Baroness Sherlock (Lab)

My Lords, I am grateful to the noble Baroness for introducing her amendment and all noble Lords who have spoken. I am afraid the noble Viscount has given a spoiler regarding my response, because I articulated many of the arguments on this in the previous group in response to my noble friend Lord Davies. The Government recognise that pre-1997 indexation is an important issue for affected PPF and FAS members. That is why we listened and took the action that we did. The changes proposed by Amendments 186A, 187A, 188A and 189A would, essentially, award payments of arrears for PPF and FAS members who have missed out on pre-1997 increases up to now. As the noble Baroness described, that would mean a one-off lump-sum payment to be made from the PPF reserve. Amendment 203ZA would require the Secretary of State to determine how those additional payments would be funded in FAS. I acknowledge the impact on members. This has been a long-running issue and, for reasons that noble Lords have clearly articulated, members will want to see their increases quickly now that we have made a decision to act. As I said, we expect that the first payments will be made to eligible PPF and FAS members in January 2027, which is the earliest possible opportunity to do so, and we are working closely with the PPF on implementing that. I recognise that prospective increases do not restore the erosion of the real-terms value of members’ retirement incomes. However, the Government’s reforms will make a meaningful difference to affected members while balancing the impact on levy payers who support the PPF, taxpayers who pay for FAS and affordability for the Government. In response to the question from the noble Baroness, Lady Altmann, any payment that comes out of the PPF reserve will reduce the size of that reserve and therefore, in our judgment, must make it more likely that there may be a need for a levy to be reintroduced at some point. I shall come back to the arguments in a moment, as I said to my noble friend, but I have noted the importance of responsible management of the PPF reserve following the introduction of our reforms. The noble Baroness’s proposal—creative though it is, and I acknowledge that—would clearly also reduce the reserve. Although the reserve is forecast to grow, without a really substantive PPF levy the PPF will depend on its reserves and its investment returns to manage the risks from existing liabilities and future claims across the £1 trillion DB system. Historically, the PPF has supported nearly £10 billion in claims, funded in part by the amount collected through levies. Without future levies, the reserve has to cover upcoming claims. The reserve offers protection against future risks, such as new claims and longevity risks, and, as I have said, avoids the need for a significant levy reintroduction. I also noted the significant public finance implications of changes in my earlier remarks. The Government have not made an assessment of the noble Baroness’s proposal because we considered carefully what we thought it was appropriate to do. We worked with the PPF and fully considered the broader context of introducing pre-1997 indexation in both the PPF and FAS. In the end, it is the responsibility of the Government to strike an affordable balance of interest between all parties. We believe our reform achieves that. This measure is a fundamental shift in the level of protection afforded by the PPF and FAS to their members, but we think that is right and the appropriate balance. In the light of that, I hope the noble Baroness will feel able to withdraw her amendment.