sector in Northern Ireland. It follows changes in Great Britain, by providing for the implementation locally of the recommendations of the Independent Public Service Pensions Commission, led by Lord Hutton, which respond to rising pension costs for taxpayers and employers and increases in longevity over recent decades.

At the core of the reforms provided for in the Bill is a move away from final salary pension schemes to a new career average revalued earnings scheme model, with a linkage between normal pension age and state pension age being applied generally in the public service schemes. The reforms will have an impact on a wide range of public service employees, including civil servants, local government workers, teachers, health service workers, devolved judiciary, firefighters and police officers. In this respect, the Bill has the potential to affect upwards of two hundred and sixteen thousand employees working within the public services and representing over thirty per cent of the total workforce in Northern Ireland.

This report sets out the Committee for Finance and Personnel's consideration of the Bill at Committee Stage, which commenced on 26 June 2013. However, given the significance of the reforms in the context of the predominance of the public sector in the local economy, the Committee has actively scrutinised the progress of the proposals since January 2013. This included regular engagement with stakeholders, including the applicable trade unions and the Department of Finance and Personnel, in order to establish a strong evidence base and to identify early the impacts of the proposed reforms and any issues of concern. Moreover, the Committee prioritised the Bill, which comprises 37 clauses and 9 schedules, in its work programme to ensure that there was no undue delay in concluding the scrutiny.

As part of its consideration of the Bill, the Committee issued a public call for evidence, received written submissions, held a series of oral hearings and engaged in follow up correspondence with stakeholders. In addition to scrutinising the policy intention of the reforms, members examined the Bill in terms of the operational aspects of the provisions and the technical drafting. This detailed work resulted in a wide range of issues being raised with the Department and upon which some helpful clarification, explanation and assurances have been received, the detail of which is recorded in the appendices to this report.

Amongst the key issues from the evidence, concerns arose regarding: the cost and benefit of the reforms; governance provisions; aligning normal pension age with state pension age and the inflexibility of fixing the normal pension age in primary legislation; safeguards for consultation and for sufficient Assembly control; and aspects of the provisions for revaluation and for reviewing actuarial valuations and employer contributions.

While the Committee is broadly content with the provisions in the Bill as drafted, it is unable to agree clause 10 (Pension age) due to identified concerns, and is calling for this clause to be amended in addition to amendments being tabled at Consideration Stage to clauses 5, 12, 13 and 14. It is intended that this report on the Bill, which also includes supplementary policy recommendations, will inform the contributions of Assembly Members to the Consideration Stage debate.

Key Conclusions and Recommendations

1. As part of its examination of the proposed public service pension reforms provided for in the Bill, the Committee undertook scrutiny at three levels: the policy intention of the reforms; the structural and operational aspects of the provisions in the Bill; and in terms of the technical drafting of the Bill. This detailed work, which was informed by stakeholder evidence collected in advance of the Bill being introduced to the Assembly and during Committee Stage, resulted in a wide range of issues being raised with DFP. In this regard, the Committee acknowledges both the contribution of the stakeholders, including the various trade union representatives, in informing the Committee deliberations and the responsiveness of DFP in seeking to provide clarification, explanation and assurances on issues arising from the evidence. (Paragraph 62)
2. The Committee notes the variability in the estimates of the financial penalty which HM Treasury has confirmed it will apply if the public sector pension reforms provided for in the Bill are delayed or not implemented in line with GB. Nonetheless, the Committee accepts that, given the existing financial framework for devolution, the direct reduction in the block grant as a result of not proceeding with the reforms would place a substantial pressure on the Executive's budget and, in particular, on the funding available for delivering priority frontline public services in NI. That said, given the significance of the reforms in terms of the predominance of the public sector in the NI economy, the Committee considers that, in expecting the Executive to follow parity on this devolved matter, the UK Government should have provided a macroeconomic appraisal of the Hutton reforms at a regional level. This would have facilitated the Executive and Assembly in taking decisions on the public sector pension reforms on the basis of more complete evidence. (Paragraph 74)
3. The Committee welcomes the confirmation from DFP that the Minister of Finance and Personnel will table an amendment at Consideration Stage to amend clause 5 (2) to replace 'must' with 'may' on line 6; thereby removing the explicit requirement for NILGOS to act as the pension board for the local government pensions scheme in NI and thus providing greater flexibility which was requested in the evidence from NILGA. (Paragraph 77)
4. In light of the concerns raised with the provisions in clause 10 setting NPA in primary legislation, the Committee was unable to agree this clause as drafted. In particular, the Committee believes that there is a need for sufficient flexibility to enable evidence-based decisions to be taken at a scheme level on whether certain public service roles, especially that of firefighters, should have a lower NPA than is set in the Bill. As such, the Committee recommends that the Minister of Finance and Personnel tables the necessary amendment to clause 10 at Consideration Stage to provide this flexibility, on the basis that any costs arising from future decisions to vary from parity in this area at a scheme level will be met by the responsible departments. (Paragraph 101)
5. Given the concerns raised in the evidence regarding the need for DFP's regulatory powers in the Bill to be tempered with robust consultation requirements, the Committee welcomes both the assurances from the Department that it will follow a good-practice approach in consulting on proposed statutory rules generally and the confirmation that the Minister will table an amendment at Consideration Stage to require DFP directions and regulations under clause 12 to be subject to consultation with the relevant stakeholders. The Committee will, nonetheless, wish to monitor the practical outworking of the DFP commitment and assurances in this area. This will include careful scrutiny – both at the 'SL1' stage in the secondary legislation process and of the reports to be laid before the Assembly under clauses 22 and 23 – of the extent and outcome of the consultation undertaken on proposed regulations arising from the Bill. (Paragraph 108)
6. The Committee recommends to the Assembly that the following amendment is made to clause 13(7) of the Bill, in order to make explicit the requirement for the person appointed to review the actuarial valuation to be an independent person:

Clause 13, Page 9, Line 20
After 'qualified' insert-
'and must not be-
(a) an employee of the responsible authority;
(b) the scheme manager;
(c) a scheme member; or
(d) an employee of the Department of Finance and Personnel.'

(Paragraph 117)

1. Arising from its consideration of whether the Bill provides for sufficient checks and balances on departments' powers to make pension scheme changes under subordinate legislation, the Committee recognises that there is a balance to be struck in terms of requiring the higher level of Assembly scrutiny, in the form of affirmative resolution, for subordinate legislation dealing with more substantive and potentially controversial issues, while avoiding the inefficient use of plenary time in debating minor or routine changes. Members are also mindful that, under the negative resolution procedure, committees or individual Members would have the option to table a plenary motion for annulment 'praying against' scheme changes which have given rise to concerns. (Paragraph 127)
2. In this regard, the Committee would recommend that stakeholders, including the trade unions, who have concerns with any future scheme changes ensure that these are brought to the attention of the applicable Assembly committee at the earliest opportunity. In addition, the Committee calls for further assurance from DFP that it will observe the '21 day rule' in relation to any proposals which it makes for negative resolution regulations making scheme changes under the provisions of the Bill. The Committee would advise the other applicable Assembly committees to seek similar assurances on this issue from their respective departments. (Paragraph 128)
3. As a result of its detailed scrutiny of the text of the Bill, the Committee identified a minor typographical error in clause 14(1), line 24, and members welcome the Department's subsequent agreement to table an amendment at Consideration Stage to rectify this error. (Paragraph 136)
4. In summary, the Committee is content with the provisions in the Bill as drafted, aside from:

• clauses 5 (Pension board), 12 (Employer cost cap) and 14 (Information about benefits), for which the Department has undertaken to table amendments to address issues identified by stakeholders and the Committee;
• clause 13 (Employer contributions in funded schemes), for which the Committee will table an amendment; and
• clause 10 (Pension age), which the Committee could not agree as drafted due to the aforementioned concerns.

This report on the Bill, which includes supplementary policy recommendations, is issued to inform the contributions of Assembly Members to the Consideration Stage debate. (Paragraph 138)

Introduction

Background to the Bill

1. The UK Coalition Government announced a programme of public service pension reforms at Budget 2011, which would follow the recommendations contained in the October 2010 and March 2011 reports of the Independent Public Service Pensions Commission, chaired by Lord Hutton (hereafter 'the Hutton Review'). The terms of reference for the Hutton Review were:

'To conduct a fundamental structural review of public service pension provision and to make recommendations to the Chancellor and Chief Secretary on pension arrangements that are sustainable and affordable in the long term, fair to both the public service workforce and the taxpayer and consistence with the fiscal challenges ahead, while protecting accrued rights'.

The reforms arising from the Hutton Review are the latest in a series of steps taken by the current and previous Westminster Governments all of which seek to decrease the cost of public service pensions as a proportion of Gross Domestic Product (GDP).

