Public Service Pensions and Judicial Offices Bill [HL]
Monday 19th July 2021
(10 months, 1 week ago)
Lords ChamberRead Full debate Public Service Pensions and Judicial Offices Act 2022 - Government Bill Page Read Hansard Text
Public Service Pensions and Judicial Offices Bill [HL]
Tuesday 7th September 2021
(8 months, 3 weeks ago)
Lords ChamberRead Full debate Public Service Pensions and Judicial Offices Act 2022 - Government Bill Page Read Hansard Text
Viscount Younger of Leckie (Con)
My Lords, the Public Service Pensions and Judicial Offices Bill consolidates and strengthens a common UK legal framework for pensions across all the main public services—that is, the NHS, the judiciary, the police, firefighters, the Armed Forces, teachers, local government and the Civil Service. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available on a fair and equal basis. In addition, the Bill includes measures that will address resourcing challenges facing the judiciary, recognising the unique constitutional role of judges. The Bill will also lead to the creation of a new UK asset resolution public service pension scheme for the beneficiaries of the existing Bradford & Bingley and NRAM—that is, Northern Rock —pension schemes.
I will start with the measures that relate to ensuring fairness and equality across public sector pensions, but first I will set out the wider context for reform. As your Lordships will recall, in June 2010, supported by cross-party consensus on the need for the greater sustainability and transparency of public sector pensions, the coalition Government established an Independent Public Service Pensions Commission chaired by the noble Lord, Lord Hutton of Furness. The commission undertook a fundamental structural review of public service pensions. This review was underpinned by a set of principles against which the options for reform were judged. These principles were that the measures should be affordable and sustainable, adequate and fair, supportive of productivity, and transparent and simple. These principles are just as important today as they were then, and they highlight the need to achieve greater fairness between lower and higher earners and for the taxpayer, as well as the future sustainability and affordability of public sector pensions.
Following that review, the Government introduced a number of key changes. Pension benefits would no longer be based on an individual’s final salary, but instead on career average revalued earnings. Member contribution rates were increased and the normal pension age was linked to the state pension age for all schemes, except those specific to the police, firefighters and the Armed Forces. These changes achieved greater fairness for low earners by giving many a more generous pension. In addition, the reforms will save taxpayers an estimated £400 billion over the following 60 years.
Having provided this background, I will turn to the Bill’s specific measures on the remedy. Prior to the 2015 reforms, the Government agreed, following negotiations with trade unions, to protect the pensions of those closest to retirement. They did this by allowing those members within 10 years of retirement in most public service pension schemes to remain in the final salary schemes, instead of being moved to a career average scheme. This step was known as transitional protection. However, in 2018 the courts found that this step unlawfully discriminated against younger members. Although the legal challenge was specific to the judicial and fire schemes, the Government recognised the wider implications across all public service schemes. We therefore began a thorough programme of work to identify and implement a robust remedy. This Bill brings that remedy into effect and its measures follow public consultations in 2020 and government responses earlier this year.
For the remedy period—that is, from April 2015, when the reforms were implemented, to 31 March 2022—all eligible members will be given a choice between legacy and reformed scheme benefits. For the majority of members that choice will be made at retirement, when it will be clearer which scheme is most beneficial to each individual. This is known as a deferred choice and was the preferred option in the majority of consultation responses. The exception is the judicial schemes, where affected members will make their choice before retirement in a so-called options exercise.
The local government arrangements reflect that the remedy for the discrimination does not require member choice. Instead, protection will be granted to younger eligible members via the extension of the existing underpin, which gives protected local government pension scheme members a guarantee that their reformed scheme pension will be no lower than it was in the legacy scheme. The local government arrangements also reflect that in England and Wales the scheme reforms were implemented a year earlier than other public service pension schemes—from 1 April 2014. For those members who have already taken pension benefits in relation that period, a choice will be offered as soon as is practicable. This measure therefore remedies the differential treatment of younger members as a result of transition protection.
Although the Bill ensures retrospective fairness, it is also right that we ensure that all pension savers are treated equally in future—the so-called prospective remedy. Therefore, from 1 April 2022 all legacy schemes will be closed to future accrual and all those impacted will be placed in their 2015 reforms schemes or, in the case of the judiciary, moved to a new scheme. This measure guarantees that all members within each scheme will be put on an equal footing and underlines our recommitment to the principles of the 2015 reforms. Local government workers have already moved to career average arrangements and these schemes will continue after 31 March 2022.
As your Lordships may recall, the Independent Public Service Pensions Commission also recommended that the new public service pension schemes should include a cost ceiling to protect the taxpayer from unforeseen increases in scheme costs. However, the Government chose to go a step further and establish a symmetrical cost control mechanism that also maintains the value of pensions to members when costs fall. The mechanism was designed in such a way that, if the cost of a scheme rises above or falls below specified margins, the scheme rules must set out a process for agreeing how costs can be brought back to target. So, where costs rise above a certain level, benefits are reduced, or where costs fall below a certain level, benefits are improved.
It is right that the additional benefits that members will receive as part of the remedy are considered by this mechanism as a cost, by giving members a choice of benefits. The value of schemes to members will increase and therefore costs will rise. This assessment of the costs of member benefits is precisely what the mechanism was established to do. However, to ensure that no members’ benefits are reduced as a result of this assessment, the Bill contains a measure to waive any results that might lead to benefit reductions. This should mean that no member will be worse off. In addition, the Government have committed that, where benefit improvements are due, these will be delivered.
As I have outlined, the Bill builds on the Public Service Pensions Act 2013 to create an overarching legislative framework for all public service pension schemes. While this piece of legislation is comprehensive, I am sure your Lordships would acknowledge that pension schemes are extremely complex and must be tailored to fit each workforce’s individual requirements. As a Government, we intend that our legislation accounts for those differences, many of which are found in scheme regulations. Therefore, given the level of detail involved, these measures will come before Parliament as statutory instruments for further scrutiny. Furthermore, to demonstrate the approach to secondary legislation, I pledge to deposit policy statements in the House Library in the coming weeks for further scrutiny.
Allow me now to turn to the Bill’s next element: the package of reforms to help address the resourcing challenges facing the judiciary, recognising the unique role that judges fulfil in our constitution. The UK justice system is known across the world for its excellence, objectivity and impartiality. This is due in no small part to the exceptional expertise of our courts, our tribunal judges, our coroners and our valued magistrates.
However, as the structure and operation of our courts and tribunals have developed, so has the resourcing needs of the judiciary. The frequency and volume of judicial recruitment has increased considerably in recent years and, despite recruiting about 1,000 judges and tribunal members per annum since 2018, we have not been able to recruit the full number of judicial officeholders needed across all courts and tribunals, putting considerable pressure on judges and the justice system.
I am sure your Lordships will agree that it is vital that we continue to attract and retain high-calibre judges to secure the proper functioning of our justice system. This Bill brings forward bespoke measures to address some of the current recruitment and retention challenges facing the judiciary. It enables the provision of a new, reformed career-average judicial pension scheme. It increases the mandatory retirement age of judicial officeholders to 75, extends the potential for sitting in retirement to the fee-paid judiciary and puts judicial allowances on a firmer legal footing. Taken together, those measures represent significant steps that will allow us to continue to support our world-class judiciary, for which we are so rightly renowned, to meet the demands of the present day and the future.
I now move to the measures to establish new UK asset resolution public service pension schemes for the beneficiaries of the existing Bradford & Bingley and Northern Rock asset management pension schemes—so-called NRAM. These two schemes cover the pension schemes of the former staff members of both bodies, some of whom worked for in the region of 30 years for each company respectively. These measures are an important step in the Government’s careful long-term management of the financial assets acquired as a result of the 2007-08 financial crisis. The new schemes will provide former Bradford & Bingley and Northern Rock staff members with the assurance that their pensions are secure over the long term. Let me stress that members’ pensions and pension promises will be unaffected by this change. In addition, this measure will ensure better value for the taxpayer through the creation of a more efficient structure for the Government to meet their liabilities towards those two schemes.
There is no doubt that the Bill before the House is complex legislation. It is therefore crucial that all technical changes are robust and legally operable across all schemes. As I mentioned, we are committed to getting the detail right and to giving in-depth consideration to each scheme’s specific circumstances. Therefore, to ensure a comprehensive and effective remedy with consistent application of measures across all relevant schemes, it is expected that some technical amendments will be required during the Bill’s passage. In addition, I am pleased that the Welsh, Scottish and Northern Irish Governments are considering legislative consent Motions to aim to ensure parity across the UK for the areas where legislative competence is devolved.
Our public servants provide vital services on which we all rely. Their unwavering commitment has been particularly vital during the pandemic. We have an obligation to continue to provide guaranteed pension benefits to reward those workers for their dedicated service, but we must do so on a fairer basis, in a way that ensures that pensions are affordable and sustainable in future.
In conclusion, I believe that the package of measures contained in the Bill will bring about long-term sustainable changes that are in keeping with the original principles of the 2015 reforms and provide fairness for members, employers and taxpayers. I hope noble Lords will recognise the Bill as a clear sign of the Government’s responsible approach to public service pension provision, as well as responding to the specific resourcing challenges facing the judiciary. It is for those reasons that I commend the Bill to the House.
Lord Davies of Brixton (Lab)
My Lords, first, I need to mention my entry in the register of interests. I have had an actuarial career, largely advising a range of trade unions about their members’ pension schemes, including most public service schemes covered by the Bill, but I am no longer actively engaged in such work.
I very much welcome the Minister’s careful and lucid explanation of what he rightly says is a complicated subject; it was a fine introduction to the work that faces us over the next few months. I also very much welcome the fact that I have a pensions Bill to get my teeth into, and I will be a committed and active member of the Committee when it considers the Bill. I look forward to interesting and detailed discussions.
I ask the Minister to say something about the expected timetable for passing the legislation. Much detailed work is being undertaken at the moment in parallel with the Bill going through Parliament. The government departments and scheme advisory boards are busy implementing the measures in the Bill, and it would be good to have some idea of exactly how that process will work because, clearly, they need certainty about the legislation’s outcome before they can reach final decisions.
My major issues with the Bill arise from Chapter 1, about public service schemes. The problem is that we have here only part of the story. It deals with the consequences of the decisions in McCloud and Sargeant, which, as the Minister explained, ruled against transitional protection. In its place, we have this remedy to sort out what is undoubtedly a significant mess, but the difficulty is that this is only part of the story of what is happening to public service pensions at the moment. These measures can be fully understood only in the context of the other things occurring at the same time, which the Minister did not mention—they are not in the Bill—but I think we need to understand the context in which this particular part of the picture is being considered.
There is a range of matters. The most significant is getting the 2016 valuation concluded. The 2016 valuation—the results of which should have been implemented some years ago—is ongoing and must still be resolved. At the same time, the Government are reviewing the cost-control mechanism. As explained by the Minister, this is highly contentious, because the Government are attempting to make changes which the unions consider go against the spirit of the Government’s agreement made 10 years ago. At the same time, the Government are reviewing the SCAPE discount rate mechanism—a particular element in the cost-control mechanism.
What is the effect of all those changes on the 2020 valuation? You might think that in 2021 the 2020 valuation would be done and dusted but, as I explained, we have not finished the 2016 valuation yet, so there is a certain amount of slippage here. It is difficult to understand. A sequence of events needs to be taken into account and, unless we have some picture of how this will affect the 2020 valuation, it is difficult fully to assess this legislation without putting it in the context of the other things happening.
One significant additional issue which must be resolved is whether the cost of the remedy this Act sets out is to be met by the members. This is taken for granted by the Government; the members contest it. It is currently the subject of a legal process but it is crucially important. When considering the legislation, we must consider the effect of that issue. So, while this Bill is presented to us as a set of standalone measures, it is difficult to be confident that the solution, the remedy proposed here, is just and workable when all these other factors are still in play.
I have gone over the allotted time; I apologise. I will quickly mention some other issues that I will seek to raise in Committee. We must carefully consider the use of Treasury directions. It raises constitutional issues that must at least be clarified. Concern has been expressed by various groups of employees, most notably the police service and firefighters, that the specific way in which the remedy is being implemented has an adverse effect because of their particular past pension structures.
I am heavily outnumbered here by the lawyers, but finally, I will stray into Chapter 2. Clearly, there is a strong case for the special tax treatment being afforded to the judicial pension scheme, but it raises the possibility of circumstances in which other groups of employees deserve special tax treatment as well. These are all issues that we will have to resolve, or at least discuss, in Committee.
Baroness Janke (LD)
My Lords, I too thank the Minister for his clear and succinct introduction. As he said, this legislation is necessary to remedy the effects of the McCloud judgment relating to the Public Service Pensions Act 2013. I rise to highlight some of our concerns in a number of areas.
The first is discrimination. In introducing the remedy, the Government must be certain that new measures will not produce further discrimination, such as placing a greater burden on newer or younger members of the scheme or reducing the right of part-time workers to make up their pensions by working for longer. This particularly affects women who have worked part-time due to family or caring responsibilities. In their responses to the consultations, some have described, with particular reference to the police and the benefits of the legacy schemes, how the Bill must pay particular attention to discrimination to avoid further long and drawn-out legal cases.
Also, as the noble Lord, Lord Davies, said, it is very important that the changes be just, and there must be trust in government to protect citizens. Promises and commitments already entered into by government must be addressed and cannot simply be brushed aside as being too costly. It will be of great importance to many members that promises made by the Government are honoured. Equally, commitments made by the Government, as agreed in the cost mechanism, have not been acted upon—as, again, the noble Lord, Lord Davies, said—following the 2016 valuation, which should have benefited members. It is worth noting here the comments of the Public Accounts Committee:
“HM Treasury should have foreseen the age discrimination issue that gave rise to the 2018 McCloud judgment, and putting things right will take many decades to resolve. HM Treasury wants members to pay to put this right—at an estimated cost of £17 billion—despite it being its mistake.”
The National Audit Office said in March 2021:
“Employee representatives told us that the review of the mechanism”
because of what has happened at the first valuation
“undermined trust between employees and the Government”.
The recommendation of the House of Commons report on public service pensions stated:
“HM Treasury must prioritise work to quickly resolve the challenges presented by the McCloud judgment and cost control mechanism, in order to give certainty to scheme members and employers, and rebuild the trust lost”.
Other concerns relate to the treatment of disbenefits to members of current legacy schemes. These must be fully evaluated before March 2022, when they enter the career-related schemes and the legacy schemes are closed. There are significant differences between the new schemes and legacy schemes such as the police pension—again, that is specifically referred to—which is based on years of service rather than pensionable age. Both these schemes are seen by members as being based on promises made by the Government to the service. Retirement in the career-related scheme is at 60, but as police pensions are based on years of service, members may wish to retire at an earlier age. If they do this under the career average scheme, which allows retirement at 55, they could lose up to 25% of their pension, which is a very significant issue. I am sure that this will be considered in more detail in Committee. There are similar structural issues for fire and rescue services, which were highlighted by the LGA. I would like the Minister to take note of an anomaly in Clause 29 and consider an amendment to recognise the special arrangements of the service where the employer is also the scheme manager.
The complexity of the current position with regard to public service pensions legacy schemes, given the Government’s intention that all be included in CARE schemes by March 2022, gives rise to a lot of practical problems, and I would like to understand how the Government intend to deal with them. It will be extremely important that the proposals in the Bill are workable. It is easy to say that members get to retirement and make whichever choice is best for them, but in some cases, they may have rights built up that fall due at different ages—some at 60, some at 65. So, if there is not a single retirement age, when do they have to make the choice? In some cases, the higher pension at retirement may be under one set of rules, but as retirement continues it may turn out that the other set of rules would have given a bigger total pension. What happens then?
The Government have accepted that people with really complex tax issues can have financial advice, but what about the millions of public sector workers who will have to make these choices? Where is the help and guidance coming from for them? What about financial planning between now and retirement? Presumably, any statement will show rights based on the assumptions of the old scheme, even though some people will opt for the new scheme. Will they have access to both numbers when they are planning and will the pensions dashboard show both numbers? It is going to be an extreme challenge for schemes to unpick, administer and communicate, and members are going to need a lot of help to understand what is happening. What plans do the Government have to resource support systems and enable members to make the best choices? Support for trustees of pensions schemes will also be needed.
The Bill deals with the consequences of government failure to foresee the age discrimination issue which gave rise to the McCloud judgment. The Bill will determine the future means of many public service employees. The Minister and the noble Lord, Lord Davies, said that many complex and difficult matters need to be resolved if members are to have confidence in the competence, integrity and political will of the Government to get it right.
Lord Woolf (CB)
My Lords, I welcome the Government’s action in promoting this Bill, and I hope it will be enacted without delay. In that regard, I was rather concerned to hear the submissions of the noble Lord, Lord Davies, which indicated that perhaps it will not be as straightforward a process as I would hope.
I refer to the entries on the record relating to my judicial career. Before I retired, the Government had, in my view, made two errors that were having an adverse effect, particularly on the position of members of the senior judiciary. The first was to reduce their mandatory age of retirement to 70 from 75, which it had been earlier in my judicial career. The second was to reduce the value of their pension in real terms because of the tax provisions to which the pension was subject.
A further alteration was made at about this time, which meant that very senior members of the judiciary did not have the privilege that I had, as a consequence of my appointment as a senior judge, of becoming a Member of this House. I know that all members of the judiciary who have had this advantage are very conscious of how important it was. I believe that others who had this advantage have made contributions that have been most important to the workings of this House. However, I accept that this change would be difficult to bring about in the course of this Bill, even though I would like to have seen it included.
However, the changes the Bill does make are sensible. Reducing the retirement age from 75 to 70 did not apply to me because it was not retrospective, but it has been made clear by events that have taken place since that time that we have been deprived of valuable judicial contributions by the reduction in age—without, I would say, any accruing benefit to the public interest. There must be a retirement age for judges; we cannot have a situation such as existed at the time of my earlier career, when some would say Lord Denning’s great powers as a judge were beginning to wane but there was no remedy available to cope with that situation. However, bearing in mind in particular current life expectancy, going back to 75 is a wise and sensible move. I hope it will be enacted as a consequence of this Bill with a great deal of rapidity.
With regard to the other changes affecting the judiciary that are my concern, the position as I understand it is that they have been properly taken into account, and therefore I look forward to their implementation as well. To put it shortly, I wish the Bill a speedy passage.
Lord Mackay of Clashfern (Con)
My Lords, I am in a rather unique position, because I was responsible for the introduction of the changes in 1993 that reduced the retirement age from 75 to 70 for most judicial offices. The proposal at that time was generated I think by a desire to make it clear at what stage a judge might be subject to some kind of consideration in relation to his or her health. The system was that, if somebody was getting a little frail in the mental side of their lives, the Lord Chancellor was expected to tactfully suggest that the time to close their judicial work might be approaching.
I did not much care for that sort of idea, because I thought it was a kind of interference with judicial independence—they had to decide for themselves. Of course, ultimately, they had to decide. It was not the Lord Chancellor’s decision; it was theirs. But anyway, the general view was that the retirement age should be reduced from 75 to 70. That was a fairly considerable change from what it had been years back, when there was no retirement age at all for most. Noble Lords may remember that Lord Denning said that he had a lot of the Christian virtues, but not those of retirement or resignation. So, originally, there was a possibility of being in judicial office for quite a long time. Anyway, that matter had been changed and the retirement age was now 75.
I initiated the Bill that reduced it from 75 to 70, with corresponding changes in the pension system, which are also referred to in this Bill. I had to take into account the point that, where a judicial officer is appointed, he is appointed on a secure tenure until he reaches a certain age—when there was an age limit—on condition of good behaviour. Therefore, it seems unlawful to change the arrangements that were made when the person took that on, contrary to his or her interests, unless they agree to it. So the alteration of the date of pension applied only to those who were appointed after that came into force. I remember my noble friend Lord Baker of Dorking saying to me, “James, that will take a long time to come into full force”—but, of course, judicial turnover is rather quicker than he expected, and it came into practical effect within a quite reasonable time.
Now, I entirely support the view that things have changed since that time, and therefore it is appropriate to move back to 75. Generally speaking, the judiciary enjoy a degree of health at that sort of stage in their lives, so it is a reasonable thing to do, and the change would not act against the judges in any way. As I and the noble and learned Lord, Lord Woolf, said, there were changes in pensions arrangements in 1993, but an option was given to people who were already appointed to opt in to that, because there were certain advantages that could be taken up in the new pension scheme in 1993 that were not available in the former pensions. So I now have the unique responsibility of supporting a reversal of the change I made 28 years ago. It just shows how quickly you learn.
Lord Hendy (Lab)
My Lords, I thank the Minister for the clarity of his introduction and express my intense pleasure at being listed to speak between two of my judicial heroes—the noble and learned Lords, Lord Mackay and Lord Brown.
For a long time, the police federations and other unions have been pressing the case that many of their members will suffer pension detriment by reason of some of the proposals found in this Bill. Previous speakers, in particular my noble friend Lord Davies of Brixton, have spoken of some of the unresolved issues, but the point to which I wish to draw the attention of the House is the failure of government to negotiate—or at least to consult with a view to reaching agreement—with the relevant police federations to remove or adequately compensate for the further detriments arising from the Bill.
The Police Superintendents’ Association has been making representations to the relevant Treasury Minister —not the noble Lord, of course—for months. I am told that it has been, in effect, stonewalled. In a letter to the relevant Minister dated a week ago, Chief Superintendent Dan Murphy of the PSA asked for confirmation that the Minister had ignored the PSA’s continuous request for the Government to informally engage with the PSA to resolve the taxation detriment suffered by its members and to formally consult with the PSA to resolve taxation detriment, and listed a number of other failures. He concluded by saying that the Police Pension Scheme advisory board was not satisfying the requirements for full and meaningful consultation, and cited some evidence to support that.
I do not wish to contest the merits of these allegations with the Minister, but they are serious. Pensions are not a matter for unilateral employer determination. International obligations to bargain collectively and to consult are engaged. I cite Article 11 of the European Convention on Human Rights as interpreted by the court in Demir and Baykara v Turkey. The same right is found in Convention 8 of the International Labour Organization, and Article 6.2 of the European Social Charter 1961 imposes on states the duty
“to promote, where necessary and appropriate, machinery for voluntary negotiations between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements”.
Article 6.1 requires the promotion of consultation as well.
The UK has ratified all these provisions. It is true that each contains an exemption in respect of workers, such as the police, engaged in the administration of the state, but that is a limited exemption and does not extend to the right to bargain collectively. That was made clear in a judgment of the European Committee of Social Rights adopted by the Committee of Ministers of the Council of Europe on 8 October 2014, in a case called European Confederation of Police v Ireland, which held that the Irish police association could not be excluded from public sector pay bargaining. In fact, collective bargaining and consultation are rights of particular importance for our police, who are prohibited by the Police Act 1964 from joining trade unions or going on strike, and whose freedom of association is limited to the police federations established by statute.
I am sure it will not be said that pensions are not pay and not, therefore, susceptible to collective bargaining. Pensions are of course merely deferred wages—part of what lawyers call the “consideration for work done”. They are a classic focus for bargaining. The international provisions that I refer to are of particular relevance because, by Article 399(5) of the EU-UK Trade and Cooperation Agreement—the Brexit deal—the Government bound the UK as follows:
“Each Party commits to implementing all the ILO Conventions that the United Kingdom and the Member States have respectively ratified and the different provisions of the European Social Charter that, as members of the Council of Europe, the Member States and the United Kingdom have respectively accepted.”
I hope the Minister will commit to an amendment that requires full collective bargaining with the police federations to meet the pension concerns of their members, before committing the House to regulations to implement the Bill.
Lord Brown of Eaton-under-Heywood (CB)
My Lords, it is a great pleasure to follow the noble Lord, Lord Hendy. I am sorry that he is not noble and learned; he is very learned, except in this House, and it is a great pity that he has never adorned the Bench himself. He must have appeared before generations of lawyers and in supporting the Bill, as I do, particularly the extension of the mandatory retirement age, I can hope only that his experiences of the more elderly generations have not been too disobliging for him.
I spent a total of 28 years on the Bench, although I held none of the great legal offices of state. Finding here the noble and learned Lord, Lord Mackay of Clashfern, an erstwhile Lord Chancellor, my noble and learned friend Lord Woolf, erstwhile Lord Chief Justice and Master of the Rolls, the noble and learned Lord, Lord Etherton, another Master of the Rolls, and the noble and learned Lord, Lord Hope, Lord President in Scotland and a Deputy President of the Supreme Court, I wonder why I am speaking. But here I am and I support the Bill, both its provisions as to judicial pensions, which I truly believe were necessary to cure the resentments and deep unhappiness felt in the judiciary over some years, but also on the mandatory judicial retirement age—what the erstwhile senior Law Lord, Lord Bridge of Harwich, called the age of “statutory senility”.
There is nothing that I really want to say about pensions. I am not expert in that field, and certainly not in a position to advise on any of the technical amendments suggested to be necessary by the Minister. As to the mandatory retirement age, I seriously think, together with my noble and learned friend Lord Woolf, that this will assist in the process of judicial recruitment, which has been a real problem over recent years. The fact is that in 1993, when the noble and learned Lord, Lord Mackay, introduced the change at one and the same time, if I remember right, he increased from 15 years to 20 years the time to be served as a judge necessary to earn one’s full pension. Overnight, it became necessary to be appointed by the age of 50 if you were to earn a full judicial pension, whereas I, like the noble and learned Lord, Lord Woolf, and most others here, was appointed long before 1993 and it was not retrospectively effective. I had the privilege and great pleasure, in fact, of serving until I was 75. I had done 28 years. I am not asking for nearly twice the judicial pension that I then did get but, in fact, I could have retired after 15 years and got it.
