Judicial Pensions and Fee-Paid Judges’ Pension Schemes (Contributions) (Amendment) Regulations 2020

Lord Clement-Jones Excerpts

Monday 23rd March 2020 Grand Committee

[Lord Parkinson of Whitley Bay (Con)]

My Lords, I am speaking on behalf of my noble and learned friend Lord Keen of Elie.

The draft regulations before us today relate to judicial pension schemes’ member contribution rates. The purpose of these draft regulations is to amend the current member contribution rates and earning thresholds in two different judicial pensions schemes for subsequent financial years. These schemes are: the Judicial Pension Scheme 2015, which was established by the Judicial Pensions Regulations 2015, following wider public service pension reforms; and the Fee-Paid Judicial Pension Scheme 2017, which was established by the Judicial Pensions (Fee-Paid Judges) Regulations 2017, following the Supreme Court decision in 2013 in the case of O’Brien, in order to provide fee-paid judges with a pension.

Both the 2015 and 2017 regulations made provision for contributions payable by members, and they set a different rate of contribution dependent on the salaries or fees earned by a judge in a year. The regulations being debated today maintain the existing member contribution rates in both schemes for the financial year 2020-21 and each year thereafter, until such time as alternative provisions are made.

The regulations also uprate the earning thresholds, under £150,001 per annum, of the member contribution rate structure for both schemes on 1 April 2020 in line with the consumer prices index. Additionally, the regulations provide that the related earning thresholds will be uprated each year automatically in April in line with the consumer prices index rate of the previous September.

These regulations amend judicial pension schemes that are UK-wide. The Ministry of Justice has ensured that all devolved Administrations have been informed of progress, and they support our proposed approach. The Northern Ireland Department of Justice has its own Northern Ireland Judicial Pension Scheme 2015. It therefore proceeded with its own regulations in January 2020, which followed the ministry’s policy approach.

The reason for making these amendment regulations is that the current provisions for member contribution rates will expire on 31 March 2020. The draft regulations are needed to specify the member contribution rates that will apply from 1 April 2020 onwards. These regulations will enable the Ministry of Justice to ensure the continuing operation of the schemes by deducting the appropriate member contributions from judicial salaries and fees.

Given the ongoing uncertainty about the value of public service pensions after April 2015—due to recent litigation, the McCloud litigation, and the consequential decision to pause one element of the actuarial valuation of the schemes—the Government propose to maintain existing contribution rates from 1 April 2020 onwards.

Having referred to the impact of the actuarial valuation and the McCloud litigation on these regulations, it might be helpful if I recapitulate some brief background details. Following the 2015 reform of public service pension schemes and under the current legislative framework, government departments are required to undertake valuations of public service pension schemes, including the judicial pension scheme, every four years. The valuation does two things. First, it informs the employer contribution rates. Secondly, it tests whether the value of the schemes to current members has moved from target levels and needs to be adjusted to bring them back to that point, which is known as the cost control mechanism.

Work was undertaken from March 2016 on the first such valuation of public service pension schemes to analyse the provisional results of the valuation for each affected scheme. This work was affected by the age discrimination cases brought by members of the judicial and firefighters’ pension schemes—the McCloud litigation. As your Lordships will no doubt recall, this litigation concerned the transitional protection policy that was applied by the Government in implementing the 2015 public service pension scheme reforms. The courts found that the transitional protection policy amounted to unlawful age discrimination, and in June 2019 the Government’s application for permission to appeal was refused by the Supreme Court.

In January 2019, the Government took the decision to pause the cost control element of the valuation. It was prudent to do so, because the effect of the McCloud litigation on public service pension schemes was unclear. While the outcome of that litigation is now known, addressing the discrimination, including settling the details of tax treatment, is a complicated process, involving decisions across a number of government departments, and will take some time to deliver. The pause of the cost control mechanism will therefore continue until there is more clarity about the shape of the McCloud remedy.

To avoid the need to make further interim regulations, the regulations propose that the existing rates will continue to apply with no specific expiry date. This is a pragmatic measure reflecting the fact that the timeline for resolving the issues arising from the McCloud case is uncertain. Once this work is complete, and the outcome of the cost control element of the valuation is known, the Government will reconsider whether further changes to member contribution rates for these schemes are required.

No changes were made to the earning thresholds for member contribution rates as part of the measures put in place for 2019-20. However, the Government are mindful that it would not be desirable for the earning thresholds to fall significantly out of step with salary or fee rates. That is why the regulations provide that all earning thresholds below the top £150,001 threshold are uprated each year in line with CPI. This approach is consistent with various other aspects of public service pensions. In recent years, increases to public service pensions in payment have been in line with the September-to-September increase in CPI. CPI is already used to annually uprate the earning thresholds in other public service pension schemes, such as the Local Government Pension Scheme and the Teachers’ Pension Scheme.

