Official Report: Minutes of Evidence
Committee for Health, meeting on Thursday, 30 January 2020
Members present for all or part of the proceedings:
Mr Colm Gildernew (Chairperson)
Mrs Pam Cameron (Deputy Chairperson)
Ms Sinéad Bradley
Ms Paula Bradshaw
Mr Gerry Carroll
Miss Jemma Dolan
Mr Alex Easton
Miss Órlaithí Flynn
Witnesses:
Mr Andrew Dawson, Department of Health
Health and Personal Social Services (Superannuation) and Health and Social Care Pension Scheme (Amendment) Regulations (Northern Ireland) 2019
The Chairperson (Mr Gildernew): I invite Mr Andrew Dawson to brief the Committee. Andrew is the director of workforce policy at the Department of Health, and he will brief the Committee on SR 2019/62, which concerns health and social care pensions. Andrew, you are very welcome.
I declare my interest, as I am on a career break from one of the trusts and my wife works as a nurse in the health service. Additionally, I am a member of NIPSA. Do any other members have an interest to declare? No.
Andrew, go ahead with your presentation, please.
Mr Andrew Dawson (Department of Health): Thank you very much for your time.
This presentation is on the Health and Personal Social Services (Superannuation) and Health and Social Care Pension Scheme (Amendment) Regulations (Northern Ireland) 2019. I will refer to them as the 2019 regulations from here on in. They were made on 26 March 2019 and came into operation on 1 April 2019.
The main purpose of the regulations was twofold: one was to amend the employer contribution rate for the schemes; and, two, to renew the member contribution rates that had been in place. The background was that the pension scheme actuary — in this case, the Government Actuary's Department — is under a statutory duty to carry out an actuarial valuation of the scheme. This valuation is, essentially, an assessment of the cost of pension benefits building within the scheme. The resulting valuation report sets out the rate of contributions to be paid by employers and the employer cost cap.
The cost-cap process is a tool for managing the overall value of benefit provision in public service pension schemes. The employer cost cap is the target cost of the scheme, and it was determined at 1 April 2015 and set out in legislation. The cost cap also acts to limit the overall cost of the scheme to taxpayers. If the cost cap is breached by more than 2%, it triggers a change to members' benefits or requires increased contributions to reduce costs.
The outcome of the evaluation, carried out by the Government Actuary's Department, was therefore that the employer contribution rate to be paid for the period 1 April 2019 to 31 March 2023 needed to increase by 6·2% of pensionable pay. That, essentially, meant that it went from 16·3% to 22·5%, with, at that point, an estimated cost of £120 million per year for the Department of Health's arm's-length bodies, of which there are 17.
The reason for the breach of the cost cap and the need for the increase in the employer contribution cost was, I understand, driven principally by a reduction in the rate of what is known as the superannuation contributions adjusted for past experience (SCAPE) rate. That rate is the notional investment return on contributions in the scheme.
The member contribution rates were set under the previous regulations for a four-year period, and that expired on 31 March 2019. The 2019 regulations, therefore, renewed those rates indefinitely. In the absence of such legislative provision, the Health and Social Care (HSC) pension scheme would have been legally unable to collect contributions from members from 1 April 2019.
The Department held a targeted consultation on the draft amending regulations between 14 February and 14 March 2019. The truncated consultation period was simply due to the tight timescales that we were working to in order to progress the regulations in time for 1 April. Thirty-four responses were received to the consultation.
In the main, scheme members who responded raised two technical issues in respect of member contribution rates and tiers. Whilst those were very valid concerns, the Department was limited in the practical steps that could be taken at that time, even though the scheme advisory board had been commissioned to provide advice on the possible improvements to member contributions and benefits. Other consultees focused on the potential impacts of increased employer costs. I will deal with each of those specific areas in turn.
First, the technical aspects of the pension contribution rates and tiers. The history of that is that the Department had asked the HSC scheme advisory board in 2018 to provide advice on the appropriateness of the existing member contribution structure. That included the implications of a shortfall in the yield of the scheme — just to confirm, the yield is the percentage of pensionable pay that the member contributions must provide to the scheme — and whether to consider moving from setting contribution rates for part-time staff based on whole-time equivalent pay to using their actual pay.
The scheme advisory board, as a result of being asked to conduct that work, concluded that it would be fairer to have an increase in the number of contribution tiers, that tier boundaries should be automatically uplifted for pay inflation, and that it would be advisable to maintain the current position of using whole-time equivalents rather than actual earnings, as making that change would reduce yield and, therefore, require increases to contribution rates. Following receipt of those findings from the scheme advisory board, it was concluded at that time that, as the Agenda for Change pay bands, which, essentially, fed into setting the rates for contributions to the pensions, had not been updated at that time, it would not have been possible to ascertain whether the required yield from the pension scheme would have been achieved.