I know that there are arguments both ways on this and on judicial diversity and matters of that character. It seems to me that appointment eventually to the Bench becomes an altogether more attractive prospect if, when you are in your late 40s or perhaps early 50s, and if you are in a good way of practice and probably making quite a lot of money but know that you can continue that beyond 50 and still do your stint on the Bench—which I believe for most people is a contribution due to the public weal by practitioners who have been advantaged by the process—after the Bill proceeds, as I trust it will, then you would get a full pension by doing so, quite likely rather later than you would otherwise have had to make your decision.
Nowadays, of course, there is an ever longer expectation of life. There is a longer expectation, too, of good health in one’s later years; there is also, I believe, a parallel inclination on the part of many older people who would like to continue working rather than have imposed upon them ever longer periods of retirement and idleness. Surely it is an attraction to be allowed to continue in judicial office as of right for the additional proposed five years. Those words “as of right”, as the noble and learned Lord, Lord Mackay, suggested, are of great importance here. Once appointed to the office, now until 75, I hope, by an independent Judicial Appointments Commission that secures the position, you are not thereafter—after 70—at the whim of those who have power periodically to extend day by day, or whatever it may be, your judicial life.
The Judicial Appointments Commission, chaired as it has been for the last five years by the distinguished Cross-Bencher, the noble Lord, Lord Kakkar, has fierce independence and an unswerving adherence to the principle of merit above all else. We have a splendid body of independent judges. We currently retire them when most, or perhaps nearly all, of them are at the very height of their powers at 70. Many would want to serve longer and I believe we should let them.
Lord Mackenzie of Framwellgate (Non-Afl)
My Lords, I intend to touch on matters concerning police pensions, but I stress that I represent no one but myself in the words I say. I do not have a financial interest in this matter, although I do have a police pension from my time in the service of 35 years, reaching the rank of chief superintendent, and from three years as president of the Police Superintendents’ Association.
It was with great sadness in my heart that I heard that the Police Federation had publicly declared that it had lost confidence in Priti Patel, the Home Secretary, and that on 27 July this year, only days afterwards, it felt compelled to write to the Prime Minister and the Chancellor. In that letter, it set out the growing anger among 130,000 police officers of all ranks caused by a number of grievances—not just financial, although the last straw was the offer of a 0% pay increase. It is ironic that this letter was sent on the very day that a reception was being held in Downing Street to thank police officers injured in the pandemic for their selfless work, given the complicated and far from clear legislation, often without proper PPE. As well as a pay freeze as a thank-you, they rightly complained of mixed messaging and a lack of understanding of the police role by the Home Office which put them in an invidious position, leading to them being abused and attacked.
This is about false claims by the Home Secretary that the police were fully consulted on some of the more controversial elements of the new legislation. It is also about the failure, despite ministerial promises, to take seriously their request for early priority for vaccination. Police officers are tired of warm words at conferences with no show of genuine support for the police. In essence, they feel not just a lack of respect but that they are treated with contempt. This is a serious matter because the police are a unique public service who, along with the Armed Forces, are legally prevented, as has been said earlier, from taking industrial action.
Having set the context of where we are, I briefly come to the Bill before the House, which is another source of grievance. The matter of police pensions has of course been touched on by the noble Baroness, Lady Janke, and by the noble Lords, Lord Davies of Brixton and Lord Hendy. Police of all ranks feel that it reduces their pension entitlement. It is seen as yet another change with little consultation, which police officers passionately believe worsens the conditions of service under which they joined. All this at a time when the Government are trying to recruit thousands more police officers in order to hold the thin blue line. When I was president of the Police Superintendents’ Association I had excellent relationships with the noble Lord, Lord Howard of Lympne, and the Home Secretary who followed him, the right honourable Jack Straw. One of the best recruiting sergeants when I joined the service was the excellent police pension scheme. I recall the sergeant addressing the recruits at the training school, imploring all those present to join the scheme— I certainly never regretted it.
We cannot put the clock back, but we can respect those who have risked their health and lives in the line of duty. It is so important for the Home Office to have a business-like relationship with the police staff associations, but the current Home Secretary seems to have difficulty in developing and maintaining cordial relations with those with whom she has to work. I implore the Prime Minister to instruct his right honourable friend the Home Secretary to do what he apparently enjoys doing: to build bridges with the police staff associations, the representative bodies of those who keep us all safe.
I hope that the Minister passes on my message today. A good place to start would be by genuinely listening to the concerns of police officers of all ranks with a proper consultation on this Bill, in an attempt to mitigate their deep concerns with it in its present form.
Lord Etherton (CB)
The provisions in the Bill for reform of judicial pensions, intended to rectify the scheme introduced in 2015, which applied only to younger judges, are welcome. The April 2015 pension provisions were held by successive courts to be unlawful and discriminatory on grounds of sex, race and age. I can say from my own experience, when I was head of the Chancery Division of the High Court, that they were a disincentive for practitioners to apply to become High Court judges. The proposed provisions will ultimately permit and require all members of the judiciary to be on the same new scheme and terms, which is highly desirable.
However, I regret that unlike the distinguished other former judges and judicial officeholders who have spoken—the noble and learned Lords, Lord Woolf, Lord Mackay of Clashfern and Lord Brown of Eaton-under-Heywood—I regard the raising of the judicial retirement age from 70 to 75 as very much a mixed blessing. On the one hand, it will enable experienced judges, as the noble and learned Lord, Lord Brown, said, to continue in office when they still have so much to contribute to a high standard of justice. It will also allow for applicants for judicial appointment to apply later in their careers—again, as emphasised by the noble and learned Lord, Lord Brown. That may be attractive to some practitioners. On the other hand, to raise the retirement age in one step from 70 to 75 rather than, say, 72, is highly likely to have an adverse effect on diversity, especially in the Court of Appeal and the Supreme Court.
There are far too few women and people from minority ethnic backgrounds in the Court of Appeal and, especially, the Supreme Court. There is universal recognition of that shortcoming. It is possible to progress diversity only if the ranks of those in the top courts are open to new members. However, both courts are relatively young: in the Court of Appeal, for example, the current average age is under 63, which means that potentially there could be a very long freeze, of possibly 12 or 13 years, for any substantial influx of new members. Will the Government think again about that issue, and the potential adverse outcome of raising the age of retirement in one go to 75 rather than to 72, at least in the first instance?
Will the Minister also confirm that, if at all possible, the retirement age increase, whatever it might be, will come into operation on 1 January, as there are judges—including one in the Supreme Court—whose 70th birthday falls between the beginning of January and April next year, when all judges will be moved to a single reformed scheme? If the retirement age increase does not come into effect until April 2022, when the new pension provisions come into effect, such judges, whose 70th birthday would have accrued between January and 1 April 2022, will be able to apply again for appointment. That would complicate the appointments process when they will be competing against other applicants. Alternatively, will the Government give consideration to introducing transitional provisions to address that problem?
Lord Hope of Craighead (CB)
My Lords, the Bill affects many people in public service, but I hope that I may be forgiven for concentrating, like others, on the branch of the public service with which I am most familiar: the judiciary. So far as they are concerned, it seems to me that the Bill seeks to do two things that are to be welcomed.
The four noble and learned Lords who have spoken before me have said almost everything that could be said one way or the other, but I should like to stress one or two points. The first is the correction of the mistake that was made in 2015, when the new pension scheme was introduced, that applied to all members of the judiciary still in service, apart from those within 10 years of retirement. That scheme was significantly less advantageous because it was registered for tax purposes. That had very unwelcome consequences for those who had contributed to their own pension schemes while in practice. The prospect of the large and wholly unplanned-for tax bills that would be the result of becoming subject to that scheme was a severe disincentive.
I have experience of this—although the Bill certainly does not apply to me because I retired eight years ago. I made provisions at a very early stage in my career as a self-employed member of the Bar, with no prospect of becoming a judge at that stage, and indeed for a long time in my career. I sacrificed money that might have been used for other things to build up a reserve for myself and my family. This is what people had done, and now they were faced with these very unwelcome tax consequences—so it is no surprise that it was a disincentive, and it is right that the Government should seek to remove it. I also welcome the fact that the Government have decided, in this respect, to treat all members of the judiciary equally.
The legislation that we are presented with in the Bill is not an easy read, but the policy background is very clearly set out in the Explanatory Notes and the impact assessment, and I am also grateful to the Minister for his very helpful introduction. There is one aspect of the judicial scheme—the only one that will be available for everyone after 31 March 2022—which is especially welcome: the fact that the scheme will be unregistered for tax purposes. As I understand it, compensation is also being offered to those who incurred tax liabilities under the previous scheme—and that too is very welcome.
As has been pointed out, all eligible members will be able to opt for the scheme that is most beneficial to them under the options exercise that is to take place in the autumn of 2022. I hope that the Minister can assure the House that guidance will be offered to all those who are involved in that exercise in good time so that they may be fully informed before they take this decision. Guidance of that kind was offered in the past when I had to make that kind of choice, and it would be very helpful if the Government were to assure us that that will be done in this case.
I see this argument about pensions as the end of a long and, for some, very uncomfortable debate about how to balance the public interest against the reasonable expectations of those who have chosen to serve as members of the judiciary. I have been only on the fringes of these debates, but I wish to pay tribute to all those members of the Bar and the judiciary who have contributed to it, spending many hours, in many cases, in doing so.
The other thing that the Bill seeks to do—I follow the noble and learned Lord, Lord Mackay, and my noble and learned friends Lord Woolf and Lord Brown of Eaton-under-Heywood in welcoming this—is the reduction of the judicial retirement age to 70. The noble and learned Lord, Lord Mackay of Clashfern, may remember that some argued that it should be reduced to 65, but that step was fortunately not taken. But it was to overlook the benefits that come with experience.
I was one of those members of the newly formed UK Supreme Court who was able to continue to the age of 75. We tried very hard to persuade the then Government that that age should be retained for the Supreme Court justices—but without success. We pointed out that the new age limit would severely limit the time that some of our newer members could contribute to the work of our court, as was indeed the case, and that the rapid turnover that it would lead to was undesirable.
I noted with great care what my noble and learned friend Lord Etherton said about this, and his suggestion that there should be a phased increase in the retirement age. Perhaps I may continue for a moment or two to reply. The problem we have with legislation of this kind is that often one has only one opportunity. This is an opportunity that may not recur, and there will be consequences whatever happens. I give one example, which is now in the past: my noble and learned friend Lord Neuberger, who became president in 2012, had to retire in 2017, just before his 70th birthday, when he was still very much at the height of his powers. He was succeeded by my noble and learned friend Lady Hale of Richmond, who was already 70—but, because she had been appointed to the judiciary before the change, she could go on until she was 75. One can only guess at what might have happened if the change had been made before my noble and learned friend Lord Neuberger was due to retire.
There is just one other anomaly. There were different retirement ages depending on which part of the judiciary you were serving in. This Bill produces a single retirement age for everybody. As one who had to grapple with complaints about the differences in retirement age and the opportunities for service after retirement when I was Lord President of the Court of Session in Scotland, I very much welcome the uniform approach that this Bill now takes.
Baroness Kramer (LD)
My Lords, I am absolutely no expert on pensions, and I have been absolutely delighted to listen to the speeches today, because there is obviously an expertise in this House that makes up for my very serious lack. I shall look forward also to receiving briefings from relevant groups as we move to Committee, because the Bill has so many technical aspects that I think we will need the help of relevant interests, including the trade unions, to negotiate our way through the remaining phases.
The history of public service pension change is rather littered with unanticipated consequences, and indeed we are here today because of the judgment in the McCloud case on discrimination, which was itself an unintended consequence. I also pick up the point made by the noble Lord, Lord Davies, that if we look at the broader context of public service pensions, we see a whole lot of issues that are not covered by this Bill—I think that some of them are meant to be addressed in the next Finance Bill—which makes it very difficult to shape the legislation before us today.
I had the privilege of being at the briefing that the Minister kindly offered to all Peers yesterday and I want to pick up on an issue raised by the noble and learned Lords, Lord Etherton and Lord Judge—although I would never want to put words into the mouth of the noble and learned Lord, Lord Judge; I think he will speak for himself in Committee. The issue is the impact on diversity of the change in the retirement age of the judiciary. I think that everybody in this House would say that it is important that our senior judges in the Court of Appeal and the Supreme Court reflect the society that we live in if they are to be respected and seen as part of our current era. At the moment, they do not. I am very concerned about the block that will be created. The noble and learned Lord, Lord Etherton, essentially said that we would not see a lot of turnover in the Court of Appeal for some 12 to 13 years, so the possibility of people from ethnic minority backgrounds and of women being seen in the Court of Appeal will be significantly impacted by the increase in the retirement age—and I do think that matters.
When we discussed this yesterday, the Government took the position that a blockage for somewhere between five and 12 years would advantage women—for example, those who have taken maternity leave will be able to make up the experience to make them more eligible to be put on the court. My answer was, “Have you talked to those women? Have you talked to the ethnic minorities?”—the people who will be impacted by what will be effectively a block on the turnover of appointments.
I understand that there were questions on diversity in the relevant consultation, but we all know that consultations are dealt with by the usual suspects—those are the people who reply. It is incumbent on the Government, if they are going to put in place what effectively is a very significant block on seeing diversity among our senior judges, to go back to that pool of people and talk to them about their views on the impact this will have. That is not a very difficult thing to do, and I hope we will see it.
There are quite a number of issues in the Bill. Again, I wish I had greater expertise, but from looking at the various briefings I have been able to lay on my hands on and replies to the consultation, it appears that there are a number of pension traps. People who find themselves in both the legacy system and the new system may be trying to make career decisions and find that they are disadvantaged in one scheme but advantaged in another and they have no idea how to put the various pieces together. The Police Federation is particularly concerned. It raised the issue of women in the police force who take maternity leave and have been able to work for additional years to make up the lost pension under their scheme. That is now not going to work. People who work part-time will be paying much more into the scheme, pound for pound, than full-time workers.
There is a whole series of flaws here and I would like the Minister to deal with them. There is no point repeating another Bill that has a lot of unintended consequences. I join very much with my colleagues, particularly with my noble friend Lady Janke’s comments. With a system that is now so complex, many people will need advice to know what to do. Surely there ought to be some provision to fund that or at least give them reasonable access.
The noble Lord, Lord Davies, raised on the cost control mechanism. I am appalled that the 2016 valuation is still hanging fire. I know that it will be resolved, but, like him, I am very concerned about how a rational 2020 valuation scheme will be put in place. We are in such economic flux. This is a really difficult time to put in place frameworks for something like a valuation. If you add to that the fact that the change in the scheme presumably means that people will be making all kinds of pension choices which will put pressure on any kind of set ceiling, the notion that the members will all have to pick up the cost strikes me as extraordinary. We need the Minister to elaborate on that and to understand what the consequences will be.
At the meeting yesterday, the Minister said that as a new scheme is developed for 2020 and the review that is currently under way is completed, it will require primary legislation to bring it into effect. I would like some confirmation of that, because if something that significant is going to come to us, either through Treasury direction as the noble Lord, Lord Davies, described, or even through a statutory instrument, it will be very hard for us to get a grip on the way the system works.
Lastly, I will tackle an issue that I have raised many times in this House, which is very relevant to this Bill. The problems judges faced following the changes in 2015 were a consequence of the annual and lifetime pension relief allowances and the taper system included with those changes. When they were initially put in place they were not a problem because of where the thresholds were set, but as those changed over the years they have become a major problem. Indeed, lawyers found that if they became judges, they would lose not only any additional income, but pension as well. That is an impossible situation.
This did not apply just to judges: consultants in the NHS faced exactly the same problem if they worked for a weekend. Because of the way the NHS pension scheme is set up they would have to pay tax that not only wiped out the additional income but went way beyond that. In our Armed Forces—to me this is utterly outrageous and got me involved in this issue in the first place—two-star colonels are basically refusing to become three-star because the consequences would be so bad. They would either have to pay very large tax bills, wiping out any additional income by, or take severely reduced pensions. That is insanity.
The Government dealt with some of that for the NHS and the armed services by changing the thresholds in the last Budget, but it is a sticking plaster, and what we see now for the justices is a permanent way to resolve the problem. Essentially, the scheme will no longer be tax registered and therefore the problem goes away for the justices, but we should be using this Bill to fix the problem for everybody else. If it is not going to be fixed in this Bill, when is it going to be fixed? It is insanity to say to our senior military, “You’re going to be on the battlefield, you’re obviously not going to leave after you’ve done so many hours and come home, and the consequence is that you will find yourself with a huge tax bill that will, frankly, cause havoc for your family.”
We have lost most of our two-star colonels—they have refused to go to three-star and have gone to civvy street—and we have consultants who worked during the pandemic knowing that they would essentially be paying a very large price as a consequence because it would impact on their taxes or pensions, depending on the way they set up their arrangements.
I believe that it is vital to this country that our public servants are properly and fairly compensated with both pay and pensions. The Government really made a hash of reforming these schemes in 2015; the Bill is part of the clean-up, but let us make sure that it brings clarity and fairness to all parts of the public service pension arrangement.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the noble Viscount, Lord Younger, for introducing the Bill. I think I am right in saying that both he and I are laymen on this subject in that we are not lawyers or pension experts.
On the public sector pensions, clearly there is a problem which needs to be addressed following the findings of the McCloud ruling. I note that the Supreme Court denied the Government leave to appeal the finding. The Public Accounts Committee has called the Government’s problem a
“£17 billion mistake on pensions reform”.
I recognise that the remedy the Government have opted for, to be included in this Bill—the deferred choice underpin, the DCU—was preferred by a significant majority of respondents to the government consultation, including main trade unions such as UNISON and GMB. The DCU remedy would give people the choice at retirement as to how their pension should be calculated during the period 2015 to 2022. What measures will be in place to ensure that individuals affected will have the information they need at the point of retirement to make an informed decision? This important question was put by the noble Baroness, Lady Janke, and repeated by the noble Baroness, Lady Kramer, and it deserves an answer.
I believe there is a lack of clarity about who will bear the costs of these measures. The noble Baroness, Lady Janke, quoted from the Public Accounts Committee, which has also raised this point about who will bear the costs. Can the Minister explain how these costs will be met, and what impact this will have on future public spending decisions?
Before I move on to the cost control mechanism, I should say how grateful I am for the expertise demonstrated by my noble friend Lord Davies. I also found it particularly interesting that my noble friend Lord Hendy spoke of the context of the police in these proposed changes and how that is impacted within international law. My third noble friend, the noble Lord, Lord Mackenzie, also gave a very interesting and quite alarming explanation of the treatment of the police force regarding these proposed pension changes.
As far as I understand it, there are two problems: the original design of the CCM made it too volatile and the McCloud judgment has created a significant uncertainty, which members have now been living with for more than two years. The Government ran a consultation on the CCM mechanism, which closed on 19 August. When does the Minister anticipate that they will be able to respond to this consultation? Is he in a position to express any view on the key views expressed to the Government in that consultation process?
Clause 80 provides that the breach of the cost cap ceiling in the 2016 valuation will be waived. Trade unions are concerned about where the cost of that waiver will eventually fall and the impact of the McCloud remedy on the 2016 valuation. The impact of the valuation, when we get it, was a point raised by my noble friend Lord Davies and the noble Baroness, Lady Kramer. Separately, can the Minister confirm the Government’s commitment that any benefits improvements due to the breach of the cost floor will be honoured, and further—this was also a point made by my noble friend Lord Davies—that the increased use of Treasury directions for matters that should be subject to parliamentary scrutiny should be at a minimum, because Parliament should be involved as the CCM evolves? Clearly, we will want to scrutinise these things carefully as the Bill proceeds.
I turn to the proposed changes to the judicial retirement age, and here I declare an interest as a serving magistrate. We know that the existing provisions have been in place for 27 years, and we have had a great deal of personal expertise from the noble and learned Lords who have contributed to today’s debate. I will put forward a different view from the one proposed; it is more in line with the views expressed by the noble and learned Lord, Lord Etherton.
In the consultation, the overwhelming number of respondents—some 84%—supported raising the mandatory age of retirement. However, a large body of respondents preferred the age of 72 rather than 75. The people who preferred 72 were the Lord Chief Justice of England and Wales, the Lord Chief Justice of Northern Ireland, the President of the Supreme Court, the Lord President in Scotland, the Magistrates’ Leadership Executive, the Chief Coroner of England and Wales, and the President of Tribunals. All these individuals and bodies favoured 72, not 75. There are debates on this, but it is worth exploring a couple of the reasons why 72 is preferable to 75. Diversity is an important issue; I agree with the points made by the noble Baroness, Lady Kramer, on that. I also agree with her point about the importance of consultation. I do not know whether the Minister can say anything about whether members of the black community have been consulted on these proposed changes; they are liable to disadvantage their prospects for promotion within the judiciary.
I also want to raise a different subject, and here I speak as somebody who appraises magistrates. There are occasions when a small number of people—judges—may experience some level of mental decline. Clearly, there is an appraisal system for trying to deal with this, but it is a sensitive issue. I have probably appraised getting on for hundreds of magistrates over the last few years. One has to be frank: the prospect of mental decline accelerates over the age of 70. There needs to be a mechanism for sensitively dealing with these issues. That also argues in favour of a retirement age of 72 rather than 75, so that these issues of mental decline are not exacerbated.
We in the opposition party support the Bill. We will work constructively with the Government to look at the detail of it, and we wish it well.
Viscount Younger of Leckie (Con)
My Lords, this has been a somewhat short debate but, as always, the experience and knowledge in this Chamber has been extremely insightful on what I think we all agree is a pretty complex subject. I thank all noble Lords for their contributions, not least acknowledging the specific experience of the noble Lord, Lord Davies. I have also counted that out of the 11 or so speakers in this debate, there were no less than five noble and learned Lords—so no pressure there. I will give proportionately a little more time to touching on judiciary matters, because I think it is fair to say that the mood, tone and indeed content of the debate was more steered towards that direction. That is not to say that there are not a number of other questions that need to be answered, which I will attempt to do. There have been some technical and specific issues raised, and I will endeavour to answer as many questions as I can, but it may be that a letter—maybe a longer one than normal—is required to follow up on the technical issues.
I start by answering probably the first question raised by the noble Lord, Lord Davies, on the timetabling for the Bill. To reassure the House, we aim for the Bill to have Royal Assent in early 2022, so that Chapter 4 can come into force on 1 April 2022, as set out in Clause 113, on commencement. However, noble Lords may recall that the Government set out in their consultation response in February this year that schemes would have until 1 October 2023 to introduce retrospective changes, in order to balance bringing the discrimination identified by the courts to an end as soon as possible with giving schemes and administrators the time needed to establish systems to deliver the necessary changes. Clause 113 therefore provides that Chapter 1 will enter into force on 1 October 2023, or earlier if specified in regulations. I hope that goes a little way to answering the question raised by the noble Lord, Lord Ponsonby.
Before I address the themes and questions raised, I wanted to use this occasion to give a little more background to what we are trying to do in the Bill; in particular, this might help to address some of the concerns the noble Baroness, Lady Kramer, expressed about the 2015 reforms. By 2010, the cost of providing public sector pension schemes had increased significantly over the previous decades, with most of this increase falling to the taxpayer. At the same time, occupational pension provision in the private sector had changed significantly; employers were increasingly moving away from offering defined benefit pension schemes.
The commission set up in 2010 found that the existing structure had been unable to respond flexibly to workforce and demographic changes that had occurred over the previous few decades, and that this had led to rising value of benefits due to increasing longevity, the unequal treatment of members within the same profession, the unfair sharing of costs between members, employers and taxpayers, and barriers being put up to increasing the range of providers of public services. The final salary design of schemes was criticised for creating unequal treatment of members within the same employment. The commission’s final report, in March 2011, therefore recommended moving public service scheme members to reformed schemes with benefits calculated on CARE—the House will know that this is career average revalued earnings—rather than based upon final salary.
To control against the risk of rising longevity—which we know is there—the commission recommended increasing the normal pension age to 60 for the Armed Forces, police and firefighters, and to state pension age for all other schemes. In line with wider changes to the use of price indexation in government, changes were also made to the measure of inflation used to uprate pensions, from the retail prices index to the CPI—the consumer prices index. Member contribution rates were also increased across the schemes, other than that relating to the Armed Forces, by an average of 3.2% of pay. The House may well know this, but I think it is helpful to produce this rather complex background as to why we are where we are today.
Overall, the reform schemes were designed to ensure that members would have good pensions which, at a minimum, met the target levels identified by the pension commission of the noble Lord, Lord Turner, for the income needed in retirement. The reform designs should provide many low and middle earners working a full career with pension benefits at least as good as, if not better than, those under the previous arrangements.
I will move on to some of the issues that were raised. The first was the so-called differential treatment of judges. This was raised particularly by the noble Lord, Lord Davies, and touched on by the noble and learned Lord, Lord Hope. In addressing the point, I will highlight the difference in the recruitment and retaining of judges in particular, which distinguishes them from other public servants. Judges follow a unique career path. They often have long careers in the private sector and take up judicial office at a later stage in life. Many take a pay cut when joining the Bench. Therefore, appointment as a salaried judge in the UK is seen as the culmination of a barrister’s or solicitor’s career, rather than a career path in and of itself. This contrasts with the position in countries such as France, Germany and Italy, which all have career judiciaries, and where the judicial profession is separate from practising as a lawyer. The House may not know that salaried judges in this country may not return to private practice as a barrister or a solicitor.
Reflecting this difference with other public sector workers is important. When we return judges to a tax-unregistered scheme—which is the position that they were in prior to 2015—without these changes there would be continued issues with recruiting judges, threatening the effective functioning of our justice system and its reputation. While the scheme will be unregistered, it is important to note that other aspects of the scheme will be consistent with the principles of the 2015 pension reforms, to ensure its long-term affordability and fairness to the taxpayer.