2. The Committee is mindful that, while public service pensions are a devolved matter in Northern Ireland (NI), provisions within the Belfast/Good Friday Agreement and the NI Act 1998 define that public service pensions fall within the 'parity' convention . This convention is intended to ensure a consistent UK-wide approach for certain policies and legislation. When presented with policy proposala in areas governed by the parity convention, legislators within Devolved Administrations have to decide whether:

• To adhere to the parity convention and enact legislation mirroring comparable legislation in Great Britain (GB); or,
• To depart from parity and enact legislation that is different from the presented GB legislation.

A consequence of any decision to depart from parity is that any extra costs incurred in developing local legislation will be funded through a commensurate reduction in the funding available to that Devolved Administration.

3. In its initial briefing to the Committee on the proposed way forward in NI, DFP highlighted that, on 8 March 2012, the Executive had agreed:

• 'to commit to the policy for a new career average revalued earnings (CARE) scheme model with pension age linked to State Pension Age to be adopted for general use in the public service schemes; and
• to adopt this approach consistently for each of the different public sector pension schemes in line with their equivalent scheme in Great Britain and not to adopt different approaches for Northern Ireland.'

4. The Bill to implement the Hutton Review recommendations in GB was introduced in the House of Commons on 13 September 2012. Initially, DFP considered the option of a Legislative Consent Motion (LCM) which, if agreed by the Assembly, would have given authority to the UK Coalition Government to include NI in the Westminster legislation. The LCM proposal was discussed by the Executive on 22 November 2012 but agreement was not reached and the motion was not brought to the Assembly.

5. The Public Service Pensions Bill was consequently introduced to the Assembly by the then Minister of Finance and Personnel, Mr Sammy Wilson MP MLA, on 17 June 2013. The overall purpose of the Bill is to reform pension schemes across the public sector in NI. In broad terms, the Bill would provide for:

• a move to a CARE scheme model of pension saving;
• a direct link to equalise schemes' Normal Pension Age (NPA) with the State Pension Age (SPA), except for the police and fire and rescue services;
• an NPA of 60 (subject to regular review) for the police and fire and rescue services;
• transitional protection measures for scheme members who are within 10 years of the existing NPA on 1 April 2012;
• a final salary link for any final salary pension accrued prior to the date at which the new schemes will commence;
• a scheme cost cap with a default mechanism to maintain employer scheme costs within set limits;
• extension of scheme access arrangements to allow public service workers to retain membership of public service schemes whose employment is compulsorily transferred to a new employer; and
• revised measures for the management, regulation and administration of schemes.

6. Given that the Bill takes the form of 'enabling' or 'framework' legislation, further secondary legislation will need to be brought forward by the responsible departments whose remits include the main public service pension schemes affected by the reforms. The main schemes are detailed in the table below, though it should be noted that a range of other public sector schemes, covering arms-length and other public bodies, will be equally affected by the reforms.

The Committee's Approach

7. Following correspondence from DFP on 13 December 2012, the Committee, at its meeting on 9 January 2013, sought an oral briefing from DFP officials on the content of the proposals to be included in the Bill. DFP officials subsequently briefed the Committee on the policy aims and expected timeframe for the passage of the primary legislation. It was noted that, in order to align with GB in terms of the implementation date of April 2015, the secondary legislation giving effect to the reforms across the various public service pension schemes in NI would follow enactment of the Bill.

8. Prior to the Bill being introduced to the Assembly, the Committee proactively gathered written and oral evidence from key stakeholders, in particular Trade Union Side (TUS) and DFP, in order to establish a strong evidence base and to identify early the impacts of the proposed reforms and any issues of concern. During this preliminary scrutiny, responses were sought from DFP on a range of issues including:

• full details of how the potential cost of £262 million per annum to the Northern Ireland block grant from a failure to implement the reforms was calculated and clarification on whether this amount in deduction to the block grant will be imposed on the Executive by HM Treasury in such circumstances;
• detail of DFP communication with other departments in relation to the full scheme triennial assessments;
• a comprehensive list of all the pension schemes and associated stakeholders affected by the Bill and the implications it will have for each scheme;
• full details of equality screening;
• information on the revised measures for management, regulation and administration of the various pension schemes;
• detail of the legislative provisions which allow for the transfer of staff from one scheme to another;
• an assessment of the implications of the agreed amendments to the Westminster Bill;
• clarification on how the drafting of the secondary legislation will be sequenced in relation to the Bill; and
• copies of all responses to the public consultation on the policy proposals.

9. In addition, the Committee sought to establish what variation could be applied locally to the corresponding GB reforms without incurring a financial reduction to the block grant. In follow up correspondence, DFP officials confirmed that scope exists at the secondary legislation stage to vary the design of the local pension schemes without financial implications, provided they fall within the cost ceiling of the equivalent GB schemes. A detailed briefing on the areas where flexibility exists for varying from GB schemes is included at Appendix 4.

10. During its preliminary scrutiny of the policy proposals, the Committee also liaised with the other relevant Assembly committees given that the responsibility for scrutinising the subsequent subordinate legislation will fall to the individual committees as applicable. Following the commencement of Committee Stage on 26 June 2013, the Committee prioritised the Bill in its work programme to ensure that there was no undue delay in concluding the scrutiny.

11. The Committee received 8 formal written submissions in response to its public call for evidence on the Bill and a substantial body of follow up correspondence was received as issues emerged from the evidence. In addition, written responses were received from the other Assembly committees whose departmental remits include public service pension schemes affected by the Bill. In this regard, the Committee for Education and the Committee for the Environment identified specific issues, which are alluded to later in the report. The stakeholder submissions are included at Appendix 3 and the various pieces of correspondence are included at Appendix 3.

12. Oral evidence was received from the following stakeholders: the Northern Ireland Human Rights Commission (NIHRC); the Northern Ireland Public Service Alliance (NIPSA); the Northern Ireland Committee of the Irish Congress of Trade Unions (ICTU (NIC)); the Fire Brigades Union (FBU); the First Division Association (FDA); the National Association of Schoolmasters Union of Women Teachers (NASUWT); the Irish National Teachers' Organisation (INTO); the British Medical Association (BMA); UNISON; the Northern Ireland Local Government Association (NILGA); and the Nevin Economic Research Institute (NERI). The Official Reports of the evidence sessions are provided at Appendix 2.

13. In line with normal practice, the Committee also invited DFP to respond to each issue raised in the evidence. Advice was received on legal issues from the Assembly Legal Services and the Committee also received advice from the Examiner of Statutory Rules on his consideration of the Bill in conjunction with the Delegated Powers Memorandum submitted by DFP. In this regard, the Examiner highlighted for information matters that arose during the passage of the equivalent Bill in Westminster.

14. At its meeting on 11 September 2013, the Committee agreed to seek an extension to the Committee Stage of the Bill until 29 November 2013 on the grounds that this would provide sufficient time for the oral evidence to be taken and enable the Committee to consider in detail the issues arising from the evidence. On 24 September 2013, the Assembly agreed a motion to extend the Committee Stage to 29 November 2013.

Overview of the Bill

15. The Bill, as drafted, contains thirty seven clauses and nine schedules, the provisions of which are described in the Explanatory and Financial Memorandum as follows:

Clause 1: Schemes for persons in public service.
16. This clause contains the main enabling power for new public service pension schemes and schemes providing other benefits, such as injury and compensation benefits made under this Bill.

Clause 2: Responsible authority for schemes.
17. Enables those departments listed in Schedule 2 to make scheme regulations for the main categories of persons in public service.

Clause 3: Scheme regulations.
18. Contains additional provisions about how the power to make scheme regulations under the Bill may be used.

Clause 4: Scheme Manager.
19. Makes provision for public service pension schemes to have a scheme manager who is to be responsible for managing or administering the scheme.

Clause 5: Pension Board.
20. Require schemes to provide for the establishment of a pension board to assist the scheme manager with certain matters.

Clause 6: Pension Board: Information.
21. Requires that the scheme manager must publish information about the pension board for the scheme or schemes.

Clause 7: Scheme Advisory Board.
22. Requires schemes to provide for the establishment of a scheme advisory board to advise on certain matters.

Clause 8: Types of scheme.
23. Sets constraints on the design of schemes, including requiring schemes that are defined benefits schemes to provide those benefits through a CARE scheme or such other description of defined benefits scheme as DFP may specify in regulations (but not a final salary scheme).

Clause 9: Revaluation.
24. Provides for the revaluation of pensionable earnings of a person in a CARE scheme in accordance with changes in prices or earnings as set out in an annual order made by DFP.

Clause 10: Pension age.
25. Contains requirements relating to the NPA of schemes made under this Bill, including linkage with SPA in most cases.