On the other moving parts, there were two other events that intervened to create further uncertainty. Those were the valuation findings that I described at the start of the presentation and an English Court of Appeal judgement. The uncertainty in respect of member contribution rates and tiers was exacerbated by the judgement in the McCloud and Sargeant cases, jointly known as the McCloud judgement, and that English Court of Appeal decision was in December 2018.
In summary, the Court of Appeal there decided that the transitional protection provided to firefighters and judicial pension schemes in GB amounted to unlawful age discrimination. As it turns out, that was correctly anticipated to have impacts for all public-sector pension schemes right across the UK. At that stage, the UK Government were seeking leave to appeal to the Supreme Court, with a resulting assessment that it would be impossible to assess with certainty the value of those pension arrangements. Consequently, the then Chief Secretary to the Treasury provided a written ministerial statement to the House of Commons on 30 January 2019 pausing the cost-cap mechanism element of scheme valuations pending the outcome of the McCloud litigation. In practical terms, that meant that UK Government policy was that the employer contribution rate to be implemented from 1 April 2019 was as if the cost-cap process, which was mentioned earlier, had not been paused; hence the need to increase the employer contribution rate from 16·3% to 22·5%.
For the sake of completeness, in June last year, the Supreme Court refused the UK Government's application for leave to appeal to the Supreme Court in respect of the McCloud judgement. Therefore, we are now in the position where the determination of remedies is ongoing across the UK for all public-sector pension schemes.
I will address the counterfactual. What would have occurred if these regulations had not been put into operation? The employer contributions would have been collected at the wrong rate, leading to a deficit in employer contributions. Furthermore, as mentioned earlier, there would have been no legal authority to collect member contributions from 1 April 2019, as these were set out in regulations that expired on 31 March of that year. Similar action was taken in England, Wales and Scotland to increase employer contributions to address the cost-cap breaches and in light of the uncertainty following on from the McCloud litigation.
Turning to the financial implications, the increase in the employer contribution rates created a pressure of £144 million for the Department of Health and its arm's-length bodies, including the Fire and Rescue Service — that is under a different scheme — and family health services and directional bodies. The Department has received the full budget allocation in relation to this increase and has processed onward allocations to all concerned. The departmental expenditure limit pension pressure experienced in 2019-2020 was funded from some additional moneys from the Treasury, with the remainder, as I understand it, found from within the Northern Ireland block. The new employer contribution rate for the scheme applies for an implementation period, which is 1 April 2019 to 31 March 2023 — in other words, commensurate with the regulations — and the Department has received recurrent funding in relation to that increase.
With regard to the employer contribution rate for independent general medical practitioners and their staff, independent general dental practitioners, mutual GP out-of-hours providers, and for palliative care service providers, including hospices, which are deemed to be directional bodies in respect of the HSC scheme, the Department decided that those providers would continue at the 16·3% rate temporarily whilst work was ongoing to secure further funding to meet the additional cost. The contribution rate, when increased, was then backdated to 1 April 2019. I understand that funding has now been allocated to cover the increased employer superannuation costs, too.
Finally, to conclude — you will probably be relieved to hear — in terms of the mechanics of the 2019 regulations, the Department did, unfortunately, breach the 21-day rule, for which I apologise. We did advise the Examiner that that was likely in an email at the beginning of February, as I recall. The delay in finalising the draft regulations for the Examiner was largely due to delays beyond the Department's control in finalising the new contribution rates, which were then going to be material to the setting of the rates in the regulations.
The Chairperson (Mr Gildernew): Thank you for that, Andrew. We are advised that part-time workers are required to contribute a percentage of the salary based on the full-time equivalent figure. Can you confirm that that means that someone who is earning £24,000 on a part-time basis, while earning the same amount as someone who is earning £24,000 on a full-time basis, will be paying different contributions? Does that mean, therefore, that the part-time worker would receive a higher pension and, if they do not, could that potentially discriminate against people, such as women, who are more typically employed in part-time work patterns?
Mr Dawson: I will write back to you to explain the detail of the first point.
On the second point, which is more material to the policy position for which I am responsible, yes, we would have asked the scheme advisory board to consider that, given the fact that, if you have different rules in place for part time versus full time, you could essentially be in an indirect discrimination position. That will have been referred to the scheme advisory board at the time. I personally want to consider those policy issues and the potential for the problems you mentioned in slower time now that we have these regulations through and can consider that in less of a hurry for the next round. However, it was considered by the scheme advisory board at the time, and we were able to proceed with some assurance that there was no discrimination at this stage. However, it is something that I would much prefer to consider in slower time.
Mr Dawson: The scheme advisory board reported to our initial commissioning, which was done in 2018. At the time, the board said that it was advisable to maintain the current position of using the whole-time equivalents rather than actual earnings, on the grounds that that would reduce yield, and that is something that we will want to consider. Whilst yield is, obviously, very important, so is not discriminating against anyone.