This matter was raised by the noble Baroness, Lady Kramer, who asked why this could not be extended to other groups. I hope that I have helped to put our view on that. The noble Baroness raised the matter of military generals and touched on doctors, but I stress, on that point, that the manifesto committed to addressing recruitment and retention issues for doctors through the pensions tax system. At the Budget in 2020, the Government spent £2.175 billion on increasing the annual allowance taper threshold and adjusted income limit. These measures apply to all individuals across the UK and are a significant step in resolving this issue. These changes mean that any public servant whose sole income after deducting pension contributions is less than £200,000 has been taken out of scope altogether. We estimate that these changes have taken up to 90% of GPs and up to 98% of NHS consultants outside the scope of the tapered annual allowance. I am sure that there is more that I can say on that, but I hope that it provides some explanation to the noble Baroness, and to the noble Lord, Lord Davies, who raised the same point.
Moving on to the subject of what might rather loosely be termed judicial diversity, there was quite an interesting debate on this. Many noble Lords touched on diversity, linking it to the mandatory retirement age. I will perhaps give a more expansive response to this. I was pleased to hear the initial debate raised by the noble and learned Lords, Lord Woolf and Lord Brown, and my noble and learned friend Lord Mackay. I was particularly interested that he was the one who originally lowered the age from 75 to 70 and that he is now behind our move to raise it again to 75—that was a very interesting reflection from my noble and learned friend.
To give a little background on this, the Government are absolutely clear on the importance of judicial diversity and of having a judiciary that is representative of society. That is why the Ministry of Justice, as a member of the Judicial Diversity Forum and of the magistrates’ recruitment and attraction steering group, is committed to continuing the work to improve diversity across the judiciary and the recruitment pipeline.
I recognise that concerns have been expressed over the impact on judicial diversity of a higher retirement age. Let me start by saying that we acknowledge that the retention of older officeholders could have an impact on the flow of new appointees to judicial office, which may impact on the rate of diversity change. However, as some noble Lords have recognised, there is another side to the story. As many judicial officeholders do not continue to sit until 70 now, we do not expect that all will wish to continue in office until 75. For that reason, and because of the ongoing demands on our courts and tribunals, we will continue to recruit a high number of new judges and magistrates for some time, so we expect that the overall diversity will continue to improve, reflecting the greater diversity of new appointments. The Government also believe that there will be positive diversity impacts from mandatory retirement at 75, and we expect it to encourage applications from a more diverse range of candidates, including those who may have had extended career breaks to balance professional and family responsibilities, or from lawyers who feel ready to apply to the judiciary later in their career.
I should have mentioned the noble and learned Lord, Lord Etherton, and I noted, particularly from him, that he declared that he was—how should I put it?—less than impressed with the decision that we have taken and has asked us to think again. That came also from the noble Baroness, Lady Kramer. However, I do not believe that we will be doing that, and I hope that this explanation will help.
I will move on to the consultation, which was also raised by a few Peers, including the noble Baroness, Lady Kramer, and the noble Lord, Lord Ponsonby. I reassure the House that the decision to raise the mandatory retirement age to 75 was taken after careful consideration. The consultation in 2020 received over 1,000 responses and—as was raised this afternoon—84% supported an increase. I acknowledge that there were mixed views on the age at which it should be set: 67% supported an MRA of 75, recognising that the limited diversity impact was outweighed by the retention benefits and the flexibility afforded to judicial officeholders to sit longer. The Government are confident that an MRA of 75 will provide the right balance—and it is a balance—between protecting the need to have a mandatory retirement age and the benefits to the justice system from retaining such valuable expertise for longer and attracting a wider range of applicants. However, as I said in the briefing yesterday, I have pledged to write, particularly to the noble Baroness, Lady Kramer, and I will do so to all noble Lords who have taken part in the debate today, with some further detail on the feedback from the consultation, particularly in relation to feedback from women, which was raised by the noble Baroness, and from the black community, as raised by the noble Lord, Lord Ponsonby.
Another important subject is the cost control mechanism—the so-called CCM—which was raised by the noble Lord, Lord Davies, and the noble Baroness, Lady Janke; the noble Lord, Lord Ponsonby, also touched on this. As was mentioned, the Government’s consultation on changes to the cost control mechanism closed on 19 August. The Government are considering all responses received and will publish their conclusions shortly. The aim is to implement any changes in time for the 2020 valuations, and the Government will legislate for any changes once they have responded to the consultation and when parliamentary time allows. However, I want to give a little more detail on this, because it is an important subject—particularly the 2016 valuations.
The cost control element of the 2016 valuation process was paused, as we know, in light of the McCloud judgment regarding transitional protection. The potentially significant and uncertain impact arising from the court’s judgment made it impossible to assess with any certainty the value of schemes to members. In July 2020, the Government announced that this pause would be lifted and the 2016 valuations completed. HMT will, when possible, set out in directions the technical detail of how the restarted 2016 valuations will operate. Outcomes for individual schemes will not be known until the results have been finalised. The noble Lord may not find this answer satisfactory, but I am afraid that it is the only answer I can give this afternoon.
The related issue of member cost was raised, not least by the noble Lords, Lord Davies and Lord Ponsonby. The Government have announced that the legislative remedy should be taken into account when completing the cost control element of the 2016 valuations. This is because, when the cost control mechanism was established, it was agreed that it would consider only costs that affect the value of schemes to members. Addressing the discrimination, giving members a choice of scheme benefits for the remedy period, involves increasing the value of schemes to members. The usual way these costs are managed is through the cost control mechanism. However, as I mentioned in my opening speech, this Bill will waive the impact of any ceiling breaches that may occur, so that no member will see a reduction in benefits as a result of the 2016 valuations—although any floor breaches will be honoured.
I move on to another important subject, the Police Superintendents’ Association, which was raised by a number of Peers, including the noble Lords, Lord Hendy and Lord Davies, the noble Baroness, Lady Janke, and the noble Lord, Lord Mackenzie. As the House might expect, I cannot comment too much on the specifics of any live, ongoing litigation. However, I confirm that this Bill will ensure that all eligible public service workers have access to high-quality defined benefit schemes on a fair and equal basis. From 1 April 2022, all those who continue in service in the main underfunded schemes will do so as members of the reformed schemes, regardless of age. Legacy schemes will close to future accrual, which means that from this point onwards all members will be treated equally in terms of which pension scheme they are a member of. I noted very strongly the points raised in particular by the noble Lord, Lord Mackenzie, and, while I cannot comment too much, I shall pledge to pass his comments on.
I want to say a little more on this point. The Government consulted on proposals to remedy the discrimination identified by the courts in July 2020. Officials met with the scheme advisory boards for the public service schemes, including the scheme advisory board for the police pension scheme. The Government published the response in February this year, and officials have arranged a further meeting tomorrow to discuss the Bill with stakeholders, including the Police Superintendents’ Association. The Home Office will undertake further consultation with employee representatives of the police pension scheme in relation to the scheme regulations, which will set out the detailed changes to the scheme. I hope that gives some comfort that some progress has been made.
I have not really managed to answer properly some of the questions raised by the noble Baroness, Lady Janke. Can I say something about trust? She raises a very important point—that trust between the Government and all the public service sector workers and the operators of the scheme is incredibly important. She made the point that perhaps the trust is not there and, okay, I have noted that and will pass it on. Perhaps we need to work hard on that, but it may be linked to the fact that these matters are extremely technical; there are a number of matters that we need to sort out, as she knows. She herself mentioned that this Bill and this area are quite complicated.
In the same breath, may I answer a point raised by the noble Baroness and by the noble and learned Lord, Lord Hope, about giving information to members to inform them on decisions that they might care to make as a result of the transitional period decisions? As I said at the beginning, statements will be provided so that individuals can weigh up the choices. By the way, that is the case for the judiciary as well, just to reassure the noble and learned Lord on that.
I shall check Hansard, as there were probably a number of other questions, but I hope that I have covered the main themes from this important debate. I finish by thanking all noble Lords for their contributions. It is very important to say that we must ensure that those who deliver our valued public services continue to receive guaranteed benefits on retirement on a fair and equal basis and in a way that ensures that pensions are affordable and sustainable. I commend the Bill to the House.
Public Service Pensions and Judicial Offices Bill
Monday 11th October 2021
(7 months, 2 weeks ago)
Grand CommitteeRead Full debate Public Service Pensions and Judicial Offices Act 2022 - Government Bill Page Read Hansard Text Amendment Paper: HL Bill 44-I Marshalled list for Grand Committee - (7 Oct 2021)
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung, and it will resume after 10 minutes.
Member’s explanatory statement
This would require, rather than allow, pension scheme regulations to make provision for circumstances in which a liability owed by a person to a scheme will be reduced or waived. This is to probe further details on what circumstances will be provided for and how the schemes will be designed.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I rise to speak to Amendments 1 to 3 in my name. They are probing amendments to draw out some further detail, and I thank the noble Baroness, Lady Janke, for adding her name to them. I put on record my thanks to the Police Superintendents’ Association for raising its members’ concerns with us.
Recurring themes will emerge in our deliberations on this Bill—particularly questions of oversight, of the details and the actual mechanics of when and how the remedy is to be delivered and of how that will impact on members. With these amendments, we are trying to flesh that out.
I recognise that the Bill is essentially an enabling Bill, and it provides powers for schemes to do the detailed work required by the remedy. Therefore, it is one piece of a very complex picture. The Committee will particularly benefit from the expertise of some Members here today, and we hope to probe some key questions and add to the understanding of what impacted scheme members can expect.
Amendments 1 to 3 are simple probing amendments to Clause 16. Currently, the clause provides that a scheme “may” make provision to waive or reduce a scheme’s members’ liability. These amendments would change that word to “must”. The Explanatory Notes state:
“Clause 16 provides that scheme regulations for a legacy scheme may make provision whereby a liability on an individual to repay overpaid benefits … or to pay an amount in respect of underpaid contributions … is reduced or waived.”
In simpler terms, due to the changes and choices that the Bill provides for, some members may end up owing their scheme funds due to their having underpaid contributions or having been overpaid pension benefits.
Clause 16 provides that schemes have the power to waive or reduce those costs for people in certain circumstances, but the Bill does not provide any detail of what those circumstances will be. The Explanatory Notes give the following example:
“where a pensioner member has been overpaid their pension benefit and reimbursing the … scheme would cause hardship, the pension scheme could write off part of the liability.”
That is a welcome example, but it appears only in the Explanatory Notes. There is no level of detail reflecting that, or indeed any of the possible circumstances, in the Bill itself.
So, I have number of questions for the Minister. Can he provide more detail on the circumstances in which the Government would expect relief to be provided under this clause? Secondly, has the department estimated how many people may be affected in this way? Thirdly, I know the Minister will tell us that the Government’s aim is to provide the schemes with discretion to support their members, but should not every scheme at least be required to set up provisions to provide relief where necessary? Furthermore, on the question of when a waiver or reduction would be necessary, are there situations in which the Government would expect every scheme to provide relief, such as where financial hardship is caused? In this case, would it not be appropriate to include those details in the Bill?
Another question concerns Clause 24, which provides that the powers under this clause must be exercised in accordance with Treasury directions. So, the Treasury intends to provide some directions to the schemes on these issues, but outside the Bill and away from parliamentary scrutiny. What plans do the Government have to consult on the directions and the circumstances this clause may be applied to, so that the schemes reflect the actual situations experienced by members?
I know that the Minister is only too aware of this issue and, in many ways, we keep coming back to it. This is a complex Bill and we have a number of hours to look into that complexity. Clause 16 recognises that the impacts may need to be mitigated. What we are seeking is clarity on the protection and assistance that will be available. I look forward to the Minister’s explanation. I beg to move.
Baroness Janke (LD)
I signed Amendments 1, 2 and 3 and support the reasons laid out for us today by the noble Lord, Lord Ponsonby. It is be important that all members of the scheme understand how this system will work. As we have heard, it is a complex Bill that will affect many people, so I agree that an estimate of the number affected would be helpful. The transparency and consistency of the scheme need to be clear, and I hope the Minister will be able to provide that clarity. I also agree that it would be helpful to have the Treasury directions on the face of the Bill, rather than outside it, so that there are no misunderstandings and the people affected by this provision understand clearly how it will work for them.
Viscount Younger of Leckie (Con)
My Lords, I thank the few noble Lords who have spoken for their contributions to this first debate in Committee: the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Janke. I also thank the noble Lord, Lord Davies, who I believe was originally intending to speak.
Before I address the points raised, and as we are commencing Committee, I will set out briefly the core principles which underpin this Bill; in my view, this will provide a nice bridge between Second Reading and Committee. At the core of the Bill are fairness and equal treatment. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available, on a fair and equal basis. This core objective is underpinned by the principles of greater fairness between lower and higher earners, fairness for the taxpayer, future sustainability and affordability of public sector pensions.
I thank noble Lords for continuing to work with me to ensure that these important objectives are achieved through this Bill in support of the vital public services on which we all rely. I also draw noble Lords’ attention to the policy statements covering various key elements of this Bill, which were deposited in the House Libraries on 4 October. I trust that noble Lords will have seen these despite the tight timetable; I am aware that many noble Lords will have only just returned from recess.
These amendments are intended to ensure that a comprehensive remedy is delivered for all members by requiring, rather than enabling, regulations to be made under Clauses 16 and 19. I take the point made by the noble Lord, Lord Ponsonby, that these are probing amendments, but I would like to give a full response and hope that I can answer the five or six questions that he asked. If not, I will certainly write to the noble Lord and, indeed, copy in other noble Lords who have spoken.
Before considering the specifics of noble Lords’ amendments, I thought it would be helpful to remind this Committee about the practical effects of stating that regulations “must” be made as opposed to “may” be made. When an Act states that regulations may be made for a particular purpose, it grants whoever is responsible for making those regulations a power to make them. In all likelihood, they will make those regulations but, if it is not necessary or appropriate, they can choose not to. Where an Act states that the regulations must be made, it imposes a duty on that person to make those regulations. If they do not, they are breaking the law even if those regulations are not necessary or not the most appropriate course of action in a particular set of circumstances. Accordingly, it is appropriate to exercise caution about occasions when a duty to do something is imposed since otherwise it could lead to unintended consequences and possibly to unmeritorious litigation about whether a particular duty has been complied with.
Amendments 1, 2 and 3 proposed by the noble Lord, Lord Ponsonby, would require, rather than allow, pension scheme regulations to make provision for a liability owed by a person to a scheme to be reduced or waived. The amendments put forward by the noble Lord, Lord Davies, would amend the Bill so it requires, rather than allows, pension scheme regulations to make provision for transfers into and out of a scheme in relation to remediable service.
As a general point, there are 17 new public service pension schemes in scope of Chapter 1 of the Bill. For each of those schemes there are also connected legacy schemes. Pension provision for these workforces has evolved considerably over several decades. In view of the complex landscape—which the noble Baroness, Lady Janke, referred to earlier—that has resulted from this, it is particularly important that schemes have flexibility to deal with some of the more specific circumstances in which members may find themselves. Therefore, the Bill enables rather than requires regulations to be made in Clauses 16 and 19.
As set out in the consultation response published in February 2021, the Government are committed to taking a proportionate approach to the recoupment of overpaid benefits. The powers provided by Clause 16 allow the Government to uphold this promise. Put simply, when a member owes overpaid pension or lump-sum benefits to a scheme, Clause 16 provides a power to allow scheme regulations to make provision to reduce or waive that member’s liability.
The reasons for the inclusion of Clause 16 should be spelt out, and they are threefold. First, the clause provides that contributions owed by or to a member may be reduced to reflect tax relief that was paid or due on those contributions. The purpose of this is to ensure the member is placed in the correct position net of tax. Secondly, it provides that contributions owed by the scheme to a person under Clause 14 may by agreement be waived. This is to ensure that members who become legacy scheme members under Clause 2(1) and owe contributions as a result, can have that liability waived until they make a choice under Clause 9 whether to receive legacy benefits or instead elect to receive new scheme benefits. Where a member knows they want to receive new scheme benefits, this will allow them to avoid having to pay legacy contributions in the interim period. Corresponding provision is also made for amounts owed by the scheme to the member to be reduced or waived with the member’s consent. Finally, the clause allows schemes to reduce or waive amounts owed by members where that arises other than by choice of the member and requiring the payment would cause undue hardship or prejudice. This is for a small group of members who had tapered protection and will be placed in a worse position regardless of whether they choose legacy scheme benefits or new scheme benefits in relation to their remediable service.
Clause 16 is part of a package of measures intended to mitigate such circumstances. Therefore, it is expected that the responsible authorities and scheme managers will consider using this power in conjunction with the power in Clause 21 to pay compensation and the power in Clause 23 which permits responsible authorities to make regulations setting out the process by which relevant amounts may be paid such as, for example, in instalments.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the noble Viscount for his explanation and for addressing some of the questions which I asked. I will reflect on the answers. I should also apologise to my noble friend Lord Davies as I gave him some bad advice and he did not speak to his amendments. He tells me that similar issues are coming up in the next group; I do not know whether it would be possible for him to speak to his amendments out of order. Nevertheless, having said that, I will reflect on the detailed answer which the Minister has given, and I beg leave to withdraw my amendment.
Lord Davies of Brixton
Member’s explanatory statement
This amendment would require, rather than enable, scheme regulations to make provision about cases where a member has paid voluntary contributions.
Lord Davies of Brixton (Lab)
My Lords, effectively these issues have been presented by my noble friend Lord Ponsonby and I have the great advantage, of course, of having the Minister’s reply to the questions that I have not yet asked. In a sense, I am happy to take them as read.
I do not have an interest to declare but it would be helpful to the Committee if I declared a non-interest: I did have a declarable interest up to the end of August, in that I was a paid adviser to various trade unions on this very issue. Clearly, there would have been a conflict, but I ceased to hold that role at the end of August. The declaration will appear in the register of interests for a year but is no longer valid. I think that covers me for the whole of the Committee stage and that I do not need to say that again.
It might be helpful for the Committee if I say a little more than that, in that I have been a close observer and participant in the process of the reform of public service pensions, it seems, for the whole of the 21st century so far. Although we had the report of the noble Lord, Lord Hutton, in 2011, the process actually started earlier than that in 2005 with what was known as the Warwick accord between the then Labour Government and public service unions. I was involved at that stage, and in the discussions before and after the presentation of the Hutton report. Indeed, if I had to nominate my specialist subject in “Mastermind”, a strong possibility would be public service pensions reform in the 21st century.
These are not exactly random thoughts, but I thought that it might be helpful if I just set out three relevant and little-known facts about public service pension reform. As I mentioned, it did not start with the Hutton report but with the Warwick accord, going back to 2005 and the subsequent public service forum agreement of that year. Major changes took place in public service pensions at that time.
Just to clarify, the reforms were carried out in accordance with the heads of agreement of 15 December 2011 with the then coalition Government. Although it is described as a heads of agreement, it was not a total agreement but, effectively, a decision by the Government that was accepted by some, but not all, trades unions. A background point but an important one is that the new schemes were not worse for everybody. A non-trivial proportion of the public service workforce will gain from the reformed schemes, so the situation is not as simple as it is sometimes presented.
Turning to Amendments 10, 11 and 12, the issue here is that if people had had what they were entitled to following the Supreme Court decision, they might have made different decisions from those which they made at the time. Clause 19 refers to transfers. If you were in the old scheme you decided to make a transfer, but had you been in the new scheme, you might have decided not to, and vice versa. These issues are therefore important. To be honest, I do not envy the job of administering this process, but it is there and the Government are obliged to pursue it.
I listened to what the Minister had to say on the issue of “may” or “must”. I should add that I did some research, along with my noble friend, and we are grateful to the Police Superintendents’ Association for having drawn these issues to our attention. We have with us a magnificent set of legal talent, and perhaps at some stage we might have a definitive view on the difference between “may” and “must”. The problem here is that from the viewpoint of the Police Superintendents’ Association and other members of public service pension schemes, there is a level of mistrust. The issue is not some semantic definition of whether “may” or “must” works; they see “may” and they think, “Maybe the Government are not going to do what they’ve promised.” Saying “We’re going to do it anyway” does not totally answer the question that is put before you by having to choose “may” or “must”, because it invites the rejoinder, “Well, if you’re going to do it anyway, let’s have ‘must’ in there, and everyone can feel comfortable.”
There is no doubt that these issues are going to have to be dealt with in the process of implementing the court judgments, and from the perspective of the scheme member, “must” seems to work. My noble friend and I heard what the Minister had to say, and we will read with interest the precise wording. I take it that the Minister will not be writing separately on the issue, but the statement as set out in Hansard will be the definitive government position and we and the scheme members will study that, come to a view and, if necessary, return to the issue on Report.
I do not know whether I should do this now, but I happily indicate my intention not to push my amendments to Clause 19.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
I am so sorry—I am getting slightly muddled. In the interests of clarity, I point out that the amendment proposed is:
“Page 15, line 31, leave out ‘may’ and insert ‘must’”.
I do apologise to the Minister.
Viscount Younger of Leckie (Con)
Just for my own clarity, I thank the noble Lord, Lord Davies of Brixton, for his comments, but he might like to speak to the amendments in this group, which are 4, 5, 6, 7, 8 and 9.
Lord Davies of Brixton (Lab)
Essentially the same background applies: this is the position in which we find ourselves following the Supreme Court judgment. It is a dog’s dinner really. We would never choose to be here but, now that we are here, we have to sort it out—but it is a mess. One of the most complicated issues which will need to be resolved is about people who paid ADCs in one scheme and would not have paid them in the other scheme or did not pay ADCs in the scheme they were in but would have done so if they had been in the other scheme. Some sort of assessment of some alternative reality has to be made, so the issue is complicated.
These amendments repeat “must” and “may” issue—and I have dealt with that—but they also deal with how the issue is resolved. There is a problem with additional voluntary contributions, which people pay voluntarily to secure additional benefits. It clearly is a decision determined by the scheme in which they will accrue benefits. If they misunderstood which scheme they were in, they may well have taken a different decision. The Bill gives the scheme administrator the decision about how that matter is resolved. Amendment 8 would place the decision about how the issue is resolved directly in the hands of the member rather than, as the Bill stands, leaving in the hands of the scheme administrator. It is an issue of the hypothetical: if a member had been in a particular scheme they would have paid contributions. As I understand it—and I would be grateful for the Minister’s clarification—the Bill as it stands deals only with how the contributions that the member has made are handled, but there is also the issue of the additional voluntary contributions that the member did not make but would have made. Finally, Amendment 9 seeks to make it clear, when a refund of contributions is decided on, the contributions that were made will be repaid with interest included in the sum. That covers the issues and I will be grateful for the Minister’s comments. I beg to move.
Viscount Younger of Leckie (Con)
My Lords, here we address six amendments that have been brought forward on Clause 18 by the noble Lord, Lord Davies of Brixton. I note again his declared interests that he pointed out at Second Reading and his expertise in this area, and I very much look forward to his appearance on “Mastermind” on his specialist subject.
Clause 18 provides for scheme regulations to make provision in relation to additional voluntary contributions paid during a member’s remediable service. As the noble Lord, Lord Davies, said, the first two amendments would require, rather than allow, scheme regulations to make provision about these matters. I hope that I can reassure the noble Lord that this is not necessary. I want to give a full response, although not quite as full as on the first group—but it is a full response on some of the important issues that the noble Lord has raised.
The reason this clause is enabling rather than directive is that not all additional benefits purchased during a member’s remediable service will need to be revised as a consequence of the Bill. For example, some legacy schemes provide that members may purchase additional pension by way of a lump-sum payment or periodic additional contributions, so the Government have agreed that members may complete the payment for these benefits when they have already commenced. The resulting benefits will not be changed, regardless of a member’s choice of whether to receive legacy or new scheme benefits. However, making Clause 18 directive would require schemes to vary the benefits, contrary to what schemes and members have asked for and government has agreed to.
The third amendment brought by the noble Lord would extend Clause 18 to require scheme regulations to provide members who were moved to the new schemes but did not make additional contributions with the option to purchase additional legacy scheme benefits, where they can show that they would have done so had they been able. I once again thank the noble Lord for tabling this helpful amendment. The Government will consider the principles underlying it and will take this away before returning with a thorough explanation of how the matter may be addressed in due course. The drafting of this amendment, at present, does not achieve the overall intention here, since Clause 18(1) provides that this applies only to cases where a person has paid voluntary contributions.
The fourth and fifth amendments are concerned with members who did make additional contributions to a new scheme. They would require scheme regulations to provide members with the options available under the Bill—to alternative or equivalent benefits in a legacy scheme, or to compensation for the contributions made. This provision is permissive rather than directive, because not all three options are intended to be used in every case. Alternative benefits are an approach whereby the benefits awarded in the legacy scheme are effectively recreated as though the member’s additional contributions had always been made there. Equivalent benefits are for situations where an appropriate alternative does not exist in the legacy scheme. In such circumstances, a member would instead be offered a benefit in the legacy scheme that is of directly equivalent value. So in both cases, the policy is that the member may choose instead to receive compensation for their additional voluntary contributions, where they do not wish to receive the alternative or equivalent benefit. Making this provision directive rather than permissive would not therefore work, as not all options will exist in all cases. I hope that explanation is clear and helps to answer the questions raised by the noble Lord.
The final amendment brought forward by the noble Lord relates to interest, as he mentioned, and requires that interest is paid on compensation payments. It is a fair point. The Government have committed to pay interest on these compensation payments, and provision is already made under Clause 23 accordingly. With those assurances on all the noble Lord’s amendments, I hope he is willing not to press them.
Lord Davies of Brixton (Lab)
I welcome the Minister’s comments, particularly on unpaid AVCs. I will look forward to his response with interest. In light of his other comments, we will read Hansard with interest and decide what to do on Report. I therefore withdraw Amendment 4.
Lord Davies of Brixton
Member’s explanatory statement
This amendment would require, rather than enable, scheme managers to pay compensation in respect of compensatable losses.
Lord Davies of Brixton (Lab)
My Lords, I shall speak also to Amendments 14 to 19, so it is a bumper bundle. Again, we have the “may/must” issues, and I assume the same position will apply.