Clauses 11: Valuations
26. Requires that defined benefits schemes to be actuarially valued in accordance with DFP directions.

Clauses 12: Employer Cost Cap
27. Requires scheme regulations for defined benefits schemes to set an employer cost cap and sets out how this cap should be set, measured and operated.

Clause 13: Employer contributions in funded schemes.
28. Provides for the setting of the rate of employer contributions in defined benefits schemes with a pension fund, most notably the funded Local Government Pension Scheme (NI). The clause requires an actuarial valuation of the pension fund to inform the setting of the employer contribution rate and makes provision for this valuation to be reviewed.

Clause 14: Information about benefits.
29. Provides for scheme regulations to require scheme managers (for defined benefit schemes under clause 1) to provide active pension scheme members with benefit information statements in accordance with the requirements of this clause.

Clause 15: Information about schemes.
30. Relates to the collection and publication of information about schemes under clause 1. It allows DFP to direct schemes to publish information or to provide information to DFP, and to specify how and when that information is to be published or produced.

Clause 16: Records.
31. Allows DSD to make regulations requiring scheme managers of pension schemes made under clause 1 (and any connected schemes) to keep specified records (e.g. on information about contributions due to the scheme).

Clause 17: Regulatory oversight.
32. Makes provision about the regulatory responsibility of the Pensions Regulator in relation to the governance and administration of public service schemes made under the Bill, connected schemes and other public service pension schemes.

Clause 18: Restriction of existing pension schemes.
33. Provides that benefits may not be provided under existing pension schemes in relation to service after the closing date for the scheme. Its effect is to bring to an end further accrual of pension benefits in existing schemes, except where transitional arrangements have been agreed to allow those who are closest to retirement to continue to accrue benefits under the scheme.

Clause 19: Closure of existing injury and compensation schemes.
34. Deals with existing injury and compensation schemes. Permits scheme regulations to provide for the closure or restriction of existing schemes that provide for the payment of benefits relating to compensation for loss of office and for injury benefits.

Clause 20: Final salary link.
35. This clause introduces Schedule 7, which sets out the final salary link that applies to past service in those final salary schemes restricted under clause 18.

Clause 21: Consultation.
36. Obliges the responsible authority to consult those likely to be affected before making or changing scheme regulations. The current procedures for making changes to current public service pension schemes vary from scheme to scheme.

Clause 22: Procedure for protected elements.
37. The policy intention is that the reforms legislated for under this Bill are designed to last for at least 25 years. This clause specifies enhanced consultation and report procedures for changes to protected elements of a scheme for a period of 25 years.

Clause 23: Procedure for retrospective provision.
38. Provides a procedure to be followed when retrospective provisions are included within scheme regulations proposed by the responsible authority.

Clause 24: Other procedure.
39. Sets out the legislative procedures which apply to the making of scheme regulations. A higher level of Assembly scrutiny is required in each case if scheme regulations are used to amend primary legislation or to make retrospective amendments that appear to the responsible authority to have significant adverse effects in relation to members of schemes.

Clause 25: Extension of schemes.
40. This clause allows schemes made under clause 1 to be extended to persons who are not in the main categories of persons in public service specified there.

Clause 26: Non-scheme benefits.
41. This clause allows scheme managers and employers to make payments towards the provision of pensions and other benefits that are not delivered through a scheme made under clause 1 for persons who could have access to such schemes. This will enable employers to contribute to private occupational pension schemes where: members of public service schemes wish to take out or retain private occupational pensions in addition to (or instead of) being members of public service schemes.

Clause 27: Consequential and minor amendments.
42. This clause introduces Schedule 8, which contains consequential and minor amendments to primary legislation that are required because of the provisions in the Bill.

Clause 28: Existing local government scheme.
43. Provides for certain regulations made under Article 9 of the Superannuation (NI) Order 1972 to have effect as if they were scheme regulations made under clause 1 of the Bill. This clause will only apply to regulations under which benefits are provided to or in respect of service on or after 1st April 2014. It will only apply to regulations that provide for pension benefits in respect of service on or after that date.

Clause 29: Existing schemes for civil servants: extension of access.
44. This clause introduces Schedule 9, which amends the Superannuation (NI) Order 1972 to extend access to schemes made under Article 3 of that Order.

Clause 30: New public body pension schemes.
45. There are defined benefits pension schemes for those in public service aside from the main schemes for civil servants, local government workers, health service workers, teachers, police, fire and rescue services, and devolved judiciary. The clause imposes constraints on the design of new pension schemes that may be created under the power in clause 31 for those bodies and offices whose pension schemes are restricted for future accrual and whose members cannot join one of the schemes established under clause 1. It also governs the design of pension schemes that are set up in the future or established under future legislation for public bodies (unless future legislation makes specific, different provision).

Clause 31: Power to restrict other existing public body pension schemes.
46. Contains provision for DFP to specify public bodies whose pension schemes would be restricted and so that no benefits are provided under the scheme to or in respect of a person in relation to their service in the schemes after a date to be specified.

Clause 32: Existing public body pension schemes: pension age.
47. This clause allows an existing public body pension scheme to reform itself by including a provision that the normal pension age and deferred pension age of members of those schemes is to be the same as their state pension age (subsection (1)(a)). The link may only apply to benefits accrued under the scheme after the provision to establish that link took effect.

Clause 33: General interpretation.
48. This clause contains definitions of terms used throughout the Bill.

Clause 34: Regulations, orders and directions.
49. This clause sets out the meaning of 'affirmative procedure'. Subsection (2) provides that directions given under the Bill by DFP may be varied or revoked.

Clause 35: Financial provision.
50. This clause provides that any expenditure for the provision of pensions or other sums payable to present or former holders of judicial office are to be paid out of money provided by the Assembly.

Clause 36: Commencement.
51. This clause provides when and how the provisions of the Bill are to come into force. The provisions listed in subsection (1) come into force automatically on the day the Bill is enacted.

Clause 37: Short title.
52. This Act may be cited as the Public Service Pensions Act (NI) 2013.

Schedule 1: Persons in Public Service: Definitions
53. This schedule provides the definitions of person in public service.

Schedule 2: Responsible Authorities
54. This schedule provides the definition of responsible authorities.

Schedule 3: Scope of Scheme Regulations: Supplementary Matters
55. This schedule provides the scope of the regulations by setting out the eligibility and admission to membership.

Schedule 4: Regulatory Oversight
56. This schedule provides for regulatory oversight and consequential changes to current affected legislation.

Schedule 5: Existing Pension Schemes
57. This schedule provides the affected schemes.

Schedule 6: Existing Injury and Compensation Schemes
58. This schedule provides for the scope of affected schemes.

Schedule 7: Final Salary Link
59. This schedule provides for the person who remains in an old scheme for past service.

Schedule 8: Consequential and Minor Amendments
60. This schedule provides for consequential and minor amendments

Schedule 9: Existing Schemes for Civil Servants: Extension of Access
61. This schedule amends the Superannuation (NI) Order 1972 to extend access to schemes under that Order which provide for superannuation benefits for civil servants.

Key Issues from the Evidence

62. As part of its examination of the proposed public service pension reforms provided for in the Bill, the Committee undertook scrutiny at three levels: the policy intention of the reforms; the structural and operational aspects of the provisions in the Bill; and in terms of the technical drafting of the Bill. This detailed work, which was informed by stakeholder evidence collected in advance of the Bill being introduced to the Assembly and during Committee Stage, resulted in a wide range of issues being raised with DFP. In this regard, the Committee acknowledges both the contribution of the stakeholders, including the various trade union representatives, in informing the Committee deliberations and the responsiveness of DFP in seeking to provide clarification, explanation and assurances on issues arising from the evidence.

63. A number of the key themes and issues raised in the written and oral evidence received by the Committee are outlined below. More detailed information on the outputs from the Committee's scrutiny is included in the appendices to this report.

Cost and Benefit of the Reforms

64. The Committee recognises that a core aspect of the Bill is to reform the current public sector pensions landscape in order to control the cost of schemes that are funded by the public purse. In its initial evidence, DFP indicated that failure to or any delay to legislate on the reforms could result in a reduction in the block grant of in excess of £262 million for the first year in terms of savings foregone.

65. Members are very mindful of the consequences for the delivery of key public services in NI from a reduction to the block grant of this magnitude, especially in the current period of budgetary constraint. This concern was reflected in the evidence from some stakeholders, including the Equality Commission, which stated that 'this reduction could exacerbate some existing inequalities if departmental budgets are reduced as a result of changes to the block grant'.

