Draft Judicial Pensions (Remediable Service etc.) Regulations 2023
(10 months, 3 weeks ago)
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The Parliamentary Under-Secretary of State for Justice (Mike Freer)
I beg to move,
That the Committee has considered the draft Judicial Pensions (Remediable Service etc.) Regulations 2023.
It is a pleasure to serve under your chairmanship, Sir Edward. I declare a direct interest: I am a member of the parliamentary pension scheme who may benefit from the implementation of the McCloud judgment. The regulations provide for technical aspects of what is known as the McCloud remedy, which I shall go into later. Hon. Members will remember the passage of the Public Service Pensions and Judicial Offices Act 2022, which was brought forward in response to the legal ruling that the 2015 public sector pension reforms were discriminatory on grounds of age. The Act sets out how we will remedy that discrimination across the public sector, including in the judiciary. It is necessary, however, to make provisions for groups of the judiciary with specific circumstances that are not captured in the Act. The Act provides the power for these regulations, which will ensure delivery in special cases and for different groups of judges.
For example, the regulations ensure a fair remedy for pension credit members who are the ex-spouses of members of the pension scheme who have a pension sharing order. Pension sharing orders set out how pension benefits should be divided between the pension credit member and the judge. The regulations ensure that pension credit members continue to receive the proportion of the pension benefits that they have been allocated in the pension sharing order, and that they cannot be adversely affected by any choices made by the judge. I apologise to hon. Members: these are quite technical regulations and can be a bit dry, so I ask them to please bear with me.
To give another example, the regulations provide options for when a judge owes money to the scheme as a result of their remedy. The regulations give judges a number of ways to pay any moneys owed; they include, but are not limited to, paying a lump sum, paying in instalments and opting for deductions from their salary. The regulations also allow for any liabilities to be waived, depending on the circumstances.
In addition, certain powers in the Act have been exercised in accordance with directions from HM Treasury. The directions provide guidance on applying interest and paying compensation to ensure a degree of consistency in administering the remedy across the public sector. The regulations also include associated amendments that may impact judges in scope of the McCloud remedy, but that are not made as a direct result of the discrimination. I will address these further later.
I come to the purpose and rationale for the regulations. Prior to the 2015 pension reforms, salaried judges were eligible for pensions under either the Judicial Pension Act 1981 or the Judicial Pensions and Retirement Act 1993. Fee-paid judges secured equivalent pensions through other litigation and became eligible for the fee-paid judicial pension scheme. These collectively are called the legacy pension schemes and were all tax-unregistered final salary schemes.
In 2015, the Government introduced extensive reforms to public service pension schemes. The reforms followed the Independent Public Service Pensions Commission’s final report in 2011, which set out a number of recommendations that were adequate and fair, but also made public service pension schemes more affordable and sustainable for the taxpayer. To that end, the commission recommended a number of changes, including increasing the normal pension age to a member’s state pension age for most schemes; replacing final salary schemes with new schemes based on a career average design; and introducing a fixed cost ceiling to ensure cost control for the taxpayer.
The Government adopted those recommendations, and introduced pension schemes based on the proposals from 1 April 2015. For the judiciary, the Judicial Pensions Regulations 2015 created a tax-registered, career average pension scheme. The 2015 regulations also included transitional protections whereby older members—those aged 55 or over on 31 March 2012—were exempt from the reforms and remained in their legacy schemes. For those aged between 51½ and 55 on 31 March 2012, tapered protection was available; those judges were given the choice of joining the 2015 scheme on 1 April 2015, or tapering across on a later date determined by their date of birth. All other judges—those aged under 51½ on 31 March 2012—received no protection and moved to the 2015 scheme on 1 April 2015, unless they opted out of pension scheme membership altogether.
Those transitional provisions were challenged by younger judges in the case of McCloud v. Ministry of Justice in 2016. In 2018, the Court of Appeal held that the 2015 reforms were unlawfully discriminatory on the grounds of age. On 15 July 2019, the Government issued a written ministerial statement that accepted the Court of Appeal’s judgment, and confirmed that they would take steps to address the difference in treatment across all schemes and for all affected members, regardless of whether they had brought a claim. That is called the McCloud remedy.
Since then, the Government have taken steps to resolve the discrimination for affected members. In July 2020, the Ministry of Justice consulted on proposals to remedy the discrimination. In February 2021, it confirmed which members the remedy would apply to, and that the remedy would consist of all non-claimant members participating in a formal options exercise, in which they would be offered a retrospective choice of pension scheme membership between their legacy scheme and JPS 2015 for the remedy period. The remedy period will cover from 1 April 2015, which is when the discrimination began, to 31 March 2022, at which point all members were moved to the judicial pension scheme 2022. On 1 April 2022, the judicial pension scheme 2022 became the only scheme open to members of the judiciary for future accrual. That remedy approach is different from that of the majority of public sector schemes affected by the McCloud judgment. As the Government recognised the judgment’s wider implications, the Act provided for a remedy for all public sector pension schemes, to ensure that all eligible public service workers received an appropriate remedy.