Amendment 14 brings us to the issue of Treasury directions, on which we will probably have a more substantive debate in a later group of amendments. There is a general argument about Treasury directions being used in this context—it will be useful to have that debate. The issue raised here is whether it is appropriate to have any directions at all; the issue elsewhere is whether we have directions or regulations. The Bill appears to say that these unknown Treasury directions will lay down how the compensation will be made and the parameters set. I think the strong view here is that it should be in the Bill rather than in directions.
Amendment 15 would add a new subsection setting out where compensation would be paid. I readily admit that it probably needs tighter wording, but it raises the three areas that are of concern to scheme members. Again, I have to mention that the lead here has been taken by the Police Superintendents’ Association.
The first circumstance is where individual scheme members would have made other decisions had they been in another scheme and, because of that, have encountered some financial loss; that is, had they known they were really in scheme B rather than thinking they were in scheme A, their decisions would have been different and, because of that, they have incurred some financial loss. I do not envy the job of working out how to assess losses in these circumstances, but they can be real and important, so the issue needs to be addressed. The example we have been given is where, because of the fall in their income, members have incurred loss in selling and buying a house; they incurred financial charges because they thought their income would be lower as a result of being in a different scheme. However, they were not in a different scheme so they did not need to incur that expenditure.
The second area set out in the amendment again affects the police service in particular and concerns where a scheme member genuinely thought that a binding commitment had been given by the Government on the nature of the scheme to which they belong, and they believe that that binding promise has been broken. This is the subject of legal action at the moment. There is no doubt that it is a real concern; it is going through a legal process. We should recognise the level of concern among members about the losses they have incurred because the Government are resiling from promises which they reasonably thought had been made.
The third area of loss is what is called the pensions trap. I will spend a bit of time talking about that because it has gained considerable traction. The first point to make is that, although the uniformed services—the fire service, firefighters and the police—have made most of the running on this issue, it affects all schemes; well, I have not checked them all, but it affects all the major schemes. It is just that, in the case of firefighters and the police, it is of much greater salience. That is why those services have raised this issue most strongly. I think we would admit that there are also areas of employment where we would be particularly concerned because of what we owe to our uniformed services.
Lord Ponsonby of Shulbrede (Lab)
My Lords, first, I thank my noble friend Lord Davies for his comprehensive speech introducing these issues. I also thank the noble Baroness, Lady Janke, for putting her name to the amendments in my name.
There are two issues raised in Amendment 15 to which I would like briefly to add my voice. These are the realities of the current situation which various police forces have raised with us. As I understand it, proposed new paragraph (b) in Amendment 15 refers to members who were given a commitment that they could retain access to the legacy scheme until their retirement but are facing difficulties because their retirement is based on years of service, not a retirement age. What is particularly concerning is the reported risk that the changes will be disproportionately impactful on female officers, who are more likely either to have worked, or to be currently working, on a part-time basis. That permission has been granted for a judicial review on this issue is testament to the complexities which sit alongside this Bill and which still have to be navigated. The amendment would not alter anything in the Government’s plans but would require this situation to be considered as one type of compensatable loss. I am interested to hear what the Minister has to say on this issue.
Proposed new paragraph (c) in Amendment 15 makes reference to what has been introduced to me as the “pensions trap”—as referred to by my noble friend—in which an officer who makes financial decisions based on one pension will find their contributions from the alternative scheme reduced as a consequence. I look forward to the Minister’s response on this issue. As my noble friend says, it has gained a great deal of traction in the press.
Baroness Janke (LD)
I, too, would like to speak to the amendments in my name. I do not have a great deal to add to what the noble Lord, Lord Ponsonby, has said other than to say that I think that this is a particularly important part of the Bill. We have heard from many people who are affected by this Bill about the need for confidence in the measures contained in it and for trust in light of what happened to lead to the need for this legislation. These amendments are to probe what the Government are planning in terms of a compensation scheme and, as has already been said, the right of appeal and members’ rights as to how their representatives may be involved in any compensation scheme. The requirement for consultation clearly goes without saying, and the Government need to do much more work on this part of the Bill to ensure that members have confidence in it.
The noble Lord, Lord Davies, referred to promises having been made but not being honoured and the fact that many outstanding issues still await resolution. I hope that the Minister can clarify what the Government intend and that the proper process will fill members with confidence and ensure much greater trust than has been the case so far.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Lord, Lord Davies, once again and indeed the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Janke, for their valuable contributions and remarks. Given that the noble Baroness is right that this is an important part of the Bill, I wish to give a pretty full response, so I hope the Committee will indulge me as I want to go through in some detail the issues that have been raised and, of course, answer as many questions as I can.
I start by saying, just as a point of agreement, that this group of amendments seeks to ensure that members are correctly compensated for any detriment that they have suffered as a result of the discrimination that has arisen. I reassure this Committee that this is certainly a shared objective.
The noble Lord, Lord Davies, put forward three amendments to Clause 21. It may be helpful if I set out the intended purpose of this clause. It confers power on scheme managers to make payments in relation to compensatable losses. This is compensation in relation to losses incurred as a result of the discrimination, the remedy provided by the Bill, or in respect of certain tax losses. The clause allows for matters that are not directly remedied by the Bill or scheme regulations to be put right.
Amendment 14 would remove the requirement that losses may be compensated only where they are of a description specified in Treasury directions. However, in the Government’s response to the consultation on remedying the discrimination, we set out that some member representatives and employers considered that there would be a need for consistent treatment across and within schemes.
The Treasury directions are one way in which we intend to ensure that such consistency is achieved. The proposed amendment would remove the central consistency that we have committed to provide and would instead require scheme managers to determine all claims in an exercise of their own discretion alone, which could lead to inconsistent and potentially unequal treatment across schemes. I am sure this Committee would agree that we do not want that. That approach would give rise to the concerns that respondents to the consultation raised. We do not consider that is a responsible or appropriate approach. The Government have committed to providing a consistent and full remedy to members and we believe that will be best achieved by the current drafting.
Amendment 15—which was spoken to eloquently by the noble Lords, Lord Davies and Lord Ponsonby—seeks to compensate members for the closure of the legacy pension schemes and for any contingent decisions taken where a member had a period of remediable service that was under a new scheme. Paragraphs (b) and (c) of the amendment from the noble Lord, Lord Davies, in particular, closely relate to an ongoing judicial review challenge before the courts—which the noble Lord alluded to—and it would be inappropriate to discuss in detail. However, the effect of the amendments would be to provide the substantive remedy that the claimants are seeking in the judicial review claim. It would compensate members who were in scope of transitional protection but have not yet retired and will now be in scope of the prospective measures set out in Clauses 76 and 77 of this Bill. Providing compensation in this circumstance would therefore be contrary to the intention of those clauses that all members are to be treated equally from 1 April 2022 by accruing service in the reformed schemes, regardless of their age.
It is important to stress that the Court of Appeal found in the McCloud and Sargeant case in 2018 that the transitional protections offered under the Public Service Pensions Act 2013 amounted to unlawful discrimination. Accordingly, offering compensation to transitionally protected members would effectively undermine the Court of Appeal judgment by perpetuating this unlawful discrimination through different means. The effect would be that instead of allowing transitionally protected members to continue in service in legacy schemes, they would now be receiving the benefit of financial compensation. Non-transitionally protected members would not receive such compensation, so there would still be an unfair difference in treatment.
I will pick up on a point made by the noble Lord, Lord Davies, to try to be helpful concerning police stakeholders. The Government really do understand the concern raised by stakeholders regarding the difference in when members can access their full pension in the 1987 and 2015 police pension schemes. I can reassure noble Lords that the Home Office is engaging with police stakeholders on these matters. However, it is the Government’s view that it will be appropriate for future pension accrual to occur in a scheme with different retirement provisions, for the reasons set out by the noble Lord, Lord Hutton, in his report. As set out in the consultation response regarding this specific issue, it is right that the Government be able to make changes when they judge it necessary to do so. The commission’s original objectives and recommendations, leading to the 2015 reforms and reform schemes, still hold. The Government therefore consider that this is not appropriate and that it is crucial to the effectiveness of the remedy that the discrimination is not perpetuated.
Returning to paragraph (a) of the amendment, this clause already makes provision for losses that arose as a result of the discrimination; that is covered by the first condition, contained in subsection (4). I hope that I can therefore reassure the noble Lord, Lord Davies, that the amendment is not needed.
The noble Lord has also put forward four amendments to Clause 23. Amendments 16 and 17 would require, rather than allow, scheme regulations to make provision under which interest is required to be calculated and paid on amounts owed to or by members under or by virtue of the Bill, and about the process by which amounts and any interest on them are to be paid; I know that this matter cropped up in debate slightly earlier. Where sums are owed to schemes or members, for example relating to contributions or benefits, Clause 23 provides powers for scheme regulations to make provision about the payment of interest on those amounts. Interest will be added to amounts payable by schemes or members. The Government consider that the addition of interest is necessary to ensure fairness between members. For example, where members owe contributions, their comparators in the scheme will have been paying the correct level of contributions throughout, so would not have had the benefit of the additional money over time. Interest will be paid on benefits or contributions owed to members to reflect that the payments relate to earlier periods of time.
Clause 23 also provides that scheme regulations may make provision about the process by which amounts due to and from schemes are to be paid. This includes matters such as providing for when amounts are to be paid, allowing for those to be paid by instalments if appropriate, netting off amounts owed by a person against amounts owed to a person, and conferring rights of appeal against a decision taken under the regulations. The amendments would require scheme regulations to make such provision. However, the Government do not consider that imposing a duty on schemes to make such regulations would be appropriate. Doing so could lead to vexatious claims that schemes have not made regulations to deal with obscure situations that could arise. Rather, the Government consider that granting schemes a broad power, exercisable in accordance with Treasury directions, is the right approach to ensure that schemes can make all the necessary and appropriate provision in scheme regulations, while providing sufficient flexibility to account for the differences in the public service pension schemes that I referred to earlier.
The noble Lord’s third amendment, Amendment 18, would remove provision for schemes to make a payment only on the making of an application. This provision is there for the benefit of members: for example, members may not wish to receive amounts that they are owed. This could arise if they are an active or deferred member and intend to choose reformed scheme benefits upon retirement in order to avoid double corrections, as envisaged by Clause 16(8).
Member’s explanatory statement
This probing amendment raises the need for information in a remediable service statement to be provided in clear, easy-to-understand language.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this group deals with a straightforward issue, which should not need much explanation, but should be at the heart of our deliberations on this Bill. I raised it at Second Reading and it was also raised powerfully by the noble Baroness, Lady Janke, with whom I share this group. I will speak to her amendment within the group.
In recommendations made in 2011, predating the pensions reforms that gave rise to the discrimination that the Bill seeks to address, the Public Accounts Committee recommended that
“HM Treasury should work with employers and pension schemes to ensure that clear and relevant information is provided to employees on the value of their pensions.”
In June this year, a decade later, the PAC reported that it was “disappointed” by the “limited progress” that had been made and that
“more needs to be done to improve employees’ understanding.”
The crucial relevance to the Bill today is captured—one could almost say understatedly—by the PAC when it says:
“The problem has been exacerbated with further complexities being introduced as a result of government’s response to the McCloud judgment.”
I do not need to put too fine a point on how complex the remedy and the legislation before us today are. We are the people attempting to scrutinise it, and we are only too aware of these complexities. Imagine the impact of this sudden deluge of remedies, liabilities, regulations, protections and decisions on those of our public service workers who are building up their pension in their career, perhaps as a teacher, a firefighter or a civil servant. It must be an utmost priority that scheme members are given accessible, timely, easy-to-understand and easy-to-access information to help them to understand what has happened and what it means for them.
Clause 26 makes provision for remediable service statements—essentially, annual benefits statements for members that would include information on the benefits available under the legacy scheme, information on the impact that making certain choices under the Bill would have on those benefits and a description of how and when a choice can be made. This is the primary mechanism in the Bill for providing information to members on how the remedy could have an impact on them.
Amendments 21 to 23 in my name would require the information in those statements to be provided in “clear and accessible language”. Their aim is to probe whether the content included in the statements will be plain-language, practical descriptions of what these options mean for the value of a person’s pension, or whether members will find themselves faced with a complex financial statement that is too difficult to use.
Amendment 25 raises a specific concern around tax returns: ensuring that members have what they need to fill out a self-assessment tax return. For example, members of affected schemes will have to work out tax relief on contributions, as well as their annual allowance and other values. Will a remediable service statement include the necessary information to allow a member to navigate the tax impacts of the changes to their pension status? If not, will financial advice be available to ensure that they can accurately fill out a self-assessment statement, taking the remedy into account?
Finally, Amendment 24 in my name and Amendment 33 in the name of the noble Baroness, Lady Janke, deal with the key to this issue: what guidance, help or services the Government plan to provide to help impacted members to understand what this means for them, and how members will be signposted to them. If a person has no idea what their statement means, how their pension has been affected and when they are likely to be required to make a decision, who do they call? Where do they go for practical advice? I look forward to the Minister’s reply.
Baroness Janke (LD)
My Lords, I very much agree with the points made by the noble Lord, Lord Ponsonby. There is a huge challenge here for the Government. When you think of how many individuals with individual futures will be affected by this Bill, it is something that really needs deep thought in terms of what kinds of guidance and support will be provided, how they will be resourced and how the Government will signpost them.
It does not sound too challenging to say that members get to retirement then make whichever choice is best for them, but actually lots of complicated decisions requiring support and high levels of knowledge need to be taken. For example, in some cases, members may have built up rights that fall due at different ages. If there is no single retirement age, when do they have to make their choice? In some cases, a higher pension may be owed at the time under one set of rules but, as retirement continues, it may turn out that the other set of rules would have given a bigger total pension. Again, help needs to be given.
The Government have already accepted that people with complex tax issues can have financial advice, but what about the millions of public sector workers who will have to make these choices? On financial planning, we encourage people to make plans for their pensions and explore how they are going to live post retirement, but how easy will it be to make a proper plan with the new system being put in place? For example, will the pensions dashboard provide the information they need?
It is an enormous task for schemes to unpick, administer and communicate. Members are going to need a lot of help to understand what is happening, so it would be very helpful to know what the Government intend to provide in the way of support systems to enable members to make the best choices, and to trustees of the pension schemes as well. We welcome how this is to be resourced and I hope that we will have a clear and detailed statement on supporting elements for the implementation of the scheme. I look forward to the Minister’s response.
Viscount Younger of Leckie (Con)
My Lords, once again I start by thanking the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Janke, for introducing this theme and for their contributions. Providing sufficient guidance for members to make informed decisions regarding their pensions is of course of the utmost importance and worthy of proper scrutiny, so I am pleased to respond to their points and hope that I can give reassurances. The noble Baroness is correct that it is a challenge, but I hope that I can prove, or show, that much thought has been put into this important matter already.
Amendments 21 to 25, tabled by the noble Lord, Lord Ponsonby, and Amendment 33, tabled by the noble Baroness, Lady Janke, all deal with the important matter of communication: communicating the impacts of the remedy and the choices available to members. Amendments 21 to 25 seek to ensure that the information provided to members is clear and easy to understand, as well as signposting them to sources of further information and assistance and ensuring that certain tax information is provided. Amendment 33 seeks to require the Government to publish guidance for members and provide further assistance, such as a helpline or online services, as well as laying a copy of such guidance before Parliament and providing a report on the effectiveness of this guidance.
The Government recognise the importance of providing members with clear, accessible and accurate information. It is this information that will inform members’ decisions about whether to receive legacy or reform scheme benefits in relation to their remediable service, or whether to opt for service to be reinstated under Clause 5. Perhaps I may provide reassurance to the Committee on the measures already in the Bill which provide for members to receive information that shows the option of benefits available to them in the form of remediable service statements. That will include details of any lump sum, pension and survivor’s benefits under the scheme. For the vast majority of members, the decision will be very straightforward: the member will simply choose the option that is most valuable to them.
Clause 26 already contains the appropriate provisions as to what should be included in the remediable service statements; for example, subsection (5) outlines that a statement
“must include … a description of when and how any election”
should be made. The information contained in the remediable service statement will be personal to the member. The statement will set out their entitlements and allow them to clearly understand the benefits available, under the options available, to determine which one they wish to take.
The provisions in the Bill are additional to existing requirements under the Public Service Pensions Act 2013—an important point—which already require the public service schemes to provide members with information about their entitlements. Clause 26 ensures that members are provided with additional information, specifically about their remediable service only. To break this down, first, for active members statements will be provided on an annual basis and enable members to see how the two sets of benefits compare as their careers progress and they get closer to retirement. Secondly, for deferred members, a one-off statement will be provided initially but the member will be able to request up to one further statement per year. For pensioner members, and in respect of deceased members, a one-off statement will be provided, ensuring that these members have the information they need to make an immediate choice in respect of their remediable service.
Schemes will also develop further guidance and tools where appropriate; we expect that some will choose to provide retirement calculators, for example. However, in view of the different requirements of workforces, the different methods of communication currently used by schemes and the different tools they already provide, it would not be appropriate for the Bill to require this to take a particular form. To give an example, the NHS scheme is, as the Committee can imagine, one of the largest—if not the largest—occupational pension schemes in the world. It has considerable expertise in providing bespoke member communications, guidance and support. The information required under this clause will supplement and become part of an established service provided for members.
Furthermore, in relation to Amendment 25, it is worth noting that most individuals affected by the Bill will not have to correct their tax position, either through the tax system or by claiming compensation. The Bill also contains various provisions to reduce interaction with self-assessment. In addition, schemes are already required to provide members, where appropriate, the relevant information to complete their tax return on an annual basis, and this information will be updated and provided to the member where their tax position changes. Therefore, this amendment would duplicate the existing processes. However, where there is an interaction with the tax system, the Government recognise that there will need to be further guidance to complement existing HMRC guidance and scheme processes which already provide the required information to complete a self-assessment return, and this will be provided in time to allow members to make an informed choice, which is an important point to make.
I wholly agree that communication with members will be key to the successful implementation of the remedy but I hope I have reassured the Committee that the Bill already provides for all the information required for members to make necessary informed decisions. Taking all this into consideration, I hope that the noble Lord will withdraw his amendment.
Lord Ponsonby of Shulbrede (Lab)
I thank the Minister for that explanation. I have to say that he did not provide me with a great deal of reassurance because on the one hand he said that all the information will be provided in any event and then, on the other, he said that he recognises that further guidance will be necessary. I am grateful that further guidance will be forthcoming. It is a concern that has been raised directly by the various police forces I have spoken to about this issue. Nevertheless, I beg leave to withdraw the amendment.
Lord Davies of Brixton
(1A) In subsection (3), for “directions” substitute “regulations” .(1B) In subsection (4), for “directions” substitute “regulations” and delete paragraph (c).”Member’s explanatory statement
This amendment requires the calculation of the employer cost cap to be set in accordance with Treasury regulations, rather than Treasury directions. It also removes from the calculation the effect of changes in the cost of connected schemes.
Lord Davies of Brixton (Lab)
Amendment 26 is a twofold amendment. Two issues that are connected, but are potentially distinct, are wrapped into one amendment. On the one hand, the amendment states that the requirements for the cost cap mechanism should be set out in regulations rather than directions; on the other, it states that the cost of remedy should be excluded from the cost cap mechanism. They work together, but they are distinct.
The use of directions as opposed to other means of establishing regulations and subsidiary legislation of any sort is an important issue that potentially needs to be discussed in principle. I shall not start discussing it in principle today. There is a debate to be had and concern that a Government could use directions to exclude important matters from parliamentary scrutiny. It is a real fear that should be taken seriously. However, that is not the case I am making today. There is a general, generic problem with directions.
The argument is related directly to these directions. It is important to understand that “directions” in this amendment are not directions in the current Bill but directions under the provisions of the principal legislation: the Public Service Pensions Act 2013. Section 12 of that Act sets out the basis on which the cost cap mechanism works. It provides in subsections (3) and (4) that the cost cap mechanism should be
“in accordance with Treasury directions.”
The Minister said, quite rightly, that when this Bill went to the Delegated Powers and Regulatory Reform Committee, it had no comment on it. I remind the Committee that it is not the directions in this Bill that I am talking about today but the directions in the principal legislation. The debate on the principal legislation took place on 5 December 2012. In the memorandum prepared by the Treasury, comments were made about these directions. The Treasury’s submission to the committee, which was accepted, was:
“The effect of the directions on the design of the scheme will be subject to parliamentary oversight when the scheme regulations are made. It is therefore considered unnecessary for the directions themselves to be subject to additional parliamentary control.”
My argument now is that the directions—which, coincidentally, were agreed last Thursday—do impinge on the design of the scheme and hence are not subject to regulations and are outside parliamentary control. The specific issue is the generic use of directions, but in this case, the Government are seeking to introduce directions—they did so last Thursday—which do subvert parliamentary control.
They do that in two important ways. The decision is made in those directions that the cost of the remedy should be included in the cost control mechanism. I believe that there is a debate to be had about that issue and the Government are avoiding it by making the decision in the directions.
I must mention again that this is currently subject to legal action—potentially; I am not sure whether or not the formal case has been submitted. A number of trade unions are in the process of challenging the inclusion of the cost of the remedy in the cost control mechanism. Obviously, we cannot interfere in the legal process but, as a matter of parliamentary sovereignty, we need to assert that a decision as important as how the cost of the remedy should be met should be subject to parliamentary oversight.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I wish to speak briefly to this amendment. I open by paying tribute to my noble friend Lord Davies for the expertise with which he has raised these issues surrounding the cost control element. I look forward to a comprehensive response from the Minister on this difficult issue—that would be to the benefit of the whole Committee.
I particularly ask the Minister to respond to the point made by the cross-party Public Accounts Committee that this is the Treasury’s mistake, yet, in the words of the committee:
“The Treasury now wants pension scheme members to pay the estimated £17 billion cost to put that right.”
I want also to touch on the Government’s response to the consultation on the cost control mechanism, which was published only a few days ago, as my noble friend said. I know that the details of the reforms are to be dealt with in future primary legislation, and I am sure that that will be thoroughly debated at the time, but the response did not give us any information on how the proposed reforms interact with the issues that we are dealing with in the Bill in front of us today. This is essentially the question that my noble friend was asking.
The response said:
“The Government will provide further details on … the extent to which there will be any interaction with the McCloud remedy at future valuations, in due course.”
It seems that, at the same time as we are having complex discussions on the immediate impact of the 2016 valuations on members, there is little or no information about how the Government plan to deal with this issue in the long term.
Clause 80 is welcome, but Ministers will be only too aware that it neither fully answers the concerns of the trade unions over the inclusion of the remedy in the 2016 valuations nor sheds any light on the Government’s intentions for the treatment of the remedy costs in future valuations. I understand that this is a complex matter, and I look forward to the Minister walking us through this complex landscape of issues.
Viscount Younger of Leckie (Con)
My Lords, we have come to another important part of the Bill. I recognise that the operation of the cost control mechanism is of considerable interest to the Committee, particularly the noble Lord, Lord Davies, whom I thank once again for his remarks, and the noble Lord, Lord Ponsonby, who—I remind myself—gave some valuable contributions at Second Reading and touched on this topic. We should also remember that the cost control mechanism should be considered within the wider context within which the Bill should be considered.
I hope that my subsequent letters on this topic have proved informative on progress being made in this area. I am happy to be able to expand on some of those key areas during this debate, but obviously there are some questions that need answers arising from this particular debate, and I will do my best to answer them.
First, on the subject of letters, I deposited a letter in the Library last week to bring to the Committee’s attention the fact that, on 7 October, the Treasury published amending directions that will allow schemes to complete the cost control element of the 2016 valuation process. As previously announced, these amending directions confirm that the McCloud remedy will be captured as a member cost in the completion of the 2016 valuations. This is right, given that addressing the discrimination identified in the McCloud and Sergeant judgments, giving members a choice of scheme benefits for the remedy period, involves increasing the value of schemes to members.
This matter led to a couple of questions being raised, first by the noble Lord, Lord Davies, who made the point that he thought that it was not appropriate for members to pay the costs of remedy. Separately, the noble Lord, Lord Ponsonby, raised the question of the inclusion of remedy in the 2016 valuations. Indeed, he questioned the role of the Treasury and government.
Lord Davies of Brixton (Lab)
I thank the Minister for his detailed response and I look forward to the opportunity for more detailed discussion at a meeting. I am not totally convinced, and I suspect that this is something we will return to on Report, but I beg leave to withdraw the amendment.
Baroness Janke
“Review of the impact of this Act on fairness
(1) Within six months of the day on which this Act is passed the Secretary of State must lay before Parliament a review of the impact of this Act on fairness to members in receipt of pensions to which this Part applies.(2) The review under subsection (1) must make reference to the impact of the provisions on women in particular.(3) The review under subsection (1) must make recommendations as to whether further legislation should be brought forward by the Government to try and close the public service pensions gap between men and women.”Member’s explanatory statement
This amendment would require the Government to report on the impact of this Part on fairness, especially with regards to women.
Baroness Janke (LD)
My Lords, this amendment calls for a review of the fairness and just treatment of some of the issues that have already been raised, particularly with regard to disbenefits to members of current schemes. We have heard of those today; the pensions trap was already described in detail by the noble Lords, Lord Davies and Lord Ponsonby. Women police officers are also being unfairly treated in the Bill, in that those who have taken time off for caring responsibilities can make up the time they had lost under the police pension scheme, but under the new scheme, which is based on age, they have to work longer. That is an example of some of the issues caused by the Bill that may not be addressed by some of the amendments we have put forward.
Gender in pensions is not a new issue. The gender pension gap is a serious matter; the average pension pot for a woman aged 65 is one-fifth of that for a 65 year-old man. Women receive £29,000 less state pension than men, over 20 years. This deficit is set to continue, closing by only 3% by 2060. This amendment seeks to highlight the importance of this issue and the need for urgent measures to address it, so we are raising specific disbenefits in the new scheme, particularly in relation to women and the gender pension gap. I look forward to the Minister’s response.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I will speak briefly on this matter, but I acknowledge its importance and I thank the noble Baroness, Lady Janke, for raising it. The amendment touches on a number of key issues that we have debated today: the long-term oversight of the Bill and its impact; fairness, particularly the consequences for women and part-time workers; and the need for decent, accessible information for workers on the value of their pensions. We have seen what happens when the effects of pensions legislation are not fully taken into account or monitored. It results in the Bill in front of us and all the related complex consequences we see here today.