66. From the stakeholder evidence and Assembly research, however, it was also apparent that a 'macroeconomic' analysis or appraisal has not been undertaken of the proposed pension reforms at either a UK or NI level, including by the Hutton Review. In their evidence, the TUS representatives emphasised the need to assess the impact of increasing the age of retirement – particularly in terms of displacement in the labour market, whereby '...if you keep someone in work five years longer, someone else will not be getting that job for five years or until it becomes free...' – and the correlation between this and youth unemployment. TUS also indicated that it had done some work itself on macroeconomic analysis, referred to work by NERI on youth unemployment, and expressed a willingness to assist the Department in meeting the cost of a wider exercise.

67. As part of its preliminary scrutiny, the Committee pursued the issue of more accurate cost/savings estimates, including the absence of a macroeconomic appraisal, with DFP. Arising from this work, the Committee established that the estimated cost of £262m for the first year of not following the reforms was based on Government Actuary Department (GAD) methodology which applied assumptions in relation to the Health Service Scheme across the remaining main public sector schemes in NI. At the Committee's request, DFP agreed to commission further scheme-specific calculations by GAD (at a cost of £20k - £30k), for the purpose of providing more accurate estimated costs of not implementing the reforms in NI. The result of this work was an increase in the estimated cost of not implementing the reforms in the first year, from £262m to £300m.

68. While the Committee acknowledges the willingness of DFP to commission the additional work by GAD, members are mindful that this was a limited exercise, which did not, nor was it intended to, provide a macroeconomic appraisal of the reforms. Moreover, DFP emphasised the scale and complexity of such an appraisal and, using the Hutton Review as a comparator, the Department suggested that the exercise could require a similar period of 9 months to complete and that the cost could potentially also reach several hundred thousands of pounds.

69. At its meeting on 26 June 2013, the Committee considered the options for obtaining a macroeconomic appraisal of the policy aims of the Bill and agreed in the first instance to establish what level of support TUS could provide in respect of the assessment. ICTU (NIC) subsequently provided an NERI discussion paper, entitled 'Increasing the Retirement Age for Public Sector Workers: Effects on the Wider Labour Market', as part of its written submission to the Committee on 30 August 2013.

70. In its paper, NERI contended that serious displacement in the labour market may be a consequence of increasing the retirement age and that this could take a prolonged period of time to adjust given the current distressed state of the labour market and the unique characteristics of the public sector. It was further highlighted that forcing people to work later may increase costs elsewhere and studies were cited which suggest that increasing the retirement age may lead to significant increases in disability entitlements.

71. On 30 September 2013, the Department provided the Committee with a written response to the issues raised in the NERI paper. For its part, DFP argued that, whilst the paper pointed out some possible impacts of increasing the pension age, it did not take account of the wider macroeconomic impact of a failure to reform, in particular the costs in excess of £300 million per annum which would also have an impact on the labour market. Whilst the Department accepted that pension reform could result in short-term labour market impacts, it was of the view that, over the longer term, the labour market will adjust and that there is potential for longer-term benefits to emerge.

72. In continuing its scrutiny of this matter, at its meeting on 2 October 2013, the Committee agreed to seek information from DFP on what research has been done or can be done to provide a cost-benefit analysis specifically on the implications of NI not aligning the NPA with the SPA as proposed in the Bill. In response, the Department argued that:

'any divergence from the general policy on scheme pension age from the equivalent schemes in Great Britain is unnecessary, would be contrary to the Executive's agreement on pension reform on 8 March 2012, and would have inevitable financial implications against the Northern Ireland funding made available from HM Treasury.'

73. DFP further argued that additional work in this area would cost in the region of £10,000 to £15,000 plus VAT, would take 3 to 4 weeks to complete, would not address the 'benefits' of such a policy and would be subject to the same limitations as the previous work undertaken by GAD. Moreover, the Department contended that a more detailed actuarial analysis, for instance looking at how costs may evolve from 2015 to the long term, would cost considerably more and take considerably longer to issue.

74. The Committee notes the variability in the estimates of the financial penalty which HM Treasury has confirmed it will apply if the public sector pension reforms provided for in the Bill are delayed or not implemented in line with GB. Nonetheless, the Committee accepts that, given the existing financial framework for devolution, the direct reduction in the block grant as a result of not proceeding with the reforms would place a substantial pressure on the Executive's budget and, in particular, on the funding available for delivering priority frontline public services in NI. That said, given the significance of the reforms in terms of the predominance of the public sector in the NI economy, the Committee considers that, in expecting the Executive to follow parity on this devolved matter, the UK Government should have provided a macroeconomic appraisal of the Hutton reforms at a regional level. This would have facilitated the Executive and Assembly in taking decisions on the public sector pension reforms on the basis of more complete evidence.

Governance provisions

75. As part of their examination of the Bill and the evidence received, members identified a range of issues in respect of the governance provisions, particularly in relation to clauses 5 and 7 which make provision for pension boards and scheme advisory boards respectively. The main issues are outlined below.

76. It was noted that clause 5, subsection (2) of the Bill provides that, in the case of a pension scheme for local government workers, the regulations must provide for the appointment of the Northern Ireland Local Government Officers' Superannuation Committee (NILGOSC) as the Pension Board for that scheme. However, in its evidence to the Committee, NILGA highlighted that the wording would have an effect that NILGOSC would act as both the Pension Board and also the Scheme Manager and, whilst such an arrangement is permissible in the equivalent GB legislation, it is not pre-determined in the way the NI Bill is for local government only. The concerns of NILGA in respect of clause 5(2) were also reiterated in the submission from the Committee for the Environment.

77. As a result of this issue being highlighted, a response was sought from the Department and the Committee welcomes the confirmation from DFP that the Minister of Finance and Personnel will table an amendment at Consideration Stage to amend clause 5 (2) to replace 'must' with 'may' on line 6; thereby removing the explicit requirement for NILGOS to act as the pension board for the local government pensions scheme in NI and thus providing greater flexibility which was requested in the evidence from NILGA.

78. In its evidence, TUS called for the references in clause 5(5)(c) and (7)(b) to 'member representatives' to be amended to provide that these are appointed from the recognised trade unions for the scheme following consultation with ICTU (NIC). In this regard, the Committee welcomes the assurance in the DFP response that, as part of the secondary legislation process, the responsible departments and their TUS counterparts will have an opportunity to 'further refine scheme level arrangements as appropriate in the course of their overall consultations on new scheme regulations'.

79. A further area in which the Committee raised a number of queries was in relation to safeguards for the proper governance and administration of schemes under clause 5, subsections (3), (4) and (5), including in terms of securing compliance with legislative requirements and the related sanctions for non-compliance. In its response, the Department provided assurance by explaining that:

'There are extended powers for the Office of the Pension Regulator and an accompanying new code of practice will apply for schemes made under the Bill. The Pensions Regulator has powers to impose fines where appropriate where scheme mismanagement occurs'.

80. As part of its scrutiny of the governance provisions of the Bill, the Committee also examined the clause 7 requirement that scheme regulations for defined benefits scheme must provide for the establishment of a scheme advisory board (as distinct from the pension board) with responsibility for providing advice to the responsible authority, at the authority's request, on the desirability of changes to the scheme.

81. In written submissions to the Committee a number of concerns were raised by TUS regarding the composition of the board and it was proposed that the clause be amended to provide for a balanced representation. In its response, DFP reiterated the point that secondary legislation provides scope for individual departments, in conjunction with TUS, to refine scheme specific requirements and suggested that this might be the most appropriate stage for this to be addressed.

82. At its meeting on 6 November 2013, the Committee sought an assurance from DFP officials that scheme advisory boards would have a sufficient challenge function and independence. In response, members were advised that, regardless of its makeup, the scheme advisory board has a defined role for which it will be accountable and that it can advise on the desirability of scheme changes as it sees fit, even in the absence of a request to do so from the responsible authority under clause 7(1).

83. On the issue of independence, DFP pointed out that it is a requirement that the responsible authority satisfies itself that any appointed person does not have any conflict of interest and, as an additional measure, following discussions with the Pensions Regulator, draft guidance is being prepared on how the Regulator's code of practice will apply to the scheme advisory boards as well as to the pension boards. On the basis of the clarification and assurances received from DFP, the Committee decided not to pursue further amendments to clauses 5 and 7.

Normal Pension Age and State Pension Age

84. It was clear from the stakeholder evidence that one of the most contentious impacts of the reforms arises from the provisions in clause 10 of the Bill which establish an automatic linkage between NPA and SPA for public servants generally and which set the NPA at 60 years of age for firefighters and the police. This will, in effect, mean that a large number of public sector employees will be unable to receive their full pension entitlement at the age expected when they first joined the scheme. Moreover, the Committee has noted from the research and evidence that, aside from firefighters and police officers, certain other physically or emotionally demanding public service roles (e.g. prison officers, teachers, paramedics and mental health nurses) have been identified as potentially problematic in terms of the consequences of an automatic linkage between NPA and future increases in the SPA, including the planned increase to 68 years of age in 2046.