The one-off options exercise will happen later this year. The difference in approach for judicial members and other public sector workers is due to a preference for certainty for judicial members, given a number of unique factors in the judicial schemes, such as the 20-year accrual cap in the legacy schemes and the different tax treatments between the legacy and the 2015 schemes.
That remedy approach was legislated for in the Public Service Pensions and Judicial Offices Act 2022. Chapter 2 of the Act specifically provides for the judicial remedy. Following the passage of the Act, we are now bringing forward the draft regulations to provide for specific technical aspects of the remedy, primarily for special cases, as I mentioned earlier. The draft regulations are necessary to fully operationalise the choices members make in the options exercise. We have brought forward the draft regulations following a consultation that was open from 16 December 2022 to 10 February 2023. We received 10 responses, and carefully considered all of them; they were broadly supportive of the proposals. On 15 May 2023, the Government published the consultation response.
As I said, the regulations also make a number of amendments that may impact judges who are in scope of McCloud, but that are not made as a direct result of the discrimination. The amendments cover three main areas. The first area is indexation in the judicial pension scheme 2022. The JPS 2022 included indexation calculations that did not align with the calculations for other public sector schemes and the initial policy intention. An amendment rectifies that position. The second area is dependant contributions for salaried and fee-paid judges. Amendments ensure that all judges pay the same level of dependant contributions, which is 0%, on sums earned over £150,000, from the 2016-17 tax year onwards. That ensures that members choosing a legacy pension option are treated the same as those who are protected by the 2015 reforms, and that fee-paid judges are treated the same as salaried judges. An extension of the deadline in the Judicial Pensions (Fee-Paid Judges) (Amendment) Regulations 2021 is one of the other amendments.
Mike Freer
For context, when the 2021 regulations came into force on 1 April 2021, they extended eligibility for a fee-paid judicial pension to 13 further judicial offices with retrospective effect. They also enabled affected judges to pay contributions into the FPJPS retrospectively for pensionable service prior to 1 April 2021 by way of deductions or a lump sum. However, as the window in which members can pay back-dated contributions via a lump sum payment has now closed, the amendment extends the period in which that lump-sum payment can be made, so that it runs to 31 March 2025, with the possibility of further extension by the administrators in individual cases.
Once the regulations come into force, we intend to run the options exercise for all members in scope as soon as possible. The options exercise will run for three months for most members; after that, members’ choices will be implemented, and pension records will be amended where necessary.
Valerie Vaz (Walsall South) (Lab)
The Minister is actually being quite interesting—not at all dry. Does he have an estimate of the numbers and costs? Will the costs come out of the Ministry of Justice budget?
Mike Freer
Off the top of my head, I cannot remember the numbers. I can say that the overall cost is about £170 million to the MOJ over the period. There are 2,500 members impacted. I hope that is helpful to the hon. Member.
In conclusion, I assure the Committee that the regulations are necessary. I apologise for the rather dry and technical nature of this issue, but the regulations are necessary to ensure that the judiciary will receive a pension remedy that is complete and equitable.
The Chair
I am sure that is all very clear, and that everybody has understood it completely.
Afzal Khan (Manchester, Gorton) (Lab)
It is a pleasure to serve under your chairmanship, Sir Edward. I start by declaring my interest, as I may be one of the people who benefits from the change to pensions scheme.
The Chair
Order. Presumably everyone here will; we will take it as read that everyone is declaring an interest. I do not believe there will be any problem with that.
Afzal Khan
I thank the Minister for outlining the provisions in the regulations. As he explained, they have a number of features that ensure that the technical aspects of the McCloud remedy will be implemented. Those include a remedy in respect of technical member options, provision for judges where there has been immediate detriment, and repayment mechanisms where judges owe sums to the scheme or the Ministry of Justice. The Opposition is pleased to support the statutory instrument.
I recognise that the Government have provided meaningful opportunities for engagement through consultation throughout their correction of the Court of Appeal’s 2018 finding of unlawful age discrimination. I am content that the changes being made to the judicial pensions system address that discrimination. I am glad to see that the Ministry of Justice’s equality impact statement considers that the regulations will have a positive equality impact, though of course that is to be expected from legislation that directly addreses discriminatory practices. I am also pleased that the equality statement commits the Government to monitoring equality impacts after the regulations have been introduced.
The matter has been ongoing for a number of years, and we are glad to see it draw to a conclusion at last. As I said before, we are pleased to support the Government on this SI.
Kit Malthouse (North West Hampshire) (Con)
I have a couple of questions—they are a bit of a protest. Obviously, the regulations are of much bigger size and much more complicated than a normal statutory instrument. Given that parts of it are effectively amendments to Acts that were introduced only 12 months ago, it seems to me that these provisions could have been an Act of Parliament, and I am not quite sure why they are regulations.
There are endless complaints about the shoddy scrutiny of legislation in this place, not least from the other place. Given the technical nature of the SI, the fact that we were given only a few days’ notice of our being on the Committee, and the fact that we do not have the opportunity to take any expert advice about what is in this very complicated document, this strikes me as a pretty poor show. Given the complexity of the regulations, and the fact that part of them amends previous legislation, I am fairly confident that we will be back at some stage to amend this SI because of technical problems with it.