On the gender pension gap, during the course of today, we raised specific concerns about the different impact some changes will have on women, who are more likely to have been part-time workers or to have taken time out of their careers for caring responsibilities, leaving them with interrupted contributions and interrupted years of service. The noble Baroness made this point all too clearly. What is particularly shocking about the gender pension gap is how little it is commonly talked about and recognised. I hope that this Committee stage will slightly raise the profile of the issue, but I know that the noble Baroness, Lady Janke, as well as my noble friend Lady Drake and others, has consistently raised it across the House and brought it to the Government’s attention at every opportunity.
The cross-party Women and Work All-Party Group has called on the Government to “take urgent action” to close the gap which, as it points out, has persistently
“remained at about 40% for the last five years”.
The recommendations of the all-party group include that:
“The Government should publish guidance directed at women on how to adequately prepare for retirement and encourage employers to calculate their gender pension contributions gap in order to compare this to their gender pay gap data.”
There is cross-party understanding of this issue and cross-party support for it has been raised in other forums. What is needed to tackle it adequately is political will. I look forward to the Minister’s reply.
Viscount Younger of Leckie (Con)
This was a much shorter debate. I begin by thanking the noble Baroness, Lady Janke, and the noble Lord, Lord Ponsonby, for the points they made and for raising this important matter. As I touched on earlier in debate, of course I agree that fairness and equal treatment lie at the heart of the Bill—that is, fairness between lower and higher earners and fairness for the taxpayer—as well as the future sustainability and affordability of public service pensions.
Let me go further. The Government agree with the importance of assessing the impact of the Bill on members of the public service pension schemes with protected characteristics, including—importantly—women. This is why the Government sought responses to the consultation on equalities impacts and conducted a full equalities impact assessment of the Bill, which was published alongside its introduction. In addition, when making the necessary changes to their scheme rules to deliver remedy, schemes will carry out any appropriate analysis of equality impacts for their specific schemes alongside consultations on these changes, in compliance with the public sector equality duty contained in Section 149 of the Equality Act 2010.
The Government’s equalities analysis highlights a number of important features of this Bill, which aims to ensure equal treatment between men and women. I note the points made by the noble Lord, Lord Ponsonby. For example, with regard to the main public service schemes, requiring members in scope of remedy to choose their benefits long before retirement could disadvantage women, who may be more likely to take a career break or work part time between implementation of the remedy and their retirement. By allowing this choice to be made at retirement, the deferred choice underpin avoids additional complexity for these groups by allowing them to make their decision in full knowledge of how part-time work or career breaks have affected their earnings and pension accrual. Similarly, by making remedy available to individuals who were in service on or before 31 March 2012 but subsequently left and rejoined, provided that their break in service was less than five years, the Bill ensures parity for groups that may have been more likely to take career breaks—for example, to care for young children or elderly relatives.
The Bill also provides that, from 1 April 2022, all public service workers who remain in service will do so as members of the reformed schemes, which provide career average—so-called CARE—benefits. CARE schemes offer fairer outcomes to those who experience lower salary progression over the course of their careers. As such, statistically, a higher proportion of women and those with other protected characteristics are likely to be better off under CARE schemes, which are broadly more beneficial for lower and some middle earners. The Bill also provides that men and women in the same scheme and of the same date of birth will have the same scheme normal pension age—NPA—under their particular reformed scheme design, and the same NPA for their legacy scheme benefits.
More broadly, the Government recognise the importance of public service pensions in addressing the pensions gap in society between men and women. As women make up roughly 65% of active public service pension scheme members, the provision of generous defined benefit public service pensions actively serves to reduce that gap. Nevertheless, the Government recognise that, in the public sector, differences remain in average annual pension payments and accrued pensions; this was alluded to by the noble Baroness, Lady Janke. However, these reflect past differences in earnings over members’ careers rather than differences in their pension terms.
Therefore, the best way to combat differences in pensions accrual is to tackle the gender pay gap and promote equal opportunities for career progression, regardless of sex or other protected characteristics. The Government are taking active measures on both, including through mandatory gender pay gap reporting. As a result, the gender pay gap continues to be lower in the public sector than the private sector; I have some statistics that I could give to the Committee. As already mentioned, these differences should reduce over time as a result of the move to a CARE benefit design, which all members will accrue from 2022 and which will lead to fairer outcomes for those with lower pay progression.
Given the extensive analysis that has already been conducted and published, as well as the further analysis that schemes will carry out, the Government do not think that a further review is required at this stage. I understand the sentiments behind the amendment but we do not agree that it is necessary. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Janke (LD)
I thank the Minister for his response and take his assurances very seriously. Again, this is perhaps something we need to reflect on as it affects society as a whole. I believe we should use every occasion we can to address these fundamental unfairnesses. Having said that, I am sure we will reflect on this, but at this point I beg leave to withdraw the amendment.
Member’s explanatory statement
This would set the judicial retirement age in the Judicial Pensions Act 1959 to 72, rather than 75. This is a probing amendment to raise the issue of the appropriate retirement age for the judiciary.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we now move to a different aspect of the Bill: the retirement age of members of the judiciary. I thank noble and learned Lords who have sat through the past couple of hours of quite detailed discussion of other aspects of the Bill. This amendment has one great merit, which is that it is easy to understand. I remind the Committee that I sit as a magistrate in London.
I raised this subject at Second Reading, as did other noble Lords, and I received a letter from the Minister in which he set out the Government’s view that 75 is a more appropriate age for the retirement of members of the judiciary than 72. He did that based on responses to a public consultation run last year. The letter prays in aid some statistics based on the response to the consultation and some representative bodies, which basically backed 75 over 72. As I made clear in my Second Reading speech, there are other representative bodies which back 72 over 75. Just to repeat what I said in the Second Reading debate, the Lord Chief Justice of England and Wales, the Lord Chief Justice of Northern Ireland, the President of the Supreme Court, the Lord President of Scotland, the Magistrates’ Leadership Executive, the Chief Coroner of England and Wales and the President of Tribunals favoured 72, not 75.
As somebody who took part in the consultation, I say that the questions in the consultation were not put in the context of whether the increase in the retirement age promotes inclusion and diversity in the magistracy, which is of primary importance—it is superior to other considerations when considering the retirement age—and whether the appraisal system is adequate properly to appraise older colleagues. Here I have to speak frankly, and as somebody who regularly appraises magistrates. There is a prospect of mental decline, which accelerates as one grows older. Although one has to be robust when carrying out appraisals, it can be difficult to say to a long-standing colleague that they should reflect on whether they should continue in their current judicial role. I think it is more likely that those difficult conversations will have to be had if the retirement age is set at 75 rather than 72.
In the Minister’s letter, he gave the proportion of BAME members in different arms of the judiciary: 13% for magistrates, 10% for judges and 17% for non-legal tribunal members. Clearly, there is an aspiration within the Government—and, I know, within the judiciary as a whole—to increase and improve these figures. One of the central points of the Lammy report which I think the Government have accepted is the importance of increasing diversity. I would argue that increasing diversity within the judiciary is more important than, and trumps, increasing the judiciary’s retirement age. Indeed, increasing the judicial retirement age militates against greater diversity. Because there is only a limited administrative resource, the administrative effort should focus on the recruitment of younger people as a whole but particularly from minority groups within our society.
I have put forward my amendment—to have 72 rather than 75—in a constructive way. It is the way to enable colleagues to continue for another two years but also to focus on what I see as the overwhelming importance of increasing diversity in our wider judicial family. I beg to move.
Lord Etherton (CB)
I thank the Minister for his full letter, following Second Reading, and his suggestion of a further meeting. I am very grateful for both of those. I support everything that the noble Lord, Lord Ponsonby, has said and it is a great pleasure to follow him.
I join in on this amendment and support it because of the adverse impact of the increase in the maximum retirement age to 75, rather than 72, on diversity in our most senior courts, especially the Supreme Court and the Court of Appeal. While all salaried judges are critical to the administration of justice, the most senior courts are those that tend to send the clearest message to our nation, and indeed to other countries, of whether or not we value diversity within the judiciary. At present, we lack a sufficiently diverse senior judiciary. While some progress has been made, particularly in the last 10 years, on the recruitment of women—still inadequate—there is a notorious lack of people from a minority ethnic background. Indeed, in the just over four years that I was Master of the Rolls, it was sometimes extremely embarrassing not to have on the panel of judges in the Court of Appeal anybody from such a minority background.
To increase diversity, there must be sufficient opportunities for appointment to the senior courts. This requires existing judges to retire. The increase in the maximum retirement age to 75, rather than to 72, will in effect freeze the opportunity for the advancement of underrepresented groups and the throughput of more diversity within the judiciary. As the noble Lord, Lord Ponsonby, said, all the most senior judges in England and Wales were in favour of an increase in the judicial MRA to 72 rather than 75. The adverse impact of raising the MRA to 75 in a single stride is plain: the average age of judges in the Court of Appeal is just under 64. This means, potentially, that if the MRA is raised to 75 there will be very few vacancies for a further 11 years.
Lord Woolf (CB)
My Lords, it gives me great pleasure to speak after the former Master of the Rolls, an office that I held at one time before becoming Lord Chief Justice, on this occasion for the first time. I am yet hoping to hear from another judge who will be speaking who I have not had the opportunity to hear from.
I was very much a judge at the time that the MRA for a judge was, and had been, 75. In my view and that of my colleagues, that worked admirably. There was no problem about it, subject to the question of diversity, to which I will draw attention shortly, which is a single matter. I emphasise that at Second Reading, the noble and learned Lord, Lord Mackay, intimated that, when he was Lord Chancellor—I was Lord Chief Justice subsequently—the age of 70 was in operation.
As was confirmed by what the noble and learned Lord, Lord Etherton, said, there is no doubt that reducing the age from 75 to 70 did not work. That is why all the judiciary and the former judiciary believe that there is a real and very important need for the age to be increased, for reasons identified by the noble and learned Lord, Lord Etherton. The only question is whether it should be increased to 72 or 75.
I suggest that the view that 72 will have a particular adverse effect on diversity is not correct. We are concerned about a failure to get enough female judges appointed, especially to the important offices, but that depends on their being appointed, not on the date of retirement being artificially restrained to a lower age than it would otherwise be, if the Government’s intentions proceed as they are at the moment.
I have also had experience of indirectly employing judges to the international courts with which I have been involved—this is referred to in my entry in the register. The fact is that excellent judges who are under the age of 75 are able to be recruited for courts in other countries. The fact is that if we go ahead with the lower age, we would be depriving ourselves of useful powers in the judiciary of this country in the highest posts if they are not able to fulfil the term that, as I submit, they should be able to fulfil. If they do not want to stay on until 75, the MRA of course does not have any impact upon their ability to retire at an earlier date.
The important question, therefore, is whether there really is such a dampening effect on the employment of female judges that it has to give way to what should be the natural term of appointment of the most senior judges in this country. I can say only, based on my experience, that I do not think there is any evidence to that effect. The fact is that in the appointment of judges we would like to recruit more of—that is, able judges of the highest quality who are female—into the judiciary, so far we have not been able to recruit them. That is true; we would like to recruit more, but it has not happened. On appointment, the fact is that those who are responsible for appointment take into account, and are perfectly entitled to take into account, where there is a female applicant, the fact that she is female. Of course, because of the need, that means that female judges are in a position where, if they apply to be appointed, they are more likely to be appointed than their male counterparts, because there is a need for females.
I certainly subscribe to the view, especially with appellate courts, that having a female judge on those courts is a matter of the highest importance, and I would be astonished if those responsible for the appointment did not take that into account in selecting who would be appointed. So, on the basis of my experience, I say that we should not, and it is not right to, deprive very good judges of the full term of their appointment if that be an age in excess of what it is now, to 75, because it might mean—although there is no evidence that it does mean—that female judges would need to be appointed. I appreciate that the noble and learned Lord referred to people being cut out, but to say that in the course of a judicial career that goes to an age above 70, a judge is going to be locked out of the opportunity of being appointed because colleagues can stay to 75, I really suggest is unrealistic.
I urge the Government to adhere to the view of the noble and learned Lord, Lord Mackay, and myself that changing the age from 75 to 70 was a mistake—a mistake that this is an opportunity to correct, and we should do that. We will lose, of course, the opportunity to have those five years, which we now have in international courts, but our first responsibility is to the courts of this country and the standards of those courts.
Baroness Hallett (CB)
My Lords, I support the amendment to make the judicial retirement age 72, rather than 75. I should first declare that I was a judge adversely affected by the current mandatory retirement age of 70: I had to retire in 2019. I thought I had a good five years left in me, but it was not to be. None the less, I support the amendment down to 72.
I was also chair of the diversity committee of the Judges’ Council until 2019 and I spent a lot of my professional life trying to improve diversity on the Bench for judges and magistrates. I had some success, but it was limited success. We organised mentoring schemes, application workshops, outreach events of every kind and support of every kind for women, BAME lawyers, employed lawyers, academics and solicitors, encouraging them to apply for a judicial post. I must have spoken to hundreds over the years, and I never once heard an argument that the retirement age was a factor in their not applying for the Bench. There were many other complex factors, particularly for solicitors, and it was not the retirement age.
Baroness Janke (LD)
My Lords, it is clear that everyone in the Room would say that it is important that our senior judges, in the Court of Appeal and the Supreme Court, reflect the society in which we live if they are to be respected and seen as part of the current era. At the moment, they do not, and we are all concerned about this.
From what we hear, the amendment is acceptable and does not have the effect on diversity that raising the minimum retirement age to 75 would. It is worth noting the comments on the Ministry of Justice’s 2020 statistics:
“Although the proportion of judges that are women continues to increase gradually, women remain under-represented in judicial roles in 2020. This is particularly the case in the courts where 32% of all judges, and 26% of those in more senior roles (High Court and above) were women—compared with 47% of all judges in tribunals.”
The BAME situation is much worse:
“The proportion of judges who identify as Black, Asian and minority ethnic … has also increased … but remains lower for court appointments compared to tribunals, particularly at senior levels (4% for High Court and above, compared with 8% of all court and 12% of all tribunal judges). However, the association between age and ethnicity—with lower a proportion of BAME individuals at older ages, and more senior judges being older on average—should be borne in mind.”
I wonder whether the Minister can say whether the Government have thought of doing an impact assessment. The one at the beginning of the Bill does not address this issue at all. If there is some argument about it, it would be good to have an impact assessment that lays out the evidence we have heard from some noble and learned Lords today.
I look forward to the Minister’s response but very much hope that, by the time we get to Report, we have a body of evidence on which to make this judgment. I am sure that the noble and learned Lords here today will be able to make some of that available.
Lord Woolf (CB)
I am sorry; could I just add one thing? The noble and learned Lord, Lord Brown, was sitting here wanting to address the Committee. I know without hesitation or doubt that he was going to support the view I was taking. So, I am afraid that we have to bear in mind that there are some who have a different view from that expressed by other noble and learned Lords and who would take a more relaxed view than has been indicated about the Government’s proposals.
Viscount Younger of Leckie (Con)
My Lords, this has been a rather busy debate. I thank all noble Lords who have contributed, including the noble Lord, Lord Ponsonby, at the beginning, the noble and learned Lords, Lord Etherton and Lord Woolf, the noble Baroness, Lady Janke, and particularly the noble and learned Baroness, Lady Hallett, who I do not think has spoken in any of the debates I have been involved in; she is most welcome. I appreciate the careful consideration that has clearly been given to this knotty issue, and I welcome the opportunity to discuss the matter further and in depth. We obviously covered it in some depth at Second Reading.
I wanted to say something at the outset about Amendment 34, which seeks to raise the mandatory retirement age in the Judicial Pensions Act 1959 to 72, rather than 75 as proposed in the Bill. I point out that the amendment as drafted would have the effect of changing the retirement age to 72 for only a small number of senior judges. However, I understand from the contributions today that this is, if I have got this right, more of a probing amendment, and that its intention is to raise for debate—which we have had today—what mandatory retirement age should be provided for in this Bill for all members of the judiciary. I just wanted to make that point.
I recognise that there are different views, not just among Members of this House but among others outside, including within the judiciary, on the most appropriate age at which members of the judiciary should retire. I therefore appreciate the close interest that this Committee has in the consultation that took place in 2020 on this matter. It is obviously a challenge to get agreement, and I take the view from the noble and learned Lords, Lord Woolf and Lord Etherton, and indeed the noble and learned Baroness, Lady Hallett, that there are definitely different views. We know that.
As the noble Lord, Lord Ponsonby, mentioned, I endeavoured to cover in some detail in the letter I wrote to your Lordships following Second Reading some more information on this issue. However, I welcome the opportunity to provide further reassurance—and I hope I can—on the robust consultation that took place, which has to led to the decision, and to explain why, on balance, the Government feel it is right at this point to raise the mandatory retirement age to 75. I shall expand on that in my remarks.
First, as this Committee will know, a full public consultation ran from July to October 2020 and received 1,004 responses. The vast majority of respondents, 84% in total, believed that the mandatory retirement age should be increased, with 67% of respondents indicating that a retirement age of 75 was the better option—in a measured way and all things considered, I should say. Of the individual respondents who reported their gender, 62% of female respondents supported a mandatory retirement age of 75. But let me now turn to the Government’s rationale for raising the judicial retirement age to 75.
It is interesting to note that there is, of course, a view that the mandatory retirement age should be raised. I think the point was raised that this is about whether it should be either 72 or 75; at least that is some form of agreement. It is important that we set a judicial retirement age which we believe will stand the test of time, given that such changes are once in a generation.
Just to put all this in perspective, the previous adjustment to the judicial retirement age was 28 years ago. I pick up the point raised by the noble and learned Lord, Lord Woolf. In my view, and in his, it would not be ideal to make a modest increase of just two years and then to have to revisit this question in the relatively near future. It is better for the smooth administration of justice that we make a change now—if we want to make a change, and we think it is right—that supports our judiciary to meet the demands of the justice system, both now and in the future.
We have, of course, seen many changes since 1993, when the current retirement age of 70 was set. By 2019, life expectancy had increased for men by 5.8 years and for women by 4.1 years. We have also seen changes in wider societal norms on retirement: the Equality Act 2010 resulted in the removal of a compulsory retirement age from most professions. It is a widely accepted position that the judiciary is different in this respect, and there are very important principles we wish to maintain for setting a judicial officeholder’s retirement age in statute. However, the Government believe that the time is right to review the age at which that should be set. The proposal to increase it now is in line with the wider acceptance in our society that older people continue to make a significant contribution. Indeed, many noble Lords continue to make valuable contributions to the work of this House long past 70 or indeed 72 and even 75. As I expect noble Lords are aware, the average age of Members of this House in January last year was a positively spring chickenlike 77. I think we should bear that in mind.
The noble Lord, Lord Ponsonby, raised appraisal schemes, which I found interesting with my background in human resources. I would love to expand a lot on this, but appraisals are a matter for the judiciary. I shall set out the Government’s position on this as it is an important point. It is not for the Government to direct, but here we are. Having individual assessments undermines one of the core purposes of the mandatory retirement age, which is to maintain public confidence in the health and capability of the judiciary without the need for individual assessments. Individual assessments have the potential to infringe on the principle of judicial independence which is fundamental to our judicial system and must be fiercely protected. Judges must be free to hear and decide cases without the spectre of assessment sitting over their shoulder. Some sitting judges can already have their appointments extended past their compulsory retirement date to 75 without the need for a capability assessment. Subjecting only older judges to individual assessment risks being discriminatory on the basis of age, and we do not currently consider that that would be justified. However, I return to the first point that I made that appraisals are a matter for the judiciary and as I speak for the Government I have to stick with that.
A key issue here is trust. This was mentioned. The legitimacy of our judiciary relies on public confidence that its judgments can be accepted as right and fair. It is very positive that the Ipsos MORI Veracity Index shows a remarkably high level of trust in our judiciary. The 2020 index showed that 84% of the public trust the judiciary. Thank goodness for that. I do not think that more judges, magistrates and coroners sitting up to age 75 will dent that high level of trust.
As the noble and learned Lord, Lord Woolf, said, it is important to note here that the new mandatory retirement is, of course, a maximum, rather than a minimum, retirement age. It is not expected that even a simple majority of the judiciary, and judges in particular, will wish to sit until they are 75, but I take the messages that were relayed by the noble and learned Lord, Lord Etherton, from his experience. I do not dismiss what he said. It again comes back to the balance that we have decided to take. Data from the Forty-Second Annual Report on Senior Salaries showed that from 2011-12 to 2018-19, the average age of retirement across salaried judges in England and Wales was 67, but the Government believe that it is right that this measure would provide the judiciary a little more flexibility over when they retire.
It is known that we already greatly benefit from the expertise of judges older than 70; indeed, many incredibly important inquiries are chaired by former Justices of Appeal and High Court judges whose intellectual capacity was undimmed when they retired at 70. There are also many instances in which members of the judiciary are, at present, able to retire up to the age of 75: a number of judges who, having been appointed before 1995 when the changes to retirement age came into effect, are not due to retire until after 72 or up to 75. Similarly, coroners appointed before the Coroners and Justice Act 2009 do not have a retirement age in statute.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I certainly support 100% the new recruitment programme for magistrates. When I first became a magistrate 14 years ago, there were 30,000 magistrates; there are now 12,000, so it is high time that there was a large recruitment process to address the deficit of BAME magistrates.
The noble and learned Lord, Lord Etherton, kindly supported my amendment and spoke eloquently about the different aspects of the senior judiciary. I say to the noble and learned Lord that I am many things but I am not learned in the context of this Committee. Nevertheless, I am grateful for his support. The noble and learned Baroness, Lady Hallett, spoke with great authority and I hope that the Minister will listen to one particular phrase she used: that the public demand change. It really is not good enough that BAME people are so unrepresented in all levels of the judiciary.
One of the things I do is to sit in Highbury youth court, where a very large proportion of the defendants we see are from BAME communities. However, it needs to be said that the victims are from those communities as well. The defence lawyers are from those communities, as are the prosecuting lawyers and the legal advisers. Obviously, the youths are under 18 but all the professionals I am talking about are in their 20s, 30s and early 40s. There is a large cohort of expertise coming through the system. When I sit there as a magistrate, I am very frequently older than the grandparents of the youths I am dealing with. The way that we as magistrates are represented when we hear those cases is not right and it needs to change.
I will say a few words about the noble and learned Lord, Lord Woolf —my noble and learned friend, if I may say so. He spoke about the frustrations of trying to recruit women to roles as senior judges but did not address any of the issues about recruiting BAME judges at all levels. That is really the central issue; for me, it trumps all other considerations when we are considering magistrates’ retirement age. Having said all that, I beg leave to withdraw my amendment.
Public Service Pensions and Judicial Offices Bill [HL]
Monday 29th November 2021
(6 months ago)
Lords ChamberRead Full debate Public Service Pensions and Judicial Offices Act 2022 - Government Bill Page Read Hansard Text Amendment Paper: HL Bill 44-R-I Marshalled list for Report - (25 Nov 2021)
18:23 - Division on Amendment 126 - Ayes: 147 / Noes: 211 - Amendment 126 disagreed.
Member’s explanatory statement
This amendment clarifies that the definition of “remediable service” applies separately in relation to service of a person that takes place at different times (so that a person may have some service that is “remediable service” and some that is not, and may have more than one period of remediable service).
Viscount Younger of Leckie (Con)
My Lords, before I turn to the amendments in this group, I will begin by briefly reminding the House of the driving force behind this Bill and why it is so important that we get it right.
In the light of the Court of Appeal’s judgment, the Government have taken steps to provide an effective remedy to the discrimination that arose in public service pension schemes. The Government have sought to approach this matter responsibly from the outset, and this Bill is key in ensuring an effective remedy for the 3.4 million people who are affected. At the heart of the Bill is fairness and equal treatment for the public servants on whom we all rely. To ensure that we achieve this objective, the Bill is underpinned by the core principles of greater fairness between lower and higher earners, fairness for the taxpayer, future sustainability and affordability of public service pensions.
I recognise that tabling a large volume of amendments is highly unusual at this stage of a Bill’s passage. I want to take a moment to explain why this approach has proved necessary—indeed, crucial—to ensuring a robust and effective remedy. As we have all acknowledged, this is a complex and technical matter. The Bill covers more than 40 schemes which each individually have their own layers of detail and complexity. We are dealing with a somewhat unprecedented issue, and retrospective changes on this scale have not previously been required for occupational pension schemes. However, it is undoubtedly vital that, despite the complexity, we get this right.
Since the Bill was introduced, the Government have continued to work with the schemes, stakeholders and departments to check and re-check it to ensure that it will deliver our commitments to remove the discrimination and offer a complete and effective remedy. The amendments I have tabled today reflect that work and clarify, correct or adjust the Bill to ensure that it works correctly for each of the schemes.
The first group is large and consists of technical amendments. The House will hopefully be pleased to hear that I will not seek to set out the detail of each and every amendment, but I hope your Lordships will find it helpful if I explain the themes that they address. I will of course be happy to turn to specific amendments if your Lordships have any questions.
A large number of the amendments in this group deal with a single theme. In reviewing the Bill, we recognised that a gap exists in how some of the processes operate for members who die before they are able to make a deferred choice. So, 44 amendments are needed to correct the position and ensure that the Bill provides an effective remedy for instances in which a member sadly dies before they reach their retirement. The reason why so many amendments are needed to achieve this outcome is that it must be applied across all the key areas of the remedy so that, for example, any correction of pension benefits or member contributions in relation to a deceased member can be addressed with the member’s personal representatives. The changes must also be made across the provisions for the main schemes and those for the judiciary.