85. In considering these issues, members also noted from the evidence that, in recent years, a number of changes in secondary legislation have been implemented for new entrants to existing public service pension schemes. For example, for new entrants to local government, teachers, health and civil service pension schemes the NPA is now set at 65 years of age, while the NPA for entrants to the firefighters and police pension schemes was set at 60 years of age since 2006.

86. In terms of the argument against setting a link between NPA and SPA in primary legislation, the BMA cited the Working Longer Review, currently being undertaken by a tripartite partnership review group comprising NHS trade unions, NHS employers and health department representatives, which will consider, amongst other things, the evidence of the impact of working beyond 60 years of age. The BMA argued that the Bill should be amended to enable the findings of the Working Longer Review to be taken into account.

87. Similarly, in its written response to the proposed reforms, UNISON cautioned that there should be careful consideration of the effect of working longer on specific groups of workers. Also citing the Working Longer Review, which will look at specific groups, such as paramedics, UNISON stated that the findings of this review should not be pre-judged and that:

'The Northern Ireland Bill should at least enable schemes to be able to look objectively at the effect on members having to work longer and also take into account the views of employers. Employers may find it preferable that some groups have a lower normal retirement age rather than having to deal with issues including increasing long term sick leave and ill health retirements as retirement ages increase'.

88. In terms of the stakeholder concerns over the ability of affected staff to maintain fitness levels in order to fulfil their duties, the Committee undertook particular scrutiny of the case of firefighters. At their meeting on 9 October 2013, members took oral evidence from the FBU which stated that a finding from the 'Williams Review' indicated that up to 85% of fire fighters aged between 55 and 60 would not be able to maintain the fitness standards required to effectively conduct their duties. Moreover, in responding to Committee queries on the scope for such firefighters to move to non-frontline roles, including community fire safety, the FBU pointed out that it had written confirmation from its employers on at least two occasions 'that there simply are not those redeployment opportunities in the Northern Ireland Fire and Rescue Service' and hence the risk of capability dismissals. In addition, the FBU pointed out that national fitness standards have not yet been set for the Fire and Rescue Service and, therefore, a decision on NPA should await that outcome.

89. Whilst acknowledging that the Bill does not require firefighters to work to the age of 60, the FBU highlighted that, should a firefighter choose/have to retire before 60 years of age then this could result in an actuarial reduction to the overall pension entitlement of approximately 4% per year. As such, the FBU proposed an amendment to clause 10(2) of the Bill to enable the NPA to be set in scheme regulations and thereby provide flexibility for firefighters who do not meet the fitness standards to leave before 60 years of age without an actuarial reduction.

90. In its written responses to the Committee, DFP explained that, whilst clause 10 sets an NPA of 60 years of age for firefighters and police, it was not explicit in its requirement that all firefighters must work to the age of 60. The Department argued that such individuals have options and could choose to retire before the age of 60; however it was acknowledged that this would incur an actuarial reduction to the overall value of the pension.

91. In subsequent oral evidence to the Committee on 16 October 2013, DFP officials highlighted a more flexible approach being considered for firefighters in Scotland, which would set the NPA at 60 years of age but provide for an accrual rate to enable individual firefighters to leave earlier without such a heavy penalty to their pension. The DFP officials confirmed that scope would exist in the secondary legislation to adopt a similar approach in NI provided that it falls within the cost ceiling of the scheme, otherwise any costs over and above this would have to be met by that sector.

92. Given the FBU claims that a high proportion of individuals would not be able to achieve the required fitness standards and in order to understand the potential impact to public safety, the Committee wrote to the Minister for Health, Social Services and Public Safety for information on the options for firefighters to retire early with actuarial reduction and on whether scope exists to redeploy firefighters who are unable to meet the fitness standards into other roles within the public sector in NI.

93. In correspondence dated 19 November 2013, the Minister for Health, Social Services and Public Safety provided a response to the Committee. The Minister advised that, in terms of the potential numbers of firefighters aged 55 – 60 who cannot maintain the fitness standards and the implications, 'the position in Northern Ireland is unclear and the available information is incomplete'. As regards the scope for redeployment into the wider public sector, it was advised that:

'Under employment legislation retired firefighters cannot be provided with a more advantageous position which allows them to complete for employment in the wider public sector regardless of their individual circumstances'.

94. When undertaking its formal clause-by-clause consideration of the Bill on 20 November 2013, the Committee agreed to request an update from DFP on any developments in the negotiations on future pension arrangements for firefighters in Scotland, which might provide a model for the firefighters scheme in NI; particularly in terms of flexibilities for early departure with minimal actuarial reductions for firefighters aged between 55 – 60 years who are unable to maintain the operational fitness standards. A subsequent response from DFP, however, indicated that the Department did not have any further update on the position in Scotland in this regard.

95. On a separate front, in its evidence, NASUWT raised concern over the alignment of NPA with SPA in the case of teachers, particularly in terms of future increases from 65 to 68 years of age. In this regard, NASUWT highlighted that, whilst teachers do not have to achieve similar physical standards to firefighters, for example, the majority of teachers leaving the profession through redundancy cite being 'burned out' as the key reason and this could therefore have an impact on teaching standards. Similar concerns were raised in a submission from the Committee for Education, particularly in terms of the impact which increases in the retirement age for teachers may have on staff morale and well-being, the educational experience for pupils and on employment levels for newly qualified teachers.

96. The Committee also noted the case raised in relation to prison officers. In correspondence, the Prison Officers' Association (POA) stated that it had rejected the pension age of 65 for new entrants to the prison service, which falls under Principal Civil Service Pension Scheme (NI). The POA also explained that, in the course of consultations in GB on the Civil Service scheme design, an offer was made to the POA that represented a partial subsidy for operational staff in post on 1 April 2015 to retire aged 65 without incurring an actuarially reduced pension by means of purchasing a lower NPA of up to three years lower than their SPA. The POA rejected this offer since it felt that the existing pension age and pension entitlements formed part of the terms and conditions of employment and, in view of the increase of pension contributions from 13.4% to 18.9%, this was considered too expensive for its members.

97. As part of its scrutiny of clause 10, the Committee sought DFP's view on the merits of an amendment to provide flexibility at secondary legislation stage for individual departments/ministers to determine in the scheme design the most appropriate NPA for schemes falling within their remit. In this regard, it was suggested that the provision, in clause 3(5), for DFP consent to scheme regulations may provide the necessary safeguard to ensure that any associated costs of varying from parity in this area would be met by the responsible Department.

98. In its response to this query, DFP highlighted that the linkage between NPA and SPA was one of the core provisions of the Bill and it was a central recommendation of the Hutton Review to respond to trends in increased longevity, options for deferred retirement and increased working lifetimes, and to make public service pension provision sustainable for the long term.

99. From the Assembly research, the Committee noted that the UK Government's main response to concern over the linkage between NPA and SPA was to point out that individuals are not being obliged to work to NPA and that 'if people wish to retire earlier, they can do so and take an actuarially reduced pension...'. However, it was also noted that this approach fails to address those circumstances where public servants, who do not wish, or cannot afford, to take early retirement, but find the completion of their duties impossible due to age-related decline. While redeployment from front-line duties to back-office jobs may provide a solution in such cases, the Committee was not offered assurance as to the general practicability of an approach along these lines.

100. In view of the stakeholder concerns around clause 10, the Committee also wrote to the First Minister and deputy First Minister to establish the basis for the Executive's decision of 8 March 2012; in particular, the extent to which it was made aware that any automatic linkage between NPA and SPA in the Bill would pre-empt any future decisions by the Executive in terms of whether the linkage should be maintained when the UK Government's planned increases in the SPA beyond 65 years of age take effect. The Committee had not received a response to its query, however, by the date of agreeing this report.

101. Having regard to the aforementioned evidence, during their final consideration of clause 10 of the Bill on 20 November 2013, a number of members indicated concerns with some of the provisions therein whilst other members considered that further information was needed before a fully informed decision could be made on the provisions. Therefore, in light of the concerns raised with the provisions in clause 10 setting NPA in primary legislation, the Committee was unable to agree this clause as drafted. In particular, the Committee believes that there is a need for sufficient flexibility to enable evidence-based decisions to be taken at a scheme level on whether certain public service roles, especially that of firefighters, should have a lower NPA than is set in the Bill. As such, the Committee recommends that the Minister of Finance and Personnel tables the necessary amendment to clause 10 at Consideration Stage to provide this flexibility, on the basis that any costs arising from future decisions to vary from parity in this area at a scheme level will be met by the responsible departments.