Obviously, the regulations seek to remedy McCloud/Sargeant, which affected all the public sector. When I was a Minister at the Home Office, I spent a fair amount of my time dealing with the police’s issue with that judgment. There was a consultation on a remedy for the police on the same matter earlier this year. Can the Minister tell us when he expects the whole of McCloud/Sargeant to be resolved? The longer it drags on, the more uncertainty there might be. I congratulate him on getting something over the line for the judiciary, but there are a relatively small number of them and a much larger number of police officers, so it would be great to see movement on that as well.
On the settlement, I am quite surprised to hear that only 10 responses to the consultation were received. Was one of those responses from whatever collective body the judges have to represent their views? Knowing them as I do after many years of involvement with them, I feel that it is unlikely that only 10 of them would respond. If that is the case, there may have been a communication problem. They are normally pretty voluble on these issues.
My second question is whether the settlement for the judiciary is particularly different from, or more generous than, any of the other settlements that have been agreed with parts of the public sector. Are we likely to get any kick-back from people who feel that the judiciary have been privileged?
Finally, I have a question about partners or spouses of judges who sadly died between the judgment and the settlement. Will they be given the same options as living judges? I am not on top of the detail of the judicial pensions scheme, but I imagine that there is a death-in-service payment, and that a residual pension will fall to those spouses and partners. Will they be given the opportunity, retrospectively, to make the same choices that they would have been afforded if their spouse or partner was still alive? Given that the settlement is retrospective to 2012, and that the change took place in 2015, it is likely, given the demographic and the actuarial calculations, that a small number of judges will have died between the judgment and settlement. It is very important that their partners are given the same opportunities that they would have been given had their partners been alive.
Kirsten Oswald (East Renfrewshire) (SNP)
I am grateful to the Minister for the way he set out the SI, which is quite technical. I did not think that what was said was dry. It is true that there is quite a lot of information, as we have just heard, but I was grateful for his efforts to talk us through the regulations. It is understood that consultation has taken place, and I would like to hear a bit more about that.
I know that the SI has absolutely nothing to do with the Women Against State Pension Inequality Campaign, but it is interesting that this pensions issue is moving forward with a consultation, with haste and with good communications. All those things are really important. I suspect that any WASPI women watching the debate might contrast that with their experience. None the less, it is really important to rectify issues of discrimination, and as there clearly has been age discrimination, the measures to remedy it must be welcomed.
The points made about spouses and partners, particularly given the passage of time, are important. The Minister said that he intends for the options exercise to run as soon as possible. Given the passage of time and the subject matter, that seems very sensible. I would be keen to hear the Minister’s answers to my questions, but I do not see anything to oppose in what has been said.
Mike Freer
May I first touch on the nature of the discrimination, because the word “discrimination” can be quite loaded? As the pension schemes have changed, those people who are coming up to retirement age and may have had fewer pensionable years to make changes to their provision have got some additional protection. The court case was because younger members felt that they were being discriminated against. It is important to put that into perspective. I understand why younger members felt that they were not being given opportunities that older members of pension schemes were getting, but equally, those of us who are older and are contributing do not necessarily have the working years ahead of us to make additional contributions or arrangements. I can understand why the situation arose, but we are where we are. I thought it was important to clarify that.
I turn to points raised by my right hon. Friend the Member for North West Hampshire. It is quite difficult to say what the impact on other schemes will be, because each scheme is quite complex in its own right, as he knows and as we have seen with the digital scheme. Each Department will have to make its own statutory instruments to address the issues and the complexities of its own schemes.
I understand the question about why such a technical and complex matter is being addressed through an SI. In my time in this House, I have served on a number of statutory instrument Committees dealing with quite complex pension changes. It is not unusual for technical changes to pension schemes to be made in this way, but I take on board the very fair issue that my right hon. Friend raises about having time to understand the complexities.
On dependants, my understanding—I will double-check this point and write to my right hon. Friend if I have it wrong—is that the whole point of the McCloud remedy is to ensure that people are given the opportunity to put back in. My understanding is that that would include dependants. [Interruption.] I will quickly read my note to make sure that I have not misunderstood.
Kit Malthouse
Let me give the Minister a little time to read his note. I guess the question I am asking is: if I am the husband of a judge who died between the judgment and the remedy, will I be given the opportunity to make the same choices that my spouse would have made if they were alive? I would obviously have a dependant’s pension, and I would have had a death-in-service payment as well.
Mike Freer
I am grateful to my right hon. Friend for giving me a little time. The scheme election may be made in respect of a person who is entitled to the remedy.
Mike Freer
Yes—that might have been quicker. In a former life I used to sell pensions, although certainly not of this complexity, I have to say.
These are important regulations about a matter that we need to address. I am grateful for the support of colleagues and the Opposition. I commend the draft regulations to the Committee.
Question put and agreed to.