The next theme is amendments which have arisen from work that we have undertaken with each of the public service pension schemes. There are a number of differences between the schemes within the scope of the Bill—for example, to reflect the different needs of the workforces. We have identified some scheme-specific issues that must be reflected in the Bill to ensure that the remedy operates correctly for their members.
Lord Davies of Brixton (Lab)
My Lords, I do not have a current interest to declare, but it would be appropriate to mention that, until the end of August when I gave up the work, I was the paid adviser to a number of trade unions, advising them on this specific issue. It appears in the register of interests for another year, but I no longer have any direct interest.
I have three questions for the Minister. First, he foreshadowed at Second Reading that a raft of amendments was coming. I think it has been suggested that there will be further amendments; clearly not in this House, but there will be a further batch when the Bill is considered in the Commons, which will come back to us. Is this still the case?
Secondly, and more specifically, the Government have made proposals for changes to the cost control mechanism, for which primary legislation will be required. Is it envisaged that they will be made to this Bill or will a separate Bill come forward at a later stage? Before I make my third point, I first thank the Minister very much; he has been extremely open and informative. He has gone out of his way to make sure that we understand what these amendments are for, and I welcome that.
One of the amendments picks up a point I made in my Amendment 6 in Committee relating to the potential payment of remedial AVCs—a wonderful concept. My amendment was obviously very simple, and we now have a much more extensive and substantial change. It will be a complex issue and I recognise that it will be complex to administer. One of the problems we have is that there is a demand, but we have no way of telling how big it will be. The respective scheme advisory boards will have to look at and decide what proportionate and appropriate steps they need to take. I hope the Minister will indicate that they are prepared to facilitate that.
Baroness Janke (LD)
I too thank the Minister for his time and for the engagement he has provided throughout the Bill, particularly regarding these amendments. Considering the scale, complexity and magnitude of the Bill, together with the millions who will be affected by it, I understand that these amendments try to cover a variety of contexts and circumstances to provide a comprehensive remedy to the previous discrimination. I recognise that the whole range of contexts and circumstances means that many will require fine detail. I hope these will, in many ways, support the millions of public sector workers who have suffered discrimination as a result of earlier circumstances.
We will see later some of the specific issues we raised in Committee. I hope the Minister can assure us that these amendments have taken account of those. We will explore that later.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the Minister for his explanation of this extensive group of amendments. I too thank him and his Bill team for engaging with me and my noble friend Lord Davies leading up to Report and for the explanation of the late additions to the Bill. The Minister recognised that it is unusual to bring forward such a large number of amendments at such a late stage. However—and this is unusual on our part—we are content that he has done so. As my noble friend said, we understand that there may be further amendments when the Bill goes to the other place.
We have no objection to the amendments. They are largely technical and clarifying in nature. For example, they would ensure that the Bill operates as intended when a member of one of the affected pension schemes dies. I also accept that adding these amendments now will ensure that the Bill will start its scrutiny in the House of Commons with these points clarified, which we welcome. For these reasons, we are content with this group.
Viscount Younger of Leckie (Con)
My Lords, I will make a few very short closing remarks. I thank the noble Lords, Lord Davies and Lord Ponsonby, and the noble Baroness, Lady Janke, for their brief remarks. In particular, I thank the noble Lord, Lord Ponsonby, for his supportive remarks and his understanding—there is probably a better word to use—of what we needed to do for this group of amendments and the next one. I appreciate it.
As I said in my opening remarks, the Bill deals with a complex and unprecedented issue. These amendments reflect the several months of continued work with the schemes, stakeholders and departments to check and recheck the Bill to ensure that it will offer a complete and effective remedy for members affected by the discrimination identified by the Court of Appeal.
The noble Lord, Lord Davies, raised a good point about what might happen next with potential amendments in the Commons, but I reassure him that, as I outlined, this is a highly complex area and the Government are committed to ensuring that members in all relevant schemes receive an effective remedy. We will continue to work closely with stakeholders, including the pension schemes in scope, to consider whether any areas of the Bill require further clarification to ensure legal operability.
I also took note of the points raised by the noble Lord, Lord Davies, concerning additional voluntary contributions and the cost control mechanism. The noble Baroness, Lady Janke, alluded to the fact that we will be addressing them in subsequent groups. I think it probably makes sense to do that, but I have taken note of the noble Lord’s questions, and I am sure he will raise these matters as the afternoon goes on.
Member’s explanatory statement
This amendment clarifies that the second condition (which is concerned with whether service is pensionable) must be met in relation to all of the service in question.
Member’s explanatory statement
This amendment recognises that some legacy schemes offered transitional protection to people who met conditions relating to a lower age than normal pension age.
“(5) The third condition is that the person—(a) was, on 31 March 2012 or any earlier day, in service in any employment or office that is pensionable service under—(i) a Chapter 1 legacy scheme,(ii) a judicial legacy scheme (within the meaning of Chapter 2), or(iii) a local government legacy scheme (within the meaning of Chapter 3), or(b) is not within paragraph (a) and was, on 31 March 2012, in service as a firefighter which entitled the person to be an active member of a relevant firefighters’ legacy scheme.(6) The fourth condition is that there is no disqualifying gap in service falling within the period—(a) beginning with— (i) in a case in which the third condition is met by virtue of subsection (5)(a), the day after the most recent day in relation to which that condition is met;(ii) in a case in which the third condition is met by virtue of subsection (5)(b), 1 April 2012, and(b) ending with the day before the first day of the service in question.”Member’s explanatory statement
This amendment adjusts the third condition in this clause to cater for the fact that certain schemes for firefighters gave transitional protection to those who on 31 March 2012 were in active service but were not active members of the scheme. The fourth condition is amended consequentially.
“(a) is pensionable service under—(i) a Chapter 1 scheme,(ii) a judicial scheme (within the meaning of Chapter 2), or(iii) a local government scheme (within the meaning of Chapter 3), or(b) is, as a result of a Fair Deal transfer, pensionable service under a Fair Deal scheme.”Member’s explanatory statement
This amendment ensures that service in a private sector scheme under Fair Deal arrangements (which, before 2013, governed the pension arrangements that had to be offered to those in public service who were compulsorily transferred to the private sector) does not count as part of a “disqualifying gap in service” for the purposes of the fourth condition.
Member’s explanatory statement
This amendment simplifies the condition in subsection (2)(b).
“(a) at any time after the closing date, the person—(i) opted that their service in the employment or office in question should no longer be pensionable service under a Chapter 1 scheme, or(ii) ceased to be in service in the employment or office in question,(b) at any later time before 1 April 2022, the person—(i) opted that their service in the employment or office in question should again be pensionable service under a Chapter 1 scheme, or(ii) resumed service in the employment or office in question,(c) at that time, the rules of the Chapter 1 legacy scheme mentioned in subsection (1) prohibited a person from becoming an active member of the scheme, and”Member’s explanatory statement
This amendment expands the special case dealt with in subsection (3) in two ways. First, so that it covers those who remained in legacy schemes after the closing date, subsequently opted out, and then decided to opt back in to a Chapter 1 scheme; and second so that it covers those who left service in the employment or office in question after the closing date and subsequently resumed service.
Member’s explanatory statement
This amendment ensures that the definition is apt for a case in which the member to whom a remediable service statement relates has died.
“(c) in cases in which any assets and liabilities that are referable to pension contributions made by or on behalf of the person have been transferred out of a partnership pension account, a condition requiring the payment to the scheme of an amount in respect of the transfer.”Member’s explanatory statement
This amendment makes clear that scheme regulations may require that, in a case in which an amount has in the past been transferred out of a partnership pension account, an election under this clause can be made only if a payment in respect of the transfer is made to the Chapter 1 legacy scheme.
Member’s explanatory statement
This amendment clarifies the reference in subsection (7) of this Clause to the definition of “the relevant Chapter 1 legacy scheme” in Clause 4.
Member’s explanatory statement
This amendment clarifies the reference in subsection (7) of this Clause to the definition of “the relevant Chapter 1 legacy scheme” in Clause 4.
Member’s explanatory statement
This amendment ensures that the definition is apt for a case in which the member to whom a remediable service statement relates has died.
“Persons with remediable service in more than one Chapter 1 legacy scheme
(1) This section applies where—(a) an election is made by virtue of section 6 (immediate choice to receive new scheme benefits) in relation to the remediable service in an employment or office of a member (“M”) of a Chapter 1 legacy scheme that is pensionable service under the scheme, and(b) M has any remediable service in that employment or office that is pensionable service under another Chapter 1 legacy scheme.(2) If M is a relevant member within the meaning of section 6 in relation to the scheme mentioned in subsection (1)(b), the election has effect as an election by virtue of section 6 in relation to M’s remediable service that is pensionable service under that scheme (as well as having effect as such an election in relation to M’s remediable service that is pensionable service under the scheme mentioned in subsection (1)(a)).(3) If M is a relevant member within the meaning of section 9 (deferred choice to receive new scheme benefits) in relation to the scheme mentioned in subsection (1)(b), the election has effect as an election by virtue of section 9 in relation to M’s remediable service that is pensionable service under that scheme (as well as having effect as an election by virtue of section 6 in relation to M’s remediable service that is pensionable service under the scheme mentioned in subsection (1)(a)).”Member’s explanatory statement
This amendment ensures that where a person has remediable service in an employment or office that is pensionable under more than one legacy scheme, the person can opt for new scheme benefits in respect of service in that employment or office in all of those schemes, but cannot opt for new scheme benefits in only some of those schemes.
Member’s explanatory statement
This amendment adjusts the rule in subsection (2) so that it operates by reference to the time that benefits would become payable in accordance with an election (which may be a different time to the time at which benefits would become payable if no election were made).
Member’s explanatory statement
This amendment removes a redundant word from subsection (6).
“Persons with remediable service in more than one Chapter 1 legacy scheme
(1) This section applies where—(a) an election is made by virtue of section 9 (deferred choice to receive new scheme benefits) in relation to the remediable service in an employment or office of a member (“M”) of a Chapter 1 legacy scheme that is pensionable service under the scheme, and(b) M has any remediable service in that employment or office that is pensionable service under another Chapter 1 legacy scheme. (2) If M is a relevant member within the meaning of section 9 in relation to the scheme mentioned in subsection (1)(b), the election has effect as an election by virtue of section 9 in relation to M’s remediable service that is pensionable service under that scheme (as well as having effect as such an election in relation to M’s remediable service that is pensionable service under the scheme mentioned in subsection (1)(a)).(3) If M is a relevant member within the meaning of section 6 (immediate choice to receive new scheme benefits) in relation to the scheme mentioned in subsection (1)(b), the election has effect as an election by virtue of section 6 in relation to M’s remediable service that is pensionable service under that scheme (as well as having effect as an election by virtue of section 9 in relation to M’s remediable service that is pensionable service under the scheme mentioned in subsection (1)(a)).”Member’s explanatory statement
This amendment ensures that where a person has remediable service in an employment or office that is pensionable under more than one legacy scheme, the person can opt for new scheme benefits in respect of service in that employment or office in all of those schemes, but cannot opt for new scheme benefits in only some of those schemes.
“(6A) A reference in subsection (6) to pension contributions paid by M includes, in relation to any pension contributions paid under a partnership pension account, such sums as are deducted by M under section 192 of FA 2004 (relief at source).”Member’s explanatory statement
This amendment clarifies that “the paid contributions amount” defined in subsection (6) includes tax relief deducted at source.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(5A) A reference in subsection (5) to pension contributions paid by M includes, in relation to any pension contributions paid under a partnership pension account, such sums as are deducted by M under section 192 of FA 2004 (relief at source).”Member’s explanatory statement
This amendment clarifies that “the paid contributions amount” defined in subsection (5) includes tax relief deducted at source.
“(6A) In this section “the appropriate person” means—(a) M, or(b) if M is deceased, M’s personal representatives.”Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(5A) A reference in subsection (5) to pension contributions paid by M includes, in relation to any pension contributions paid under a partnership pension account, such sums as are deducted by M under section 192 of FA 2004 (relief at source).”Member’s explanatory statement
This amendment clarifies that “the paid contributions amount” defined in subsection (5) includes tax relief deducted at source.
“(7A) In this section “the appropriate person” means—(a) M, or(b) if M is deceased, M’s personal representatives.”Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment is in consequence of the government amendment of clause 92 which applies the definition of “voluntary contributions” to the whole of Part 1.
Viscount Younger of Leckie
My Lords, this second group consists of three technical areas of amendments. I reassure the House that my remarks will be somewhat shorter than on the previous group. As before, I will set out the key themes in each area, rather than talking through the detail of each amendment. The three key themes these amendments relate to are: first, matters concerning voluntary contributions; secondly, flexibility in delivering the remedy in respect of judicial scheme members; and, thirdly, the closure of old schemes. Once again, I will be happy to turn to specific amendments if your Lordships have any questions they would like to raise.
Before I turn to the first area of amendments, which relate to member voluntary contributions, I thank the noble Lord, Lord Davies of Brixton, to whom I am most grateful for raising this matter in Grand Committee, which has assisted the Government in developing these new amendments. I gave the noble Lord assurances in Grand Committee that the Government would consider how the Bill should provide for members who were prevented from making voluntary contributions to the legacy schemes as a result of the discrimination that arose, and I am pleased to be able to bring forward amendments to that effect now.
First, these amendments insert new clauses so that scheme regulations may allow members to enter into remedial voluntary contributions arrangements where they would have done so had the discrimination not arisen. Additionally, the amendments ensure that information that must be provided to members includes information about remedial voluntary contribution arrangements as well as details of the eligibility criteria and the process for entering into those arrangements.
Secondly, these amendments will amend Clause 18 to ensure that the provisions work correctly in relation to persons other than a member who may obtain rights in relation to a member’s voluntary contributions.
Thirdly, the amendments clarify that, where compensation is paid to members of the judiciary representing an amount that was paid as voluntary contributions less the tax relief they received at the time, any rights that were associated with those contributions are extinguished. The amendments also clarify that, where the member is deceased, the compensation should be made to the member’s personal representatives.
Finally, the amendments add a new clause to provide that no new arrangements to pay voluntary contributions may be entered into after 31 March 2022 in a legacy scheme. This reflects the fact that the legacy schemes will close on that date. However, any existing voluntary contributions arrangements that members may have entered prior to 1 April 2022 may continue. Additionally, this prohibition does not apply to the new clauses which permit members to enter into remedial voluntary contributions arrangements in the specific circumstances I have set out.
Let me now turn to the second area of amendments in this group. These are technical amendments required to ensure the remedy can be applied most effectively in respect of judicial scheme members. Clause 65 defines the election period as a three-month period beginning with such date as is specified by the relevant authority and that the relevant authority may extend the election period in relation to a particular person, if they consider it just and equitable to do so.
It is important that judges in scope of the remedy have enough time to make an informed decision regarding their scheme membership for the remedy period. Therefore, amendments are made to Clauses 65 and 60 to provide for further flexibility to respond to judges’ individual circumstances by allowing for there to be more than one election period, and for an information statement to be sent to each member before the start of their respective election period.
Finally, I come to the third and final area in this group. This last area amends the valuations and governance framework for public service pension schemes to ensure that it operates correctly when old schemes established under the Public Service Pensions Act 2013, or its Northern Ireland equivalent, are closed and new schemes are established. In the present context, these amendments are most relevant to the reformed judicial pension scheme that is set to replace the 2015 scheme. However, the same issues will arise if, in future, other schemes are closed and new ones created.
Schemes that are closed to future accrual do not require future stand-alone valuations. A new clause will ensure that these are no longer required and that an employer cost cap need not be set for the purpose of measuring changes in the costs of those schemes under the cost control mechanism.
The new clause will also allow existing governance frameworks to be carried over from old schemes to new schemes. Additionally, an amendment to Clause 80 will ensure that the cost control mechanism can operate correctly by ensuring that the employer cost cap of a new scheme can be set after the regulations have been created.
I hope the House will agree that, important though they are, all three sets of amendments I have outlined in this group make necessary technical changes to the existing legislation so as to ensure that the remedy can operate as intended. With that, I beg to move.
Baroness Janke (LD)
My Lords, I thank the Minister for responding to many of the issues that arose in Committee and welcome the additional flexibility with regard to the voluntary contributions and the period when remedial contributions can be made.
I would like to question the eligibility for voluntary contributions. One of the areas we discussed was about people—for example, with caring responsibilities—who would wish to make up their pension and in their legacy scheme would have been able to do that. Examples include women who have taken time out to look after children or people with caring responsibilities who have done the same. Will these members have the chance to make these remedial contributions to augment their pensions, as they would have been able to within the legacy scheme? Perhaps the Minister could clear that up for me.
Lord Ponsonby of Shulbrede (Lab)
My Lords, once again I thank the Minister for his explanation of this group. We are content for these changes to be made to the Bill. I particularly welcome the provisions on voluntary contributions, which will now allow for a member to make voluntary contributions where they would have done, but did not due to the pension changes that led to the arising discrimination. This responds to a concern raised by pension schemes and by my noble friend Lord Davies in Committee, which was recognised by the Minister. I wonder whether the Minister can give us an assurance that more information will be forthcoming, over the Bill’s passage through the Commons, on how this will be provided for in practice.
I also welcome the provision providing flexibility for judges over their election period and that every member must be provided with an information statement by the scheme before their election period starts. At later stages this afternoon we will come back to this question of how information and guidance are provided to members and how they will access support. That is in an amendment to be moved by the noble Baroness, Lady Janke. I am glad to see that this has been recognised, at least to some extent, in this group. We are happy to support these amendments.
Viscount Younger of Leckie (Con)
My Lords, once again, my closing remarks will be relatively brief. I thank the noble Baroness, Lady Janke, and the noble Lord, Lord Ponsonby, for their broad support for these amendments. As one or two questions were raised, I will give some more information on additional voluntary contributions, which may be helpful, particularly with regard to the question on eligibility raised by the noble Baroness.
The proposed new clauses provide that scheme regulations may not permit a member to enter into such arrangements after one year from the day on which the member is provided with their remediable service statement, or their information statement in the case of the judiciary, or such later time as the scheme manager considers reasonable. The proposed new clauses will be subject to Treasury directions, which I understand we will be speaking about in a later group—under Clause 24 for Chapter 1 schemes and under Clause 58 for judicial schemes. This is set out in Amendments 45 and 90, and is consistent with the similar powers in Part 1 of the Bill. These directions will help to ensure that scheme regulations take a consistent approach, which is very important in providing members with remedial voluntary contribution arrangements.
I hope that this offers some explanation but, again, bearing in mind the technical nature of the noble Baroness’s question, I will be keen to read Hansard and will write if further information is required.
Member’s explanatory statement
This amendment recognises that persons other than the member who pays voluntary contributions (for example their spouse) may obtain rights in consequence of the contributions.
Member’s explanatory statement
This amendment recognises that persons other than the member who pays voluntary contributions (for example their spouse) may obtain rights in consequence of the contributions.
Member’s explanatory statement
This amendment is to clarify that a payment of compensation under regulations under subsection (6)(c) of this Clause would, like other payments of compensation by virtue of Part 1 (such as those under Clause 21), be paid by the relevant scheme manager.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(aa) provision about the benefits payable to or in respect of a member who has remediable service in an employment or office where—(i) there is another Chapter 1 scheme that provides benefits for persons in that employment or office, and(ii) the two schemes provide (or in any circumstances might provide) benefits to or in respect of a person in relation to the same period of service;”Member’s explanatory statement
This amendment is to enable provision to be made where service may entitle a person to benefits under more than one scheme (for example, some service in the armed forces entitles a person both to early departure payments under one scheme and (when they are older) to pension payments under another scheme).
“(d) provision about cases in which the scheme administrator of a Chapter 1 scheme pays a liability under section 217 or 237B of FA 2004 (joint liability of scheme administrator to lifetime allowance charge or annual allowance charge);”Member’s explanatory statement
This amendment generalises the power in subsection (2)(d) of this Clause so that it confers power to make provision about any case in which a member’s liability to a lifetime allowance charge, or an annual allowance charge, is paid under the “scheme pays” facility (under which the liability is paid by the scheme administrator and the member’s benefits are reduced in consequence).
“(e) provision about cases in which remuneration is or was payable to a person on the satisfaction of a condition relating to whether any remediable service of the person is or was, or is or was eligible to be, pensionable service under a particular Chapter 1 scheme (including provision requiring any such remuneration that has been paid to be repaid).”Member’s explanatory statement
This amendment is to enable provision to be made under this Clause about employments etc (such as the armed forces) in which a person’s pay may be determined by reference to whether their service is (or is eligible to be) pensionable service under a particular scheme.
“(f) provision about cases in which a former member of the armed forces—(i) is, disregarding section 2 (1), entitled under regulation 19 of AFEDP 2014 (lump sum awards: incapacity for armed forces service) to a payment determined (to any extent) by reference to the person’s remediable service in an employment or office, or(ii) would be entitled under that regulation to such a payment if the benefits payable to the person, so far as determined by reference the person’s remediable service in the employment or office, were new scheme benefits.”Member’s explanatory statement
This amendment is to enable provision to be made under this clause to ensure that the Chapter works fairly for members of the armed forces who would be entitled to an incapacity lump sum under the new armed forces scheme, even if they would not have been entitled to such a payment under the rules of the legacy scheme.
“(2A) Scheme regulations for a Chapter 1 new scheme may make provision about injury and compensation benefits payable under a relevant injury and compensation scheme to or in respect of a member who has remediable service in an employment or office.(2B) Provision made under subsection (2A) may in particular be made by amending the relevant injury and compensation scheme.(2C) In subsections (2A) and (2B) and this subsection—(a) “injury and compensation scheme” means a pension scheme that is listed in Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 (existing injury and compensation schemes);(b) an injury and compensation scheme is “relevant”, in relation to a Chapter 1 new scheme, if it is connected with the Chapter 1 new scheme;(c) a reference to “injury and compensation benefits” payable under an injury and compensation scheme is a reference to—(i) in the case of an injury and compensation scheme in relation to which Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 specifies particular benefits, those benefits;(ii) in the case of any other injury and compensation scheme, any benefits payable under the scheme.”Member’s explanatory statement
Where Chapter 1 of Part 1 retrospectively alters pension benefits payable to or in respect of a person, this may require retrospective changes also to be made to injury and compensation benefits to which the person is entitled (for example where their amount is calculated in a way that takes account of the amount of pension benefits payable). This amendment provides a power to ensure that appropriate provision can be made in such cases.
“(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.”Member’s explanatory statement
This amendment clarifies the way in which special cases may be dealt with in regulations.
“(4) In this section— “AFEDP 2014” means the Armed Forces Early Departure Payments Scheme Regulations 2014 (S.I. 2014/2328);“modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly);“scheme administrator” has the same meaning as in Part 4 of FA 2004 (see section 270 of that Act);“the armed forces” has the same meaning as in PSPA 2013 (see paragraph 8 of Schedule 1 to that Act).”Member’s explanatory statement
This amendment inserts definitions required for other government amendments of this Clause.
Member’s explanatory statement
This amendment ensures that, where a member has died, compensation can be paid to the member’s personal representatives if they incur a compensatable loss.
Member’s explanatory statement
This amendment ensures that, where a member has died, compensation can be paid to the member’s personal representatives if they incur a compensatable loss.
Lord Davies of Brixton
“(6A) In subsection (5), a loss “attributable to the application of any provision of, or made under, this Chapter” includes a loss incurred by a member with remediable service who—(a) is transferred to the new scheme and reaches the required number of years of pensionable service to retire with full benefits under the legacy scheme, but(b) is unable to access the full value of those benefits because they must continue to work to retire with full benefits under the new scheme.”Member’s explanatory statement
This amendment provides that certain losses arising from the interaction of the rules of the new and legacy schemes respectively will be compensated.
Lord Davies of Brixton (Lab)
My Lords, this amendment is about what has been termed “the pension trap”. Much concern has been expressed about this phenomenon by different groups and members of different schemes, not least the Police Superintendents’ Association and the Fire Brigades Union. It is important to be clear that this issue affects all the major public service schemes. It is more salient in the uniformed service schemes as they previously had a much lower pension age, so the impact of the pension trap is more significant, but it runs through all the schemes. When you put two schemes together that work on significantly different bases, problems can arise that perhaps we should have spotted at an earlier stage of the discussions on the scheme.
The key issue concerns where you combine schemes with different normal retirement ages in the legacy and new schemes respectively, and the impact of extending working lives in that situation. Extending working lives has been a theme of the reform of public service pensions, so we should perhaps have thought through this a little more clearly. I may have been a little to blame myself in my previous life. When the issue was first raised I was somewhat doubtful but, the more I have looked at it, the more I have come to appreciate that it is a real problem.
The underlying problem is where the combined benefits, old and new, do not reflect the benefits that the members lose by having a later retirement age. They suffer a net loss. With most private sector schemes and the new state or public service schemes, if you defer your retirement, you get some credit: you lose a year’s worth of pension because you have decided to retire a year later, but the money that you have surrendered by doing so is used to increase the subsequent pension. Whether you take the pension at 65, 60 or 67, overall, the broad value of your benefits remains the same. This contrasts with the situation in most, if not all, of the significant public service schemes, where, if you defer your retirement, you simply lose that year’s benefit and receive no credit for it. The reason for this difference between public and private schemes is lost in the mists of time.
Baroness Janke (LD)
I thank the noble Lord, Lord Davies, for his explanation of the amendment. I know we had quite a lot of discussion about this in Committee. My understanding of it in this specific case is how it affects members of the Police Superintendents’ Association. Previously, a number of years’ service entitled them to their pensions whereas the new scheme is age-related. As the noble Lord, Lord Davies, said, that prevents them being able either to retire early and still have their pension, as was guaranteed, or work later to augment their pension.