Consultation provisions

102. A recurring theme from the evidence was the need to ensure that the regulatory powers of DFP, as well as the other responsible authorities/departments, is subject to proportionate safeguards in terms of proper consultation with the affected stakeholders. Members noted that this concern applies to a range of provisions in the Bill, including in clauses 9, 11, 12, 14, 21, 22 and 23, and which include potentially sensitive areas such as valuations, revaluations, the employer cost cap, and retrospective changes. These consultation issues also overlap with the concerns raised by stakeholders that the Bill should include sufficient provision for 'Assembly control and safeguards', which is discussed later in the report.

103. The concerns around consultation were highlighted in evidence from a number of the trade unions, with the argument being made that 'the norm is for DFP to ignore the view of consultees' contrary to the 'Gunning Principles'. For its part, the Department argued that it conducts consultation in the spirit these principles.

104. From its previous scrutiny of the Superannuation Bill, the Committee was aware that the 'Gunning' or 'Sedley' principles setting out requirements for fair consultation have been explicitly adopted by the Court of Appeal in NI. Members have noted previously that the four requirements of consultation were stated as follows:

"To be proper, consultation must be undertaken at a time when proposals are still at a formative stage; it must include sufficient reasons for particular proposals to allow those consulted to give intelligent consideration and an intelligent response; adequate time must be given for this purpose; and the product of consultation must be conscientiously taken into account when the ultimate decision is taken."

105. With this in mind, as part of its scrutiny of the consultation issues, the Committee raised a range of queries with DFP, including:

• Whether the Department is required to consult on the orders that it makes under clause 9 (Revaluation);
• What justification exists for the powers of direction in clause 11 (Valuations) and why DFP is required to consult only with the Government Actuary under subsection (4);
• Whether the Department would consider amending clause 12 (Employer cost cap) to include a duty on DFP to consult before making directions and regulations;
• Why the consultation requirement in clause 21 does not also cover the cross-cutting orders and regulations made by DFP under powers elsewhere in the Bill (e.g. clauses 9, 12 and 31);
• Whether the absence of a requirement to consult 'with a view to reaching agreement' under clause 21(1) could result in the consultation under that clause being less meaningful; and
• What safeguards exist to ensure that the consultation reports to the Assembly, under clauses 22 (Procedure for protected elements) and 23 (Procedure for retrospective provision), are laid in sufficient time in advance of Assembly committee consideration of the scheme regulations.

106. The clarification and assurance provided by DFP in response to these queries is detailed in the correspondence at Appendix 4. However, the main thrust of the Department's response to these questions was an assurance that it will conduct its consultation in the spirit of the 'Gunning Principles' and that it had given an undertaking at the 'Collective Consultation Working Group' for the Bill that it will consult with employee representatives on its draft directions. Moreover, the Department addressed a concern of the Committee in agreeing that the Minister will bring forward an amendment to require directions and regulations in relation to the employer cost cap, under clause 12, to be subject to consultation with the relevant stakeholders.

107. The Committee also welcomes the assurance provided in the Department's response to the queries regarding the consultation reports under clauses 22 and 23 being laid in sufficient time in advance of Assembly committee consideration of the scheme regulations. In this regard, DFP reminded the Committee that, during Consideration Stage of the Superannuation Bill, the previous DFP Minister stated that 'it would be his Department's intention to lay such a report at the same time as any amending scheme to enable the Assembly to consider all relevant information collectively and before any such scheme comes into operation'. The Department confirmed that the same process would apply under this provision.

108. Given the concerns raised in the evidence regarding the need for DFP's regulatory powers in the Bill to be tempered with robust consultation requirements, the Committee welcomes both the assurances from the Department that it will follow a good-practice approach in consulting on proposed statutory rules generally and the confirmation that the Minister will table an amendment at Consideration Stage to require DFP directions and regulations under clause 12 to be subject to consultation with the relevant stakeholders. The Committee will, nonetheless, wish to monitor the practical outworking of the DFP commitment and assurances in this area. This will include careful scrutiny – both at the 'SL1' stage in the secondary legislation process and of the reports to be laid before the Assembly under clauses 22 and 23 – of the extent and outcome of the consultation undertaken on proposed regulations arising from the Bill.

Revaluation

109. Pension benefits accrued in public service schemes are uprated annually to take account of cost of living increases. Clause 9 of the Bill makes provisions that enable DFP to conduct any such valuation to be applied as an order reflecting a percentage increase or decrease referenced to the general level of prices or earnings as it considers appropriate. In correspondence to DFP, the Committee sought clarification on a number of issues in this regard.

110. An issue of particular concern to the Committee was the potential for the order-making powers bestowed on DFP to be applied to the detriment of scheme members if, for example, they did not reflect fully an increase in the Consumer Price Index (CPI). In its response, DFP stated that any methodology applied in respect of a revaluation needs to be reasonable and grounded and would have to prove the relationship between any metric.

111. Following further clarification from DFP, the Committee agreed not to pursue an amendment to clause 9(1)(b) to state that a revaluation be by reference that 'reflects' a change in prices or earnings (or both) in a given period. In this regard, members were mindful that an unintended consequence of such an amendment might be to potentially reduce the scope for agreeing variances at a scheme level to annual rates for revaluation of accrued benefits.

Review of Actuarial Valuations and Employer Contributions

112. As outlined above, clause 13 (Employer contributions in funded schemes) requires that employer contributions in defined benefits schemes with a pension fund – most notably the funded Local Government Pension Scheme (NI) – are set at a level that is sufficient to ensure the solvency of the pension fund and the long-term cost-efficiency of the part of the scheme to which that fund relates. It also requires the pension fund to be subject to actuarial valuation; while subsections (4) to (7) make provision for a person appointed by the responsible authority/department to undertake a review to consider whether the actuarial valuation is in compliance with the scheme regulations, whether it is consistent with other valuations under the scheme, and whether the employer contribution rates were set at the level required.

113. The Committee noted that the Explanatory and Financial Memorandum accompanying the Bill (on page 15) refers to the reviewer as being an 'independent person' undertaking an 'independent verification of the assessment of the scheme's assets and liabilities and to confirm whether appropriate employer contributions will be paid to meet those liabilities'. However, it was also noted that clause 13 does not appear to include specific provision to ensure the independence of the appointed person. Whilst members acknowledged that the term 'appropriately qualified' in subsection (7) could be interpreted as implying independence, this was not deemed to be sufficiently clear.

114. On raising this issue with DFP officials during oral evidence on 16 October 2013, the Committee was assured that the Department would consider enhancing the provisions in clause 13 to make it 'absolutely clear' that the person appointed to undertake the review is independent. However, in its subsequent written response of 1 November 2013, DFP appeared not to be prepared to table an amendment to enhance the independence of the person appointed stating that 'this is a technical exercise where financial or actuarial expertise is the primary requirement rather tha[n] independence'. As a consequence, at its meeting on 6 November 2013, the Committee agreed that an amendment would be drafted for consideration, which would aim to ensure the independence of the person appointed to review the actuarial valuation and employer contribution rates.

115. At its meeting on 13 November, the Committee considered the following wording of a draft amendment to clause 13, subsection (7), of the Bill:
Clause 13, Page 9, Line 20
After 'qualified' insert-
'and must not be-
(a) an employee of the responsible authority;
(b) the scheme manager;
(c) a scheme member; or
(d) an employee of the Department of Finance and Personnel.'

116. To inform the Committee's consideration, DFP officials provided an initial view on the draft amendment, advising that, while they did not consider it necessary, it did not detract from the thrust of the legislation. The Departmental officials also undertook to respond promptly with any follow up views on the matter as applicable; however, no further advice was received from DFP on the issue.

117. The Committee agreed that the amendment, as drafted, will be tabled at Consideration Stage. It was also agreed to update the Environment Committee of developments arising from the deliberations on the clauses of the Bill which are relevant to the remit of the Department of the Environment. In conclusion, the Committee recommends to the Assembly that the following amendment is made to clause 13(7) of the Bill, in order to make explicit the requirement for the person appointed to review the actuarial valuation to be an independent person:
Clause 13, Page 9, Line 20
After 'qualified' insert-
'and must not be-
(a) an employee of the responsible authority;
(b) the scheme manager;
(c) a scheme member; or
(d) an employee of the Department of Finance and Personnel.'

Information about Benefits

118. As part of their scrutiny, members noted that clause 14 of the Bill provides for scheme regulations to require scheme managers to provide active pension scheme members with benefit information statements and what must be included in them. In considering the significance of such information and the often technical nature of pensions, the Committee sought DFP's view on a proposal that would amend subsection (6) to require that the DFP directions must aim to ensure that the benefit information statement is provided in such a manner so that the scheme members are reasonably able to understand it.