The Chairperson (Mr Gildernew): Yes. I suppose it will be interesting to see the Examiner's report. It is a complex area, and it is something that we are building in now, for a period of time.
Mr Carroll: Thanks, Andrew. Following up on your point, Chairperson, maybe the Committee should consider holding off support for the SR until we get the report or the details of further human rights reports or investigations. I would be concerned that we are being asked to endorse something that, as you say, could have untold direct consequences for women in particular. Maybe we should talk about whether we should hold off on supporting it.
I want to ask you about the responses, Andrew, and your understanding of them. Thirty-four responses were submitted — if you can answer this, I would be grateful — but do you know whether those were 34 individual responses? My understanding is that, sometimes, in consultations with the Department of Health and other Departments, unions submit responses and those are treated as one response even though they represent 20,000, 30,000 or 40,000 people. I am concerned that, maybe, the 34 responses reflect wider views on the issue.
Mr Dawson: As you say, we received a total of 34 responses, which included 22 from individual scheme members and others from a GP practice, an out-of-hours provider, Marie Curie Cancer Care, the British Dental Association, the British Medical Association, the Royal College of Nursing (RCN), Hospice UK, the Foyle Hospice, the Northern Ireland Hospice, the Society of Radiographers, the Southern Health and Social Care Trust and the South Eastern Health and Social Care Trust. If you have not already seen it, we can provide you with a copy of the consultation response document, which summarises that, and the Department's response to the policy issues.
Ms S Bradley: Following on from your point, Chairperson, I note that many of the responses mentioned the whole-time measure and the potential cliff edge, where somebody who has moved into a different tier in terms of their contributions. However, if a person is a part-time worker, the cliff edge is all the more exaggerated. As you rightly pointed out, Chairperson, a lot of these roles are predominantly filled, as I understand it, by females. That is why I was a little bit alarmed that it was deemed that there was no need for an equality impact assessment. That would be most helpful on top of the report being brought back. Hopefully, that will be reaffirmed.
There are some question marks in that area. I do not know whether you can point to some reasoning or logic around that, or whether it was something that applied in other places, in England and Wales, for example. You said that it was a copy-and-paste exercise, and that is why it is there, but was there some rationale that I have not considered as to why whole-time was considered?
Mr Dawson: Again, we were acting on the advice of the scheme advisory board at that stage. However, there is a further point for us, as the policy-owners in the Department, to assure ourselves as well. Essentially, I suppose, at that stage, the 2019 regulations were not so much a change in policy as a "keeping the lights on" measure, if I can use that phrase, whilst replicating what was going on before, except in respect of the increased employer contributions — and that was just to be able to fill the projected financial deficit if those were not in place. We did not consider that it was a policy change; that was what fed into our findings in the screening. However, I am happy to write to the Committee with further detail on that.
Ms Dolan: I am looking for clarification. The RCN stated in its response that a failure to fully fund additional employer contributions could place HSC trusts under additional financial pressures. It raised concerns about the impact that the increase will have on GP practices and charitable hospices, and it is seeking assurance that funding will be made available to those organisations as soon as possible. Did you say that that money has already been found?
The Chairperson (Mr Gildernew): Obviously, any decision by the Committee will be subject to the Examiner's report. Is it true to say that the regulations have been in place since April?
Mr Dawson: Yes, they came into operation on 1 April 2019.
Ms S Bradley: Do we have time, Chair, to defer it? It has already gone ahead, as I understand, but, to get the detail right, what options do we have, even if it is re-presented next week?
The Committee Clerk: The advice is that members have the right to seek a motion to annul if they are not happy with the rule, but bear in mind what we have been told: it is established and has allowed for the continuation of pensions to be paid from last April. Getting rid of the regulation that allows those pensions to be collected and paid into is something that members will want to consider.
Mr Dawson: The annulment would, without anything to replace it immediately, remove the legal entitlement for us to collect members' contributions. It would also put the viability of the pension scheme in immediate jeopardy.
Ms S Bradley: Going down the route of annulment is the nuclear option. However, from listening to the Examiner's report and looking at future-proofing this, are there are options going ahead to amend? As I understand it, it will not be presented to the Committee for the next block period that has been covered. Is there an opportunity to make an amendment somewhere?
Mr Dawson: If the Department were to freshly instruct the scheme advisory board to prepare a detailed report on the part-time and whole-time-equivalent issue, we could come back to present to the Committee at a future date. That could then inform the future —.
Mr Carroll: I understand that the Examiner will come next week. I believe that her role is to study the technicalities of the law. Can we get brief advice from the Human Rights Commission or a relevant organisation to keep ourselves right, on top of the Examiner's report? Is that possible?
The Committee Clerk: Yes, we can seek advice from any other source that you wish.
The Chairperson (Mr Gildernew): Am I correct in saying that there is a mood to take another look at that next week? We will very carefully consider all the implications of the regulation, but we will defer it to next week for a final decision by the Committee.
Members indicated assent.