This is an important issue, particularly in terms of public services such as the police, where undertakings were given and promises made. These were parts of agreements about pay levels and general conditions of service. So I believe the Government have some obligations here, and I very much hope that this can be looked at further as the scheme progresses and that it can be evaluated and solutions found. I hope the Minister can give us some clarification on that. I certainly support the spirit of the amendment and hope that we can resolve this in future.
Lord Ponsonby of Shulbrede (Lab)
My Lords, my noble friend Lord Davies has given a thorough explanation of this issue, which will impact members of certain public service pension schemes. I simply echo the hope that the Government will look carefully at this issue before the Bill goes into its Commons stages.
To reinforce the point made by the noble Baroness, Lady Janke, the Police Superintendents’ Association has reported that this issue is one of the most-raised questions in sessions that it is holding with its members, and it is trying to talk through the possible remedies and related pension issues as they affect police superintendents. This is an unintended consequence that has arisen due to the current complexities, rather than an intentional outcome of what the Government are seeking to do.
With that in mind, could the Minister inform us, first, whether the Government have considered ways to remedy this issue, in which certain members will be caught, and, secondly, what ongoing consultation and engagement are the Government undertaking with those who are affected? I will be interested to hear the Minister’s response.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Lord, Lord Davies of Brixton, for raising this issue again today, and I thank other noble Lords for their comments.
Clause 21 provides the power for scheme managers to pay compensation for certain losses incurred by members. Compensation can be paid for losses that satisfy any of the three conditions set out in subsections (4) to (6) and are of a description specified in Treasury directions.
It might be helpful for the House if I set out the background and purpose of the clause. I hope I can provide the clarifications that have been asked for by the noble Baroness and both noble Lords. The purpose of the clause is to confer power on scheme managers to make payments in relation to compensatable losses. This is an important element of the remedy provided by the Bill. The Government have set out to Parliament, in public announcements and to the courts that we will take steps to remedy the discrimination that occurred when transitional protection was provided to some members when the public pension schemes were reformed in 2015. That means taking steps to place members as far as possible back into the position where they would have been had the discrimination not occurred.
Clause 21 provides for compensation in relation to losses incurred as a result of the discrimination or the retrospective remedy provided by the Bill, or in respect of certain tax losses. The clause allows for matters that are not directly remedied by other provisions of the Bill or by the intended scheme regulations to be put right. As I understand it, having listened carefully to the speech from the noble Lord, Lord Davies, the intended effect of his amendment is to compensate members who reach the required length of service to retire with full benefits in their legacy scheme before they reach the necessary age to retire with full benefits in their reformed scheme. The amendment appears to relate closely to representations made by police staff associations, which a number of speakers mentioned, regarding members of the 1987 and 2015 police pension schemes who reach 30 years of service in the legacy pension scheme before reaching minimum pension age in the reformed scheme.
However, by referring to “full benefits” in the reformed pension scheme, the noble Lord’s amendment appears to go considerably beyond these representations and proposals, effectively requiring compensation for those below normal pension age, not minimum pension age, in the reformed scheme. I know that he raised the question of whether this applies to all public servants. Perhaps I may just gently put him right—I defer to his greater knowledge but I will put him right on this—that it does not.
As implied by the reference to the required number of years in the amendment text, this issue arises for members of schemes where retirement on full benefits is based on length of service rather than age. The 1987 police pension scheme falls into that. Members of other public service pension schemes will often move from a scheme where the normal pension age is 60 to a scheme where the NPA is equal to state pension age. However, it is not quite the same issue as the normal pension age and a legacy scheme, for these members will be higher than the minimum pension age in their reformed scheme. I hope that offers a reasoned explanation.
Turning to the police pension scheme, under the Bill all members in active service on 31 March 2022 will be moved into the reformed 2015 police pension scheme in respect of service from 1 April 2022 onwards. That is what is known as a “prospective remedy” to ensure that all active members are treated equally from that date onwards. I am grateful for the hard work and extraordinary dedication shown by police officers. The Government support the police and the important work that they do to protect the public, and recognise that they face changing demands from crime.
The reformed police pension scheme is, rightly, one of the most generous pension schemes in the United Kingdom. Moreover, members with service under the 1987 police pension scheme are already afforded significant protections in the Bill, including by maintaining the final salary link of the 1987 scheme and the protection of weighted accrual. This means that accruals in the 1987 scheme will be calculated in relation to a member’s final salary when they retire or otherwise leave the police pension scheme of 2015 in the future, not their salary at the point when they leave the police pension scheme of 1987 on 31 March 2022. The improved accrual rate linked to length of service in the older scheme is also protected and will remain the same in relation to service in those legacy schemes.
The Government have been considering the issues raised by the police representatives and this amendment carefully, including the question of whether there are viable policy mitigations. I want to answer the important point raised by the noble Lord, Lord Ponsonby, on engagement. The Home Office is also currently consulting on detailed regulations to implement the prospective McCloud remedy for the police pension scheme; I hope that provides some reassurance that this is an important matter. That includes communication as well. However, the Government must not take action that would be contrary to the Bill’s intention to remove the discrimination identified by the courts and to ensure that all members are treated equally from 1 April 2022 by accruing service in the reformed schemes, regardless of their age.
It is important to stress that the Court of Appeal found in the McCloud and Sargeant cases in 2018 that the transitional protections offered under the PSPA 2013 amounted to unlawful discrimination against younger members, because they allowed older members to accrue service in the legacy schemes for longer because of their age. Accordingly, offering compensation to members depending on their age and resulting position relative to service length and normal pension age would risk perpetuating such unlawful discrimination through different means. This is an important point of clarification for the noble Lord, Lord Davies.
I thank the noble Lord for bringing attention to this issue and reassure him that the Government have been considering the position of these members, including the viability of policy solutions such as the proposal submitted by police staff associations. However, careful consideration must be given to the need to avoid introducing new discrimination against other pension scheme members—I made this point earlier—and a broadly drafted amendment to the Bill risks doing just that. I therefore ask, with that rather full explanation, the noble Lord to withdraw his amendment.
Lord Davies of Brixton (Lab)
I thank the Minister for his detailed reply. At the appropriate time, I will indicate my intention to withdraw the amendment.
First, I want to say that the purpose and intention of the amendment—I never believed that it was complete in itself—was to prod the Government into taking the issue seriously. The problem arises in any scheme where, if you do not take your pension at the scheme pension age, you do not get any credit for giving up the pension that you lose by deferring your retirement. That is the underlying problem, and it occurs across the public sector. It is currently far more acute, as we have been told in detail by the Fire Brigades Union and the Police Superintendents’ Association.
I have no doubt that the real solution to this issue lies in scheme-level discussions, but such discussions will take place only if the Government give an indication that they take this issue seriously and want the respective scheme advisory boards to discuss and address the issue and seek out practical solutions. Whether they can be funded, and the extent to which any solution would fall within the cost cap and so not incur substantial additional cost, would have to be addressed as part of those discussions. That is all I am asking for.
I am grateful to the House for the opportunity to raise this issue. On that basis, I beg leave to withdraw the amendment.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“Remedial arrangements to pay voluntary contributions to legacy schemes
(1) Scheme regulations for a Chapter 1 legacy scheme may make provision so as to secure that a relevant member may enter into remedial voluntary contributions arrangements.(2) In subsection (1)—“relevant member”, in relation to a Chapter 1 legacy scheme, means a member (other than a deceased member) who has remediable service in an employment or office which, after the coming into force of section 2 (1) in relation to the scheme, is pensionable service under the scheme (whether or not by virtue of that provision);“remedial voluntary contributions arrangements” means arrangements—(a) which are entered into by a member after the coming into force of section 2 (1) in relation to the scheme, and(b) under which the member pays voluntary contributions to the scheme.(3) Provision by virtue of subsection (1) may permit a member (“M”) to enter into arrangements only if the scheme manager is satisfied that it is more likely than not that, but for a relevant breach of a non-discrimination rule, M would, during the period of M’s remediable service in the employment or office, have entered into the same or similar arrangements.(4) The provision that may be made by virtue of subsection (1) includes, in particular, provision under which liabilities to pay voluntary contributions that would otherwise arise under the arrangements are reduced by tax relief amounts.(5) In subsection (4) “tax relief amounts” means amounts determined by reference to the tax relief under section 188 of FA 2004 (relief for members’ contributions) that would have been available in respect of the amounts owed if they were paid in a different tax year.(6) Provision by virtue of subsection (1) may not permit a member (“M”) to enter into arrangements after—(a) the end of the period of one year beginning with the day on which a remediable service statement is first provided in respect of M, or(b) such later time as the scheme manager considers reasonable in all the circumstances.(7) Subsection (6) does not affect the continued operation after the time mentioned in that subsection of any remedial arrangements entered into before that time.(8) In this section “non-discrimination rule” means a rule that is, or at any time was, included in a Chapter 1 scheme by virtue of—(a) section 61 of EA 2010, or(b) paragraph 2 of Schedule 1 to EEAR(NI) 2006.(9) For the purposes of this section a breach of a non-discrimination rule is “relevant” if it arises from the application of—(a) an exception to section 18(1) of PSPA 2013 made under section 18(5) to (7) of that Act, or(b) an exception to section 18(1) of PSPA(NI) 2014 made under section 18(5) to (8) of that Act.”Member’s explanatory statement
This Clause makes it possible for a Chapter 1 legacy scheme to make provision giving members with remediable service the facility to enter into new arrangements to pay voluntary contributions. The facility may only be made available to members who show that they would have entered into similar arrangements but for unlawful discrimination, and may be made available only for a limited period.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(ha) the power to make scheme regulations by virtue of section (Remedial arrangements to pay voluntary contributions to legacy schemes) (remedial arrangements to pay voluntary contributions to legacy schemes) and any powers exercisable by virtue of such regulations;”Member’s explanatory statement
This amendment ensures that Treasury directions can be used in relation to remedial voluntary contributions arrangements.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment ensures subsection (3) of this Clause operates as intended in a case in which an amount is payable to or by a person who is not the member who has remediable service (for example a surviving adult or personal representatives).
Member’s explanatory statement
This amendment ensures subsection (3) of this Clause operates as intended in a case in which an amount is payable to or by a person who is not the member who has remediable service (for example a surviving adult or personal representatives).
(d) a description of—(i) the arrangements (if any) that, by virtue of section (Remedial arrangements to pay voluntary contributions to legacy schemes) (remedial arrangements to pay voluntary contributions to legacy schemes), may be entered into under the scheme, and (ii) the circumstances in which, and the process by which, such arrangements may be entered into.”Member’s explanatory statement
The amendment ensures that a statement under this clause includes information to enable the recipient to decide whether they are entitled to enter into new arrangements to pay voluntary contributions, and if so how to go about doing it.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment is to ensure that the definition in this Clause catches all cases in which a scheme makes arrangements outside the mechanism of the Chapter to give a person a remedy for discrimination of the kind the Chapter deals with, including in particular a case in which the discrimination occurred under a different scheme.
Member’s explanatory statement
This amendment clarifies that the definition of “opted-out service” applies separately in relation to service that takes place at different times (so that some service may be “opted- out service” and some may not and a person may have more than one period of opted-out service).
Member’s explanatory statement
This amendment is in consequence of the government amendment of Clause 29(1).
““Fair Deal scheme” means—(a) a pension scheme that, in accordance with the Fair Deal Statement of Practice, has been certified by the Government Actuary’s Department as offering, to persons who have been subject to a Fair Deal transfer, pension arrangements that are broadly comparable with those offered to them before the transfer, or(b) a pension scheme in relation to which the obligation to give such a certificate has been waived in accordance with that statement of practice;“Fair Deal Statement of Practice” means the statement of practice entitled “Staff Transfers in the Public Sector” issued by the Cabinet Office in January 2000, as supplemented and modified from time to time;“Fair Deal transfer” means a transfer of a person’s employment from a public sector employer to a private sector employer in accordance with the Fair Deal Statement of Practice;”Member’s explanatory statement
This amendment adds definitions that are required for one of the government amendments of clause 1.
““a relevant firefighters’ legacy scheme” means—(a) Schedule 1 to the Firefighters’ Pension Scheme (England) Order 2006 (S.I. 2006/3432) (new firefighters’ scheme),(b) Schedule 1 to the Firefighters’ Pension Scheme (Wales) Order 2007 (S.I. 2007/1072) (new firefighters’ scheme),(c) Schedule 1 to the Firefighters’ Pension Scheme (Scotland) Order 2007 (S.S.I. 2007/199) (new firefighters’ scheme), or(d) the Annex to the New Firefighters’ Pension Scheme Order (Northern Ireland) 2007 (S.R.(N.I.) 2007 No. 215) (new firefighters’ scheme);” Member’s explanatory statement
This amendment adds a definition that is required for one of the government amendments of Clause 1.
Member’s explanatory statement
This amendment clarifies that the definition of “remediable service” applies separately in relation to service of a person that takes place at different times (so that a person may have some service that is “remediable service” and some that is not, and may have more than one period of remediable service).
Member’s explanatory statement
This amendment clarifies that the second condition (which is concerned with whether service is pensionable) must be met in relation to all of the service in question.
Member’s explanatory statement
This amendment ensures that 31 March 2012 (or, where the person left pensionable service before then, the final day of pensionable service) is not counted towards a disqualifying gap in service.
“Partnership pension account: requirement to transfer and surrender rights
(1) Subsection (2) applies where—(a) a person (“P”) has remediable service in a salaried judicial office, and(b) any of the remediable service is PPA opted-out service.(2) A legacy scheme election in respect of P may not be made unless—(a) the relevant authority is satisfied that the steps mentioned in subsection (3) have been taken, or(b) the appropriate person has notified the relevant authority that they intend to instigate and facilitate the taking of those steps.(3) The steps are—(a) the transfer of any relevant assets and liabilities to the relevant judicial legacy salaried scheme,(b) the surrender of any entitlement to a pension under the relevant judicial legacy salaried scheme, and any right to a future pension under that scheme, that would otherwise arise under the rules of the scheme in respect of the value of the assets and liabilities transferred, and(c) if at any time any relevant assets and liabilities were transferred out of the partnership pension account (otherwise than in the course of a transfer to the relevant judicial legacy salaried scheme), the payment by the appropriate person to the relevant judicial legacy salaried scheme of an amount, determined by the relevant authority after consulting the Government Actuary, in respect of the value of the relevant assets transferred.(4) Subsection (5) applies where—(a) a person (“P”) has remediable service in a fee-paid judicial office, and(b) any of the remediable service is PPA opted-out service.(5) A legacy scheme election in respect of P may not be made unless—(a) the relevant authority is satisfied that the steps mentioned in subsection (6) have been taken, or(b) the appropriate person has notified the relevant authority that they intend to instigate and facilitate the taking of those steps.(6) The steps are—(a) the transfer of any relevant assets and liabilities to the judicial legacy fee-paid scheme,(b) the surrender of any entitlement to a pension under the judicial legacy fee-paid scheme, and any right to a future pension under that scheme, that would otherwise arise under the rules of the scheme in respect of the value of the assets and liabilities transferred, and(c) if at any time any relevant assets and liabilities were transferred out of the partnership pension account (otherwise than in the course of a transfer to the judicial legacy fee-paid scheme), the payment by the appropriate person to the judicial legacy fee-paid scheme of an amount, determined by the relevant authority after consulting the Government Actuary, in respect of the value of the relevant assets transferred.(7) In this section “the appropriate person”, in relation to a person (“P”) who has PPA opted-out service, means the person by whom a legacy scheme election in respect of P may be made (see section 43).(8) For the purposes of this section assets and liabilities are “relevant” in relation to any PPA opted-out service of a person (“P”) if—(a) they are referable to pension contributions or voluntary contributions that were made by or on behalf of P in respect of the service, and(b) they are held for the purposes of a partnership pension account.This is subject to subsection (9).(9) Where—(a) the total of the pension contributions, together with any voluntary contributions, that were paid by P in respect of the PPA opted-out service, exceeds(b) the total of the pension contributions that would have been payable by P in respect of that service if the service had been pensionable service under the judicial legacy scheme to which the relevant assets and liabilities are to be transferred,the assets and liabilities that the relevant authority, after consulting the Government Actuary, determines are referable to the excess are not “relevant” in relation to the PPA opted-out service.(10) A reference in subsection (9) to pension contributions or voluntary contributions paid by P in respect of PPA opted-out service is a reference to the amount of the contributions paid, net of any tax relief under section 188 of FA 2004 (relief for contributions) to which P was entitled in respect of them.” Member’s explanatory statement
This amendment substitutes Clause 38. The replacement Clause is updated in a number of respects, and now caters in particular for cases in which the member has died, and cases in which transfers have been made from the partnership pension account.
Member’s explanatory statement
In the judicial legacy schemes, the only adult who may be entitled to benefits on a member’s death is a surviving spouse or civil partner. This amendment therefore removes the redundant reference to other adults.
“(5A) If—(a) M is deceased,(b) a PPA lump sum death benefit has been paid on the death of M, and(c) a legacy scheme election has been made in respect of M,the PPA lump sum death benefit is to be treated for the purposes of subsection (4)(a) as a lump sum benefit paid under the scheme in respect of M’s remediable service in the judicial office.”Member’s explanatory statement
Where a person has opted out of the public service pension scheme available to them and instead has a partnership pension account, and the person dies, a lump sum may be paid by the department to the person’s nominated beneficiary (or, in the absence of a nomination, to the person’s personal representatives). Where a legacy scheme election is made in respect of the person, the arrangements for lump sum death benefits under the legacy scheme will apply. This amendment ensures that a correction is made for the lump sum already paid.
““PPA lump sum death benefit” means an amount paid by the relevant authority, on the death of a person who has a partnership pension account, to a person nominated by the deceased or to the person’s personal representatives.”Member’s explanatory statement
Where a person has opted out of the public service pension scheme available to them and instead has a partnership pension account, and the person dies, a lump sum may be paid by the department to the person’s nominated beneficiary (or, in the absence of a nomination, to the person’s personal representatives). Where a legacy scheme election is made in respect of the person, the arrangements for lump sum death benefits under the legacy scheme will apply. This amendment ensures that a correction is made for the lump sum already paid.
“(2) Where—(a) the paid contributions amount for an in-scope tax year in respect of M’s remediable service in the judicial office, exceeds(b) the payable contributions amount for that tax year in respect of that service,the scheme manager must (directly or indirectly) pay an amount in respect of the difference to the appropriate person.(3) Where—(a) the paid contributions amount for an out-of-scope tax year in respect of M’s remediable service in the judicial office, exceeds(b) the payable contributions amount for that tax year in respect of that service,no amount is to be paid by the scheme manager in respect of the difference to the appropriate person.(4) Where—(a) the paid contributions amount for an in-scope or out-of-scope tax year in respect of M’s remediable service in the judicial office, is less than(b) the payable contributions amount for that tax year in respect of that service,the appropriate person must pay pension contributions in respect of the difference to the scheme.(4A) A reference in this section to “the paid contributions amount” for a tax year in respect of M’s remediable service in a judicial office is a reference to the sum of—(a) the aggregate of the pension contributions that (after taking into account the effect, if any, of section 47(2), (4) and (6)) have been paid under the scheme by M in the tax year in respect of so much of the service as was not PPA opted-out service, and(b) where any of the remediable service was PPA opted-out service—(i) the aggregate of the pension contributions and any voluntary contributions that have been paid by M under the partnership pension account in the tax year in respect of the PPA opted-out service, or(ii) if lower, the aggregate of the pension contributions that (after taking into account the effect, if any, of section 39(2) to (5) or 42 (2)) were payable under the scheme by M for that tax year in respect of the PPA opted-out service.(4B) A reference in this section to “the payable contributions amount” for a tax year in respect of M’s remediable service in a judicial office means the aggregate of the pension contributions that (after taking into account the effect, if any, of section 39(2) to (5) or 42 (2)) were payable under the scheme by M for that tax year in respect of the service.(4C) In this section “the appropriate person” means—(a) M, or(b) if M is deceased, M’s personal representatives.”Member’s explanatory statement
This amendment ensures that the treatment of contributions paid to a partnership pension account is properly accounted for; it is also one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment ensures that voluntary contributions paid to a partnership pension account are accounted for net of tax relief.
Member’s explanatory statement
This amendment clarifies the treatment of effective pension age payments under this clause.
“(1A) The rights that would otherwise have been secured by the effective pension age payments are extinguished.”Member’s explanatory statement
This amendment clarifies the treatment of effective pension age payments under this Clause.
Member’s explanatory statement
This amendment clarifies the treatment of effective pension age payments under this clause, and is also one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(2A) In subsection (2) “the appropriate person” means—(a) P, or(b) if P is deceased, P’s personal representatives.”Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(2A) In subsection (2) “the appropriate person” means—(a) P, or(b) if P is deceased, P’s personal representatives.”Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(1A) Scheme regulations for a judicial scheme may make provision under which, in a case in which a person is (by virtue of provision made under subsection (1)) not required to pay an amount to the person’s employer, the scheme manager is required to reimburse the employer.”Member’s explanatory statement
This amendment ensures that, where a person has an obligation to pay an amount to the person’s employer as a result of this Chapter (for example a requirement to repay transitional protection allowance under clause 51) and regulations under subsection (1) of this clause mean that, instead of paying the full amount immediately, the person receives reduced benefits from the scheme in retirement, the scheme is require to reimburse the employer for the amount owed.
Member’s explanatory statement
This amendment is to ensure that the power under Clause 54 is available in relation to the benefits payable to or in respect of any person who has a pension credit or debit under a scheme, whether or not they are regarded as a member of the scheme under its rules.
Member’s explanatory statement
This amendment is to ensure that the power under clause 54 is available in relation to the benefits payable to or in respect of any person who has a pension credit or debit under a scheme, whether or not they are regarded as a member of the scheme under its rules.
Member’s explanatory statement
This amendment is to ensure that the power under Clause 54 is available in relation to the benefits payable to or in respect of any person who has a pension credit or debit under a scheme, whether or not they are regarded as a member of the scheme under its rules.
“(g) provision about cases in which the scheme administrator of a judicial scheme pays a liability under section 217 or 237B of FA 2004 (joint liability of scheme administrator to lifetime allowance charge or annual allowance charge);” Member’s explanatory statement
This amendment generalises the power in subsection (2)(g) of this clause so that it confers power to make provision about any case in which a member’s liability to a lifetime allowance charge, or an annual allowance charge, is paid under the “scheme pays” facility (under which the liability is paid by the scheme administrator and the member’s benefits from the scheme are reduced in consequence).
“(2A) The provision that may be made by virtue of subsection (2)(a) includes, in particular, provision under which—(a) the rights that would otherwise have been secured by the payment of any voluntary contributions are extinguished, and(b) the scheme manager is required to pay the member or, if the member is deceased, the member’s personal representatives an amount by way of compensation equal to—(i) the aggregate of the voluntary contributions paid, less(ii) an amount in respect of the tax relief under section 188 of FA 2004 (member contributions) to which the member was entitled in respect of those payments.”Member’s explanatory statement
This amendment clarifies the nature of the provision that it is envisaged will be made under subsection (2)(a) for the refund of voluntary contributions.
“(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.”Member’s explanatory statement
This amendment clarifies the way in which special cases may be dealt with in regulations.
Member’s explanatory statement
This amendment is in consequence of the government amendment of Clause 92 which applies the definition of “voluntary contributions” to the whole of Part 1.
“(6) In this section—“modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly);“scheme administrator” has the same meaning as in Part 4 of FA 2004 (see section 270 of that Act).”Member’s explanatory statement
This amendment inserts definitions required for other government amendments of this Clause.
Member’s explanatory statement
This amendment ensures that, where a member has died, compensation can be paid to the member’s personal representatives if they incur a compensatable loss.
Member’s explanatory statement
This amendment ensures that, where a member has died, compensation can be paid to the member’s personal representatives if they incur a compensatable loss.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“Remedial arrangements to pay voluntary contributions to judicial schemes
(1) Scheme regulations for a judicial scheme may make provision so as to secure that a relevant member may enter into remedial voluntary contributions arrangements.(2) In subsection (1)—“relevant member”, in relation to a judicial scheme, means a member (other than a deceased member) who has remediable service in a judicial office which, after the end of the election period, is pensionable service under the scheme;“remedial voluntary contributions arrangements” means arrangements—(a) which are entered into by a member after the end of the election period, and(b) under which the member pays voluntary contributions to the scheme.(3) Provision by virtue of subsection (1) may permit a member (“M”) to enter into arrangements only if the scheme manager is satisfied that it is more likely than not that, but for a relevant breach of a non-discrimination rule, M would, during the period of M’s remediable service in the judicial office, have entered into the same or similar arrangements.(4) The provision that may be made by virtue of subsection (1) includes, in particular, provision under which liabilities to pay voluntary contributions that would otherwise arise under the arrangements are reduced by tax relief amounts.(5) In subsection (4) “tax relief amounts” means amounts determined by reference to the tax relief under section 188 of FA 2004 (relief for members’ contributions) that would have been available in respect of the amounts owed if they were paid in a different tax year.(6) Provision by virtue of subsection (1) may not permit a member (“M”) to enter into arrangements after—(a) the end of the period of one year beginning with the day on which a statement under section 60 (information statements) is sent in respect of M, or(b) such later time as the scheme manager considers reasonable in all the circumstances.(7) Subsection (6) does not affect the continued operation after the time mentioned in that subsection of any arrangements entered into before that time. (8) In this section “non-discrimination rule” means a rule that is, or at any time was, included in a judicial scheme by virtue of—(a) section 61 of EA 2010, or(b) paragraph 2 of Schedule 1 to EEAR(NI) 2006.(9) For the purposes of this section a breach of a non-discrimination rule is “relevant” if it arises from the application of—(a) an exception to section 18(1) of PSPA 2013 made under section 18(5) to (7) of that Act, or(b) an exception to section 18(1) of PSPA(NI) 2014 made under section 18(5) to (8) of that Act.”Member’s explanatory statement
This Clause makes it possible for a judicial scheme to make provision giving members with remediable service the facility to enter into new arrangements to pay voluntary contributions. The facility may only be made available for members who would have entered into similar arrangements but for unlawful discrimination, and may be made available only for a limited period.