119. In its response, DFP stated that the purpose of the directions will be to ensure members of all pension schemes are provided with clear and comprehensive information to enable them to understand their pension benefits. Satisfied by this assurance, the Committee agreed not to pursue an amendment.

Assembly Control and Safeguards

120. A notable theme from the evidence was the question of whether the Bill provides for sufficient checks and balances in terms of the powers of the responsible authorities/departments and DFP to make changes to the pension schemes under subordinate legislation, including retrospective changes. This issue was raised particularly in relation to clauses 8, 9, 23 and 24 of the Bill, with the stakeholder proposals focusing on requiring the scheme regulations to be subject to the 'affirmative' rather than the 'negative' resolution procedure, the former being regarded as a higher level of Assembly scrutiny and control.

121. In terms of the provisions in the Bill which gave rise to concerns in the evidence, attention was drawn to the powers of DFP, under clause 8(2)(b), to make regulations specifying defined benefits schemes other than CARE schemes and, under clause 9, to make orders in relation to the revaluation of the accrued pension of active members of schemes. In addition, concerns were raised by TUS and NIHRC in relation to: clause 23, which provides a procedure to be followed when retrospective provisions are included within scheme regulations proposed by the relevant authority/department; and, in particular, with clause 24 which requires the affirmative resolution procedure for scheme regulations amending primary legislation or making retrospective amendments that appear to the responsible authority to have significant adverse effects in relation to scheme members, but which applies the negative resolution procedure in any other case.

122. In a follow up written submission of 11 November 2013, ICTU (NIC) reiterated its view that the affirmative resolution process provides better scope for the trade unions to engage with the Assembly on issues of concern. ICTU (NIC) stated that:

'Given the lack of application by DFP of the Wolfe/Gunning principles we have serious concerns as to what may transpire once the Bill receives its Royal Assent, unless it contains the necessary safeguards.'

123. In response to the stakeholder concerns, DFP has advised that it considers that the negative resolution procedure is applied appropriately in the Bill, that it is the commonly employed mechanism for pension scheme regulations and 'that it allows appropriate Assembly scrutiny of the provisions of regulations and the chance to debate those regulations if the Assembly wishes to do so.' The Department has also pointed out that general use of the affirmative resolution procedure would see a considerable increase in the number of issues requiring plenary time which might be of a minor or technical nature. In addition, as alluded to above, DFP contends that it adheres to the 'Gunning Principles' for proper consultation with relevant stakeholders, including TUS.

124. In considering the arguments in relation to Assembly control and safeguards, members were aware that statutory rules made under negative resolution procedure have the effect of law as soon as the 'comes into operation' date is reached. Such statutory rules can be annulled by the Assembly within the statutory period, 30 calendar days or 10 sitting days from the date that the rule is laid in the Assembly Business Office (whichever is longer). For it to be annulled a Member or a committee must table a motion known as a prayer of annulment in the Business Office for debate in the Assembly and the Assembly must vote in favour. Whereas, a statutory rule subject to affirmative procedure is made, printed, laid before the Assembly and shall not come into operation unless affirmed by the Assembly following a debate and vote on a motion from the responsible Minister proposing that the rule be affirmed by the Assembly.

125. The Committee had previous experience of examining the respective merits of the affirmative and negative resolution procedures from its scrutiny of the Superannuation Bill in 2012. In that context, it was noted that a case could be made for affirmative resolution based on the numbers of people affected by changes to the compensation scheme and the relevance to public spending (a consideration that also applies in the case of public service pensions). Also, the affirmative approach would address the theoretical risk that scheme changes could be bought into operation by the Department before the Committee had an opportunity to table a plenary motion for annulment "praying against" the scheme changes. In terms of the negative resolution procedure, the Committee had also called on DFP to provide an assurance that it will observe the practice of the "21 Day Rule", whereby any future compensation scheme changes will not come into operation until at least 21 calendar days after being laid in the Assembly. The purpose of this is to allow time for scrutiny before the scheme changes come into operation.

126. In light of the concerns raised by TUS and NIHRC regarding sufficient safeguards in the Bill for cases were retrospective changes (particularly reductions) to accrued benefits are proposed, the Committee obtained independent legal advice from Assembly Legal Services. Following legal advice, five possible options were identified for improving clause 23/24 to help address some of the stakeholder concerns. While the Department rejected each of these, at its meeting on 13 November 2013, the Committee deliberated on the wording of options for draft amendments to clause 24, subsection (1), paragraph (b) of the Bill, which would have required the affirmative resolution procedure either for all retrospective changes or for retrospective changes which are considered to have any adverse effect (as opposed to any significant adverse effect). It was considered that the latter approach may focus on the changes more likely to be in dispute and would take account of the DFP argument that the Assembly is unlikely to wish to have plenary time taken up by minor and non-controversial scheme changes. Following further deliberation, however, no consensus was reached on the Committee on pursuing an amendment in this regard.

127. Arising from its consideration of whether the Bill provides for sufficient checks and balances on departments' powers to make pension scheme changes under subordinate legislation, the Committee recognises that there is a balance to be struck in terms of requiring the higher level of Assembly scrutiny, in the form of affirmative resolution, for subordinate legislation dealing with more substantive and potentially controversial issues, while avoiding the inefficient use of plenary time in debating minor or routine changes. Members are also mindful that, under the negative resolution procedure, committees or individual Members would have the option to table a plenary motion for annulment 'praying against' scheme changes which have given rise to concerns.

128. In this regard, the Committee would recommend that stakeholders, including the trade unions, who have concerns with any future scheme changes ensure that these are brought to the attention of the applicable Assembly committee at the earliest opportunity. In addition, the Committee calls for further assurance from DFP that it will observe the '21 day rule' in relation to any proposals which it makes for negative resolution regulations making scheme changes under the provisions of the Bill. The Committee would advise the other applicable Assembly committees to seek similar assurances on this issue from their respective departments.

Other Issues

129. In addition to the aforementioned issues, the Committee also raised queries on various other policy aspects of the reforms and on a wide range of drafting points in terms of the detail of the Bill. The Department provided helpful clarification and assurances on many of these issues and the full information is included at Appendix 4. The following section outlines some of the main areas covered in this regard.

130. In advance of the formal introduction of the Bill to the Assembly, DFP had confirmed that it would undertake an equality screening exercise to identify any potential impact to the groups defined under section 75 of the NI Act 1998. However, during follow up oral evidence sessions with TUS, the Committee noted concerns over DFP's decision not to conduct a full EQIA and members therefore sought information on the work that the Department had undertaken to arrive at its decision.

131. In response, DFP provided a copy of the equality screening exercise and acknowledged that the reforms will have minor impacts on age and gender. However, in respect of age, the Department determined that such impacts would be mitigated as a result of the transitional protection measures incorporated within the Bill. In addressing the impacts on gender, DFP stated that women have a higher life expectancy than men and, whilst men typically earn more, the introduction of the CARE model will provide for a fairer and more proportionate method of calculating pension provision. For its part, TUS rejected the DFP arguments and contended that, given the fundamental nature of the changes, a full EQIA should have been undertaken.

132. Following its call for evidence, the Committee received a written submission from the Equality Commission which was broadly content that DFP's screening exercise had followed its guidance. It noted the work undertaken in advance of the introduction of the Bill, welcomed the transitional protection measures to mitigate the impact of the reforms and welcomed the DFP commitment to carry out further analytical work at the policy implementation stage. As highlighted earlier in this report, the Equality Commission also raised concern around the potential for existing inequalities to be exacerbated by significant reductions in departmental budgets as a result of any failure by the Executive to implement the public sector pension reforms in NI. On the basis of this submission from the Equality Commission, the Committee was assured as to the equality issues raised previously in the evidence.

133. At its meeting on 23 October 2013, the Committee noted correspondence from the Chairperson of the Independent Financial Review Panel (IFRP), a body established to make determinations in relation to the salaries, allowances and pensions payable to members of the NI Assembly. IFRP highlighted its concern that, as drafted, clauses 30 – 32 could be interpreted as seeking to give DFP power over the NI Assembly Members Pensions Scheme which would contravene the statutory powers afforded to IFRP.

134. In follow up correspondence to the Committee, DFP explained that:

'Clauses 30, 31 and 32 of the Bill deal with additional schemes for existing schemes for public bodies and new schemes which would be established for those public bodies in the future. As the Assembly Scheme is neither a public body or a new scheme it is outside these definitions.'