The £150,001 band will not be increased. In the 2015 scheme, the rates have been designed to align with the top rate of income tax such that the net-of-tax contribution rates are broadly the same above and below the £150,001 threshold. In the case of the fee-paid 2017 scheme, the total contribution rates are broadly the same, when the member and dependant contribution rates are taken together. Additionally, the Government consider it desirable to maintain broad parity between the Judicial Pensions and Retirement Act 1993 and the two sets of judicial pension regulations being amended, as the £150,001 threshold is common across all judicial schemes.

As the regulations provide that the lower earning thresholds will be uprated each year automatically, similar provisions will not be needed next year. However, the Government will revisit the question of appropriate levels of contribution rates and thresholds once wider pension issues have been resolved.

The relevant legislation—Section 22 of the Public Service Pensions Act 2013—requires the Government to fulfil a number of procedural requirements before making changes to features of the scheme under the 2015 regulations which are classed as protected elements. Member contribution rates are one such protected element, and as such cannot be altered without the Government first consulting the persons or representatives of those persons affected with a view to reaching agreement. I can confirm that the Ministry of Justice issued a four-week consultation, which ran from 25 October to 22 November 2019. The Ministry of Justice consulted representative judicial organisations with a view to reaching agreement. An additional statutory requirement for changes to protected elements is that an accompanying report must be laid before Parliament setting out the rationale for the amendment. I can confirm that such a report has been laid. Separately, the Government also satisfied the requirement to consult the Secretary of State for Scotland in relation to judicial offices with Scottish jurisdiction, and he was content with the proposal.

Under this further interim measure, the cost of accruing pension scheme benefits will remain the same for most members but will be reduced for some members, as they will pay contributions at a lower rate than they would have done if no changes were made to the earning thresholds.

I conclude by reinforcing the point that the existing arrangements for member contribution rates will expire on 31 March 2020, in relation to both the 2015 and the 2017 judicial pension schemes. Therefore, these draft regulations are a necessary further interim measure to continue the effective operation of these pension schemes, until a long-term solution is put in place. I hope that noble Lords will agree that these regulations are a necessary interim measure to continue the arrangements for member contribution rates and for the effective operation of the judicial pension scheme. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, I thank the noble Lord for his comprehensive introduction. We are all understudies now—I had a crash course on judicial pensions over the weekend. Learning up on O’Brien, McCloud and Miller has not been a happy experience for me or, I suspect, for the Ministry of Justice over a period of years. Being very familiar with higher education pensions, I understand that there are a lot of bear traps in the whole area of pensions and that people feel very strongly about them because they secure their future.

I do not need to pick over the individual details of the instrument—these regulations are very clear and they do the right thing—but this is an opportunity to kick the tyres slightly on the matter of policy. Following the Miller case, the Ministry of Justice is clearly going to have to set aside a certain sum to make sure that the pensions are funded and are non-discriminatory. There have been a lot of estimates, ranging from £300 million to £1 billion, and it would be useful to know whether the noble Lord is possessed of any idea of how much this is going to cost as a consequence of that case.

My second question is about the policy on judicial diversity. The Miller case was all about discrimination, but we are trying to create greater judicial diversity and that goes to the key issue of how pensions operate so that they do not discriminate against people who are part-time or those who enter the scheme late and so on. The July 2019 figures show that just 7% of court judges are BAME and 32% are women. Is it not time that we set clear targets for better gender balance and BAME balance and gave those targets real teeth?

[Lord McNicol of West Kilbride (Lab)]

I echo the thanks to the Minister for his detailed explanation, and I support and share the comments of the noble Lord, Lord Clement-Jones. We understand the need for these regulations to be passed and we will not oppose them.

The noble Lord, Lord Clement-Jones, touched on the Miller case; I am going to consider the McCloud judgment. Can the Minister confirm when the McCloud judgment will be implemented? We understand that it is a complicated matter, but the court passed the judgment years ago and the Ministry needs to work to resolve this long-standing issue.

In the judgment, the judiciary were able to hold that the particular legislation was unlawful because the tribunal found that the provisions were discriminatory on the grounds that younger judges are more often women and members of the BAME community. Although those groups are still underrepresented, it did reflect more heavily on them.

The Government need to address this issue because we have a significant shortage of judges, and especially High Court judges. A number of senior lawyers and members of the judiciary are not applying for those High Court judge jobs, and part of that is because of the changes to the pensions regulations. We are seeing more of an effect there than on other judicial positions. One of the reasons holding people back from applying is that, until there is full clarity, they do not know what the full implications on their pensions will be. I am looking for a little clarity on that.

The Minister also mentioned the consultation. From the Explanatory Memorandum, I was not clear how many individuals or organisations had responded to that consultation. Again, a bit of detail on that would be appreciated.