“(3) In this section “relevant amounts” mean any amounts that are payable under or by virtue of this Chapter—(a) by a person to the scheme or to an employer in relation to the scheme, or(b) by the scheme to a person.”Member’s explanatory statement
This amendment broadens the definition of “relevant amounts” so that it covers payments to a member’s employer. It is also one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
“(fa) the power to make scheme regulations by virtue of section (Remedial arrangements to pay voluntary contributions to judicial schemes) (remedial arrangements to pay voluntary contributions to judicial schemes) and any powers exercisable by virtue of such regulations;”Member’s explanatory statement
This amendment ensures that Treasury directions can be used in relation to remedial voluntary contributions arrangements.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment ensures subsection (3) of this clause operates as intended in a case in which an amount is payable to or by a person who is not the member who has remediable service (for example a surviving adult or personal representatives).
Member’s explanatory statement
This amendment ensures subsection (3) of this Clause operates as intended in a case in which an amount is payable to or by a person who is not the member who has remediable service (for example a surviving adult or personal representatives).
“(1) The relevant authority must—(a) prepare a statement in relation to any person (“P”) in respect of whom a legacy scheme election or a 2015 election may be made, and(b) send it to the person who may make the election (see section 43).(1A) Subsection (1) must be complied with before the beginning of the election period in relation to P.”Member’s explanatory statement
This amendment is consequential on the government amendments of Clause 65.
“(ca) a description of—(i) the arrangements (if any) that, by virtue of section (Remedial arrangements to pay voluntary contributions to judicial schemes) (remedial arrangements to pay voluntary contributions to judicial schemes), may be entered into under judicial schemes, and(ii) the circumstances in which, and the process by which, such arrangements may be entered into,”Member’s explanatory statement
The amendment ensures that a statement under this clause includes information to enable the recipient to decide whether they are entitled to enter into new arrangements to pay voluntary contributions, and if so how to go about doing it.
Member’s explanatory statement
This amendment is consequential on the government amendments of Clause 65.
Member’s explanatory statement
This amendment is consequential on the government amendments of Clause 65.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This is one of a number of amendments clarifying or adjusting the processes and powers under Part 1 of the Bill so that they operate as intended in cases in which a member dies.
Member’s explanatory statement
This amendment (together with the other government amendment of this Clause) makes the definition of “the election period” more flexible by enabling different periods to be specified for different descriptions of judge.
“(1A) Different dates may be specified in relation to different descriptions of person.”Member’s explanatory statement
This amendment (together with the other government amendment of this clause) makes the definition of “the election period” more flexible by enabling different periods to be specified for different descriptions of judge.
Member’s explanatory statement
This amendment clarifies the reference to pension contributions in subsection (2) of this Clause.
Member’s explanatory statement
This amendment is in consequence of the government amendment of Clause 64(1).
Member’s explanatory statement
This amendment is in consequence of the government amendment of Clause 92 which applies the definition of “voluntary contributions” to the whole of Part 1.
Member’s explanatory statement
This amendment clarifies that the definition of “remediable service” applies separately in relation to service of a person that takes place at different times (so that a person may have some service that is “remediable service” and some that is not, and may have more than one period of remediable service).
Member’s explanatory statement
This amendment clarifies that the second condition (which is concerned with whether service is pensionable) must be met in relation to all of the service in question.
“Prohibition of new arrangements to pay voluntary contributions
(1) No arrangements are to be entered into after 31 March 2022 under which voluntary contributions are payable by a member of a relevant scheme to the scheme.(2) In subsection (1) “relevant scheme” means—(a) a Chapter 1 legacy scheme (within the meaning of Chapter 1),(b) a judicial legacy salaried scheme (within the meaning of Chapter 2),(c) a local government legacy scheme (within the meaning of Chapter 3),(d) the Judicial Pensions Regulations 2015 (S.I. 2015/182),(e) the Judicial Pensions Regulations (Northern Ireland) 2015 (S.R.(N.I.) 2015 No. 76), or(f) the pension scheme established for certain employees of the Secret Intelligence Service which came into operation on 1 January 1946 and was amended on 1 September 1957 and 1 July 1964.(3) Subsection (1)—(a) does not affect the continued operation after 31 March 2022 of any arrangements entered into on or before that date; (b) does not apply to arrangements entered into by virtue of section (Remedial arrangements to pay voluntary contributions to legacy schemes) or (Remedial arrangements to pay voluntary contributions to judicial schemes) (remedial arrangements to pay voluntary contributions).”Member’s explanatory statement
This Clause sets out the general rule that no arrangements to pay voluntary contributions to legacy schemes may be entered into after 31 March 2022.
“Amendments relating to the establishment or restriction of schemes
(1) PSPA 2013 is amended in accordance with subsections (2) to (7).(2) In section 4 (scheme manager)—(a) after subsection (3) insert—“(3A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1, and(b) a scheme manager is provided for under subsection (1) in scheme regulations for that other scheme.”;(b) after subsection (6) insert—“(6A) The reference in subsection (6) to a statutory pension scheme includes a statutory pension scheme established (under section 1 or otherwise) after the establishment of the scheme under section 1 mentioned in that subsection.”(3) In section 5 (pension board), after subsection (2) insert—“(2A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1, and(b) a pension board is provided for under subsection (1) in scheme regulations for that other scheme.”(4) In section 7 (scheme advisory board)—(a) in subsection (1), for “on the desirability of changes to the scheme” substitute “on—(a) the desirability of changes to the scheme, or(b) the desirability of changes to any other scheme under section 1 which—(i) is connected with it, and(ii) is not an injury or compensation scheme.”;(b) after subsection (1) insert—“(1A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1 which is not an injury or compensation scheme, and(b) a scheme advisory board is provided for under subsection (1) in scheme regulations for that other scheme.”(5) In section 11 (valuations), after subsection (1) insert—“(1A) Subsection (1) does not apply to a scheme under section 1 if— (a) the scheme is connected with another scheme under section 1, and(b) actuarial valuations are provided for under subsection (1) in scheme regulations for that other scheme.”(6) After section 12 insert—“12A Sections 11 and 12: restricted schemes(1) Section 11(1) (valuations) does not require scheme regulations to provide for actuarial valuations to be made of a scheme to which this section applies.(2) Section 12(1) (employer cost cap) does not apply to a scheme to which this section applies.(3) This section applies to a scheme under section 1 which—(a) is a restricted scheme, and(b) is specified for the purposes of this section in Treasury regulations.(4) For the purposes of this section a scheme under section 1 is a “restricted scheme” at any time if any enactment restricts the provision of benefits under the scheme to or in respect of a person in relation to the person’s service after that time.(5) Treasury regulations under this section may include consequential or supplementary provision.(6) Treasury regulations under this section are subject to the negative Commons procedure.”(7) In section 30 (new public body pension schemes), in subsection (1)(e), for “and 12” substitute “to 12A”.(8) PSPA(NI) 2014 is amended in accordance with subsections (9) to (15).(9) In section 4 (scheme manager)—(a) after subsection (3) insert—“(3A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1, and(b) a scheme manager is provided for under subsection (1) in scheme regulations for that other scheme.”;(b) after subsection (6) insert—“(6A) The reference in subsection (6) to a statutory pension scheme includes a statutory pension scheme established (under section 1 or otherwise) after the establishment of the scheme under section 1 mentioned in that subsection.”(10) In section 5 (pension board)—(a) in subsection (1), for “subsection (2)” substitute “subsections (2) and (2A)”;(b) after subsection (2) insert—“(2A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1, and(b) a pension board is provided for under subsection (1) in scheme regulations for that other scheme.”(11) In section 7 (scheme advisory board)—(a) in subsection (1), for “on the desirability of changes to the scheme” substitute “on—(a) the desirability of changes to the scheme, or(b) the desirability of changes to any other scheme under section 1 which—(i) is connected with it, and(ii) is not an injury or compensation scheme.”;(b) after subsection (1) insert— “(1A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1 which is not an injury or compensation scheme, and(b) a scheme advisory board is provided for under subsection (1) in scheme regulations for that other scheme.”(12) In section 11 (valuations), after subsection (1) insert—“(1A) Subsection (1) does not apply to a scheme under section 1 if—(a) the scheme is connected with another scheme under section 1, and(b) actuarial valuations are provided for under subsection (1) in scheme regulations for that other scheme.”(13) After section 12 insert—“12A Sections 11 and 12: restricted schemes(1) Section 11(1) (valuations) does not require scheme regulations to provide for actuarial valuations to be made of a scheme to which this section applies.(2) Section 12(1) (employer cost cap) does not apply to a scheme to which this section applies.(3) This section applies to a scheme under section 1 which—(a) is a restricted scheme, and(b) is specified for the purposes of this section in regulations made by the Department of Finance.(4) For the purposes of this section a scheme under section 1 is a “restricted scheme” at any time if any statutory provision restricts the provision of benefits under the scheme to or in respect of a person in relation to the person’s service after that time.(5) Regulations made by the Department of Finance under this section may include consequential or supplementary provision.(6) Regulations made by the Department of Finance under this section are subject to negative resolution.”(14) In section 31 (new public body pension schemes), in subsection (1)(e), for “and 12” substitute “to 12A”.(15) In section 34 (general interpretation), at the appropriate place insert—““statutory provision” has the meaning given in section 1(f) of the Interpretation Act (Northern Ireland) 1954;”.”Member’s explanatory statement
This new Clause amends the Public Service Pensions Act 2013 (and its Northern Ireland equivalent) so as to clarify and adjust the way the governance of schemes, and the valuation process, work where a scheme established under the Act for a description of persons is closed, and a new scheme under the Act is established for the same description of persons.
Member’s explanatory statement
This amendment is consequential on the new subsection inserted into this Clause after subsection (1).
Lord Davies of Brixton
(1A) In subsection (4) omit paragraph (c).”Member’s explanatory statement
The amendment removes from the calculation of the employer cost cap the effect of changes in the cost of connected schemes, including the cost of rectifying the unlawful discrimination.
Lord Davies of Brixton (Lab)
My Lords, I raised this issue at Second Reading in the context of questioning the use of directions. I believe that there is a general issue here about the respective weight given to primary legislation, regulations subject to approval by one or both Houses, and directions, which are the decision of the Treasury. Clearly, there is a balance to be drawn here on the appropriate level of parliamentary scrutiny; it is a debate that we should have, but it is not one I propose to pursue any more in the context of this Bill.
However, some concerns remain about issues that are being dealt with through directions which, I believe, should be subject to parliamentary scrutiny. In the context of this Bill, there are two issues of concern. The first is the decision that the cost of the remedy—that is, the remedy required to address the issue of age discrimination—should be counted as a member cost in the cost-control mechanism. The second issue is that, in that calculation, the costs of the remedy should be spread over a period of four years.
This is beginning to verge on technical issues but, at heart, these are policy decisions, and ones that should be subject to parliamentary scrutiny. They go far beyond what have been described. This legislation amends the Public Service Pensions Act 2013, and there was a report on that legislation, looking at the directions, which said that the directions did not need parliamentary scrutiny because they were simply technical matters of actuarial practice. My argument today, on those two issues—and I am going to focus only on the issue of whether this is a “member cost”—is around whether this is a technical matter of actuarial practice or whether it is a policy decision that should be subject to parliamentary scrutiny.
There is no doubt that the decision to make this a member cost will mean that members end up paying more money or receiving lower benefits. It will directly affect the benefits that they receive. The issue was raised in Committee, and the Minister at that stage maintained the position that
“Treasury directions … exercise a particular power, rather than creating a new power”.—[Official Report, 11/10/2021; col. GC 353.]
I would argue that the decision to make this a member cost as part of the cost-control mechanism goes beyond the exercise of a particular power and creates a new power, and hence it should be considered as regulations.
This is a complicated issue, and, to understand it, you need to have a clear understanding of the purpose of the cost-control mechanism. It is not, as the Government have suggested, a mechanism for assessing the value of pensions; this is not something that directly affects the calculation of the contribution rate being paid for the scheme. It simply affects the cost-control mechanism, which is the trigger for deciding whether changes should be made to the scheme. The costs of the scheme are the costs of the scheme; whatever the benefits are, they are the costs of the scheme. This is a mechanism for deciding whether those benefits should be changed or, alternatively, whether contributions should be changed.
It has always been accepted that there are certain elements in the calculation involved in the cost-control mechanism that are regarded as member costs that will impact on the cost-control mechanism—but there are also these other elements in the calculation that are employer costs, which do not impact on the cost-control mechanism. The issue has been discussed, and there have been government reports on what counts as a member cost or an employer cost, but they have never considered the issue of the cost of a remedy incurred by the Government’s own error. It was the Government’s mistake to have age discrimination in this scheme and, to address the Government’s mistake, there has to be a remedy. That remedy is the subject of this Bill. Should the cost of that remedy be a cost for the Government, who created the problem in the first place, or a member cost? The Government argue that members are receiving additional benefits and so it is clearly a member cost.
This is an important issue and what I am arguing about now is not an ultimate answer—I have made my position clear; I think it should be an employer cost—but it is not an issue that should be addressed through directions; it should come before Parliament through regulations. Because of the nature of the regulations, they would probably be financial regulations and considered only by the House of Commons. That is effectively what I am arguing, and I have put down my amendment in order to raise this issue. To a certain extent, our deliberations here are not final, because this is the subject of extensive legal action. However, that is nothing to do with the argument today. The argument is technical; it is on the relatively narrow point of whether the cost of the remedy falls to be treated as an employer cost or as a member cost.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have not participated on this Bill before; indeed, I just want to pick up the point made by the noble Lord, Lord Davies, about the way that more and more government actions are taken by subordinate legislation. I chair the Secondary Legislation Scrutiny Committee, and we produced a report last week entitled Government by Diktat. My noble friend Lord Blencathra, who chairs the parallel committee, the Delegated Powers and Regulatory Reform Committee, produced another report called Democracy Denied?
We all know that secondary legislation it is not well scrutinised. It cannot be amended, and this House and indeed the other place are therefore reluctant to undertake what I call the nuclear option—we cannot amend a bit of it, so we have to reject the whole lot. The last time that happened there was a huge constitutional crisis, to which my noble friend Lord Strathclyde had to set up a committee to answer.
However, we have moved from that unsatisfactory position to one where we now have guidance. Guidance may or may not form part of the regulations; sometimes it says that the guidance “must have regard to” the regulations. What does that mean? Does it mean “I thought about it and I did not want to follow it”, or does it mean “The court will decide, and you had better have a jolly good reason for not complying with it”.
The point from the noble Lord, Lord Davies of Brixton, takes it further away from the control of this House. We have what is now tertiary legislation: directions and decisions made by bodies that are not answerable to Parliament but whose decisions and regulations are enforced and required to be obeyed by every single member of the population of this country. Whatever the rights and wrongs of the point from the noble Lord, Lord Davies—I am not in a position to judge—he raises a very important matter for the House, which needs to be debated and discussed. As we move to new ways of regulating and legislating, because our society is moving on faster than the rather stately pace of primary legislation, we need to find new and better ways of making sure that Parliament, as the legislature, is not subject to the creeping, increasing control of the Executive—the Government.
My committee and my noble friend Lord Blencathra’s committee are pretty convinced that the situation needs seriously addressing here—and of course in the other place, which must lead the way on this—if we are to make sure that the balance, which has shifted, is put back in the right place and in the right form. The speech by the noble Lord, Lord Davies of Brixton, underlines some of the dangers that we are facing by direction, which is not good enough because it does not come before your Lordships’ House or indeed the other place but will nevertheless have a very significant impact for our fellow citizens.
Baroness Janke (LD)
My Lords, I again thank the noble Lord, Lord Davies, for his explanation and for raising these issues, as he did in Committee. I listened again with interest to the noble Lord, Lord Hodgson, as he has intervened in two Bills on the issue of secondary legislation. I am sure that many Members of this House would support his view that there is inadequate scrutiny of secondary legislation and that the House’s powers are so severely curtailed that it requires us to ask whether we adequately exercise our scrutiny of subsequent legislation as we do with primary legislation.
As for the cost cap mechanism, I know that there was great criticism, both from the Public Accounts Committee and the National Audit Office, about the costs of the remedy and how they would be paid for by the members, whereas it was an error by government and it was certainly felt, as the noble Lord, Lord Davies, said, that it should be faced by government. However, the Government have certainly produced a more satisfactory cost cap mechanism, with a number of concessions relating to the future costs of the pensions. We welcome the new arrangements for payments for any breach of the cost cap or floor, which were to be paid for by the members of the new scheme, as we do the widening of the margin for material breach of the ceiling or floor. We also appreciated the new application of the economic test should the cost floor be breached. We feel that the Government have made some attempt to address criticisms of the cost cap mechanism and will follow with interest how that operates in future.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I again pay tribute to my noble friend Lord Davies for his contribution and for setting out the range of concerns surrounding the cost-control mechanism and the inclusion of the remedy as a member cost. I recognise that this question is subject to ongoing legal action and once again put on record that we welcome the provisions in Clause 80, although, as the Minister is only too aware, it does not deal with the wider question of plans for the cost-control mechanism.
Members of the House are not the first to raise questions over the Government’s plans. The cross-party Public Accounts Committee said:
“HM Treasury should have foreseen the age discrimination issue that gave rise to the 2018 McCloud judgment, and putting things right will take many decades to resolve. HM Treasury wants members to pay to put this right—at an estimated cost of £17 billion—despite this being its own mistake.”
That point was repeated by my noble friend Lord Davies and the noble Baroness, Lady Janke.
I look forward to the Minister’s response on this issue but, before I finish, I want to echo one specific question. Am I right that there will be a number of members who will not benefit from the remedy but will be impacted by it if it is included as a member cost?
I listened with interest to the noble Lord, Lord Hodgson of Astley Abbotts, on Parliament being subject to the creeping control of the Executive—I think that is the way he put it. He talked about examples of secondary legislation and indeed gave this as an example of tertiary legislation. I think a lot of us will have sympathy with what he said.
Viscount Younger of Leckie (Con)
My Lords, an amendment has been put forward to Clause 80 by the noble Lord, Lord Davies of Brixton, which concerns the employer cost cap. The noble Lord seeks to amend this clause to prevent the increase in value of schemes associated with the McCloud remedy being accounted for in the cost-control element of the 2016 valuations. I thank the noble Lord for bringing this to the attention of the House and am grateful to him for his prior engagement on the policy.
I can confirm that the Government have received pre-action protocol letters on behalf of some trade unions which have indicated that they may issue judicial review proceedings to challenge the Government’s decision to include the costs of remedy in the cost-control mechanism at the 2016 valuations. As the House will expect, and as the noble Lord, Lord Ponsonby, acknowledged, I cannot comment on the specifics of live or threatened litigation.
I acknowledge and appreciate the support the noble Baroness, Lady Janke, has given in general to the changes we have made to the cost-control mechanism—but there is more I want to say. I will talk through the general background, to reassure the noble Lord, Lord Davies, of the reasons for the Government’s decision. I will start by commenting on the policy rationale, starting with amending directions.
In Grand Committee, I brought to your Lordships’ attention that the Treasury had published amending directions on 7 October 2021 that will allow schemes to complete the cost-control element of the 2016 valuation process. These amending directions confirm that the increase in value of schemes associated with the McCloud remedy will be taken into account in the completion of the cost-control element of the 2016 valuations. The Government believe this is right, given that addressing the discrimination identified in the Court of Appeal’s judgment by giving members a choice of scheme benefits for the remedy period involves increasing the value of members’ pensions.
The cost-control mechanism was designed to assess costs arising from a change in value of schemes to members. Failure to capture the value of the remedy could have meant that members’ benefits may have changed going forwards, based on an incomplete and inaccurate assessment of the value of these pension schemes. This would represent an unacceptable risk to taxpayers, contrary to the objectives of the mechanism.
Turning to some specific detail on ceiling breaches, the Government have previously announced their intention to waive any ceiling breaches that arise from the 2016 valuations, and this is implemented by the current version of Clause 80. However, any floor breaches that occur will be honoured. This means that no member will see a reduction to their benefits as a result of the 2016 valuations. This decision, and the completion of the 2016 valuations, should provide certainty to scheme members over their benefits.
I will attempt at this stage to answer the point raised by my noble friend Lord Hodgson of Astley Abbotts and the noble Lord, Lord Ponsonby, about the use of directions. The Government acknowledge the key interest of the House in the scrutiny of secondary and tertiary legislation. The DPRRC considered this Bill and chose not to bring forward any comments for the attention of the House. The Government have powers under Section 12 of the PSPA 2013 to set out in Her Majesty’s Treasury’s directions what costs must be taken into account as part of the cost-control valuations. More broadly, I acknowledge the points my noble friend made; I have no doubt that Hansard will be read and I will say simply that his points are noted.
I will now say a few words about the amendment itself. The amendment seeks to amend the Treasury’s powers, set out in Section 12 of the Public Service Pensions Act 2013, to make directions which set the employer cost cap. Section 12 grants the Treasury a wide power to specify in directions which costs should be taken into account as part of the cost-control mechanism.
The amendment put forward by the noble Lord seeks to amend subsection (4) by omitting paragraph (c). I understand that the noble Lord’s intention is to remove the Treasury’s power to specify that the costs of remedy, or any other costs associated with the legacy schemes, should be accounted for in the mechanism.
This amendment may not have what I understand to be the noble Lord’s intended effect of preventing the increased value associated with the McCloud remedy from being included in the mechanism at the 2016 valuations. Subsection (4) sets out the type of costs that Treasury directions may specify for inclusion in the cost-control mechanism, but it is not intended to be an exhaustive list; rather, it provides some illustrative examples of how the wide power in subsection (3) may be exercised. I also note that the 2021 amending directions came into effect on 8 October 2021, as I mentioned earlier, under the existing powers. The noble Lord’s amendment as drafted would have no effect on the 2021 amending directions.
I want to attempt to answer some questions that were raised by the noble Lord, Lord Davies, supported, I think, by the noble Baroness, Lady Janke. There was some debate about why members are being made to pay for, as they put it, mistakes made by the Government. When the cost-control mechanism was established, it was agreed that it would consider only costs that affect the value of a scheme to members. Addressing the discrimination identified in the McCloud and Sargeant judgments by giving members a choice of scheme benefits for the remedy period involves increasing the value of schemes to members. The costs associated with this should therefore be taken into account as part of the cost-control element of the 2016 valuations process. However, any ceiling breaches that occur will be waived, no member will see a reduction in benefits as a result of the 2016 valuations, and any floor breaches that occur will be honoured.
The noble Lord, Lord Davies, asked when we will introduce amendments to reform the cost-control mechanism. I hope I can provide some reassurance by saying that the Government published our response to the consultation on the CCM on 4 October, we are currently working through our options and we will legislate for changes to the mechanism when parliamentary time allows. While a precise date has not been set—I am sorry I cannot give that date—the aim is to implement any changes in time for the 2020 valuations. As should now be clear, the Government have no intention of tabling an amendment in the House of Lords to implement these reforms. Instead, the package of amendments being introduced in this House are technical amendments that ensure the consistent application and legal operability of measures in the Bill.
I hope that, with these explanations, I have provided the noble Lord, Lord Davies, in particular, with some helpful reassurances on the policy rationale and the powers used, and I ask him to withdraw his amendment.
Lord Davies of Brixton (Lab)
My Lords, at the appropriate time I will indicate that I will withdraw the amendment. I am prepared to accept the advice that it does not actually achieve what I would like to achieve, and that the retrospective factor needs to be taken into account. But I would just like to highlight an issue mentioned by my noble friend Lord Ponsonby.
What the decision to make this a member cost means is that it will impact on those members who gain no benefit from the remedy. The remedy is not arbitrary, but there are broad patterns in who benefits from the remedy, and large numbers of members do not benefit from the remedy but will be affected by the inclusion of this as a member cost in the cost-control mechanism. The Government have suggested that they chose the four-year period within the cost-control mechanism for undertaking the calculation because they did not want to impact on future members of the scheme who gain no benefit from the remedy, but exactly the same problem applies to many current members of the scheme who will be active members during the relevant four-year period. To me, that sounds like an argument that the remedy should not be treated as a member cost, because of its inequitable impact.
I am very grateful to the noble Lord, Lord Hodgson, for his remarks. This is an issue that I have perhaps said more about than I originally intended, but I very much hope it will be taken seriously. What comes to me from it is that it is not easy to say what is or is not suitable to be dealt with through particular types of legislation. The issue is the impact it has, not its precise formulation—and making it a member cost has a substantial impact and so should get the appropriate level of consideration.
I note what the Minister said about the amendments to the cost-control mechanism and that he did not rule out the possibility that it would be added to this Bill during its Commons stages. I am a bit concerned about the idea of debating such significant changes in the context of the ping-pong process, so maybe he could give some sort of reassurance on that. But subject to those points, I beg leave to withdraw my amendment.
“(1A) After subsection (1) insert—“(1A) Subsection (1) must be complied with before the end of the period of one year beginning with the day on which the scheme’s first valuation under section 11 is completed.””Member’s explanatory statement
This amendment imposes a time limit for scheme regulations to comply with section 12(1) of the Public Service Pension Schemes Act 2013 (which requires scheme regulations to set the employer cost cap for the scheme).
Member’s explanatory statement
This amendment is consequential on the new subsection inserted into this Clause after subsection (5).
“(4A) After subsection (1) insert—“(1A) Subsection (1) must be complied with before the end of the period of one year beginning with the day on which the scheme’s first valuation under section 11 is completed.””Member’s explanatory statement
This amendment imposes a time limit for scheme regulations to comply with section 12(1) of the Public Service Pension Schemes Act (Northern Ireland) 2014 (which requires scheme regulations to set the employer cost cap for the scheme).
“(vi) section 57 (interest and process).”Member’s explanatory statement
This amendment ensures that regulations under Clause 86 are capable of including provision about interest.