DFP also explained that, during the scoping stage of pension reform, the Assembly Commission confirmed that IFRP had advised that it intended to review the Assembly Members Pension Scheme that falls within its remit in light of the wider review of public sector schemes and reviews of the equivalent schemes in Westminster and the National Assembly for Wales. DFP provided an assurance that it is content with this approach and accepted that the scheme is outside the remit of the Bill. The Committee welcomes this clarification and assurance which the Department has provided to IFRP.

135. In raising a range of queries with drafting aspects of the Bill, the Committee questioned DFP on the provision in clause 9, subsection (4), paragraph (b) which provides the Department with an order-making power to 'make different provisions for different purposes' in relation to revaluations. In response to the Committee's query as to why this provision is required, the Department explained that the policy intent is to provide the flexibility to give effect to different agreements on revaluation made with representatives of members of different schemes and examples were provided of how this might be applied. While DFP also explained that the provision in clause 9(4)(b) could be omitted because of the existing provisions of section 17 of the Interpretation Act (NI) 1954, the Committee was content with the clarification provided and, on this basis, did not pursue an amendment in this regard.

136. As a result of its detailed scrutiny of the text of the Bill, the Committee identified a minor typographical error in clause 14(1), line 24, and members welcome the Department's subsequent agreement to table an amendment at Consideration Stage to rectify this error.

Clause-by-Clause Consideration of the Bill

137. Having reviewed the substantial body of written and oral evidence received on the Bill, the Committee deliberated on the clauses and schedule to the Bill at its meeting on 13 November 2013 and undertook its formal clause-by-clause scrutiny of the Bill at its meeting on 20 November 2013. The Committee carried out formal clause-by-clause consideration of the Bill as follows:

Clause 1: Schemes for persons in public service.
Agreed: that the Committee is content with clause 1 as drafted.

Clause 2: Responsible authority for schemes.
Agreed: that the Committee is content with clause 2 as drafted.

Clause 3: Scheme regulations.
Agreed: that the Committee is content with clause 3 as drafted.

Clause 4: Scheme manager.
Agreed: that the Committee is content with clause 4 as drafted.

Clause 5: Pension board.
Agreed: that the Committee is content with clause 5, subject to the Minister tabling an amendment at Consideration Stage, as undertaken, to replace 'must' with 'may' at subsection (2), line 6.

Clause 6: Pension board: information.
Agreed: that the Committee is content with clause 6 as drafted.

Clause 7: Scheme advisory board.
Agreed: that the Committee is content with clause 7 as drafted.

Clause 8: Types of scheme.
Agreed: that the Committee is content with clause 8 as drafted.

Clause 9: Revaluation.
Agreed: that the Committee is content with clause 9 as drafted, though it was noted that Mr McLaughlin, Ms Fearon and Mr McCallister wished to reserve their position on the clause.

Clause 10: Pension age.
During the deliberations on this clause, some members raised concerns with some of the provisions therein whilst other members required additional information.

Agreed: to seek an update from DFP on any developments in the negotiations on future pension arrangements for firefighters in Scotland, which might provide a model for the firefighters scheme in NI; particularly in terms of flexibilities for early departure with minimal actuarial reductions for firefighters aged between 55 – 60 years who are unable to maintain the operational fitness standards.

Agreed: that the Committee could not agree clause 10 as drafted.

Clauses 11: Valuations
Agreed: that the Committee is content with clause 11 as drafted.

Clauses 12: Employer Cost Cap
Agreed: that the Committee is content with clause 12, subject to the Minister tabling an amendment at Consideration Stage, as undertaken, to include further provisions to the effect that DFP directions and regulations may only be made after DFP has consulted with the relevant stakeholders.

Clause 13: Employer contributions in funded schemes.
Agreed: that the Committee is content with clause 13 subject to the following proposed Committee amendment which the Chairperson will table at Consideration Stage:
Clause 13, Page 9, Line 20
After 'qualified' insert-
'and must not be-
(a) an employee of the responsible authority;
(b) the scheme manager;
(c) a scheme member; or
(d) an employee of the Department of Finance and Personnel.'

Clause 14: Information about benefits.
Agreed: that the Committee is content with clause 14, subject to the Minister tabling an amendment at Consideration Stage, as undertaken, to insert 'a' after 'which is' at subsection (1), line 24.

Clause 15: Information about schemes.
Agreed: that the Committee is content with clause 15 as drafted.

Clause 16: Records.
Agreed: that the Committee is content with clause 16 as drafted.

Clause 17: Regulatory oversight.
Agreed: that the Committee is content with clause 17 as drafted.

Clause 18: Restriction of existing pension schemes.
Agreed: that the Committee is content with clause 18 as drafted.

Clause 19: Closure of existing injury and compensation schemes.
Agreed: that the Committee is content with clause 19 as drafted.

Clause 20: Final salary link.
Agreed: that the Committee is content with clause 20 as drafted.

Clause 21: Consultation.
Agreed: that the Committee is content with clause 21 as drafted.

Clause 22: Procedure for protected elements.
Agreed: that the Committee is content with clause 22 as drafted.

Clause 23: Procedure for retrospective provision.
Agreed: that the Committee is content with clause 23 as drafted, though it was noted that Mr Bradley wished to reserve his position on the clause.

Clause 24: Other procedure.
Agreed: that the Committee is content with clause 24 as drafted, though it was noted that Mr Bradley, Mr McLaughlin and Ms Fearon wished to reserve their position on the clause.

Clause 25: Extension of schemes.
Agreed: that the Committee is content with clause 25 as drafted.

Clause 26: Non-scheme benefits.
Agreed: that the Committee is content with clause 26 as drafted.

Clause 27: Consequential and minor amendments.
Agreed: that the Committee is content with clause 27 as drafted.

Clause 28: Existing local government scheme.
Agreed: that the Committee is content with clause 28 as drafted.

Clause 29: Existing schemes for civil servants: extension of access.
Agreed: that the Committee is content with clause 29 as drafted.

Clause 30: New public body pension schemes.
Agreed: that the Committee is content with clause 30 as drafted.

Clause 31: Power to restrict other existing public body pension schemes.
Agreed: that the Committee is content with clause 31 as drafted.

Clause 32: Existing public body pension schemes: pension age.
During its consideration of this clause, the Committee invited the following DFP officials to come to the table to clarify the Department's response to an issue raised previously by the Committee:

Grace Nesbitt, Head of Pensions Division, Corporate HR;

Stephen Ball, Policy and Legislation, Civil Service Pensions, Corporate HR.

Agreed: that the Committee is content with clause 32 as drafted, though it was noted that Mr McLaughlin and Ms Fearon wished to reserve their position on the clause.

Clause 33: General interpretation.
Agreed: that the Committee is content with clause 33 as drafted.

Clause 34: Regulations, orders and directions.
Agreed: that the Committee is content with clause 34 as drafted.

Clause 35: Financial provision.
Agreed: that the Committee is content with clause 35 as drafted.

Clause 36: Commencement.
Agreed: that the Committee is content with clause 36 as drafted.

Clause 37: Short title.
Agreed: that the Committee is content with clause 37 as drafted.

Schedule 1: Persons in Public Service: Definitions
Agreed: that the Committee is content with schedule 1 as drafted.

Schedule 2: Responsible Authorities
Agreed: that the Committee is content with schedule 2 as drafted

Schedule 3: Scope of Scheme Regulations: Supplementary Matters
Agreed: that the Committee is content with schedule 3 as drafted.

Schedule 4: Regulatory Oversight
Agreed: that the Committee is content with schedule 4 as drafted.

Schedule 5: Existing Pension Schemes
Agreed: that the Committee is content with schedule 5 as drafted.

Schedule 6: Existing Injury and Compensation Schemes
Agreed: that the Committee is content with schedule 6 as drafted.

Schedule 7: Final Salary Link
Agreed: that the Committee is content with schedule 7 as drafted.

Schedule 8: Consequential and Minor Amendments
Agreed: that the Committee is content with schedule 8 as drafted.

Schedule 9: Existing Schemes for Civil Servants: Extension of Access
Agreed: that the Committee is content with schedule 9 as drafted.

Long Title of the Bill – "A Bill to make provision for public service pension schemes; and for connected purposes."
Agreed: that the Committee is content with the Long Title of the Bill.

138. In summary, the Committee is content with the provisions in the Bill as drafted, aside from:

• clauses 5 (Pension board), 12 (Employer cost cap) and 14 (Information about benefits), for which the Department has undertaken to table amendments to address issues identified by stakeholders and the Committee;
• clause 13 (Employer contributions in funded schemes), for which the Committee will table an amendment; and
• clause 10 (Pension age), which the Committee could not agree as drafted due to the aforementioned concerns.

This report on the Bill, which includes supplementary policy recommendations, is issued to inform the contributions of Assembly Members to the Consideration Stage debate.

You can download the full report here.