Judicial Pensions Regulations 2015

Lord Kennedy of Southwark Excerpts

Thursday 29th January 2015 Grand Committee

[The Minister of State, Ministry of Justice (Lord Faulks) (Con)]

My Lords, the regulations before us today create the New Judicial Pension Scheme 2015—NJPS—establishing the pension scheme itself and also providing for its governance structure and the operation of its employer cost cap. The NJPS is a defined benefit scheme which provides a guaranteed pension based on average pay over a judge’s career. Each year, a percentage of a judge’s salary is notionally put aside. On retirement the cash value of all these annually calculated percentage pots is added up and that is the annual pension. To protect the accumulating pension against inflation, each individual’s notional pension is uprated each year. Employee contributions remain the same and there is transitional protection for those closest to retirement. Unlike previous judicial pension schemes this scheme will not have an automatic lump sum and will be registered for tax purposes in line with the practice elsewhere in the public sector.

The Government announced at the time of the emergency Budget in 2010 the establishment of an independent review of the provision of public service pensions. The judiciary was included in the scope of this review. The review by the Independent Public Service Pensions Commission, led by the noble Lord, Lord Hutton of Furness, made recommendations for reform to public service pensions in order to make them both affordable and sustainable in the long term as well as offering certainty and fairness to public service pension scheme members and taxpayers. The Government’s response adopted many of the review’s recommendations. This included a guarantee that benefits accrued before the date of the change would be protected. It also introduced protections for those within 10 years of retirement.

On 5 February 2013, the Lord Chancellor announced to Parliament the intention to reform judicial pension arrangements in the form of the NJPS under the statutory framework of the Public Service Pensions Act 2013. The reforms to judicial pension arrangements will apply to eligible members of the judiciary in Scotland and Northern Ireland, as well as those in England and Wales. There are a number of devolved judicial offices in Scotland and Northern Ireland to which these reforms will not apply. The NJPS will be open to eligible fee-paid and salaried judicial office holders. This will be set out in a separate instrument.

The principles of the Public Service Pension Act 2013 have already been approved by this House; these regulations apply those principles, introducing a new pension scheme for the judiciary. The Government believe that the reforms to judicial pensions constitute a fair balance of costs and benefits between judicial pension scheme members and other taxpayers. I therefore commend these draft regulations to the Committee and I beg to move.

[Lord Kennedy of Southwark (Lab)]

My Lords, as the noble Lord, Lord Faulks, has explained to the Grand Committee, the regulations before us today establish a new and reformed pension scheme for the judiciary. They are one of a number of instruments which are coming before your Lordships’ House on the matter of pensions.

I should say that as a general rule I am always sorry to see the end of final salary pension schemes, but I accept that that has been the trend in recent years, and I fully understand that pension schemes have to be reformed in order to ensure that they are sustainable in the long term. That has involved a change in the distribution of costs between the employer and the members of the scheme, along with a move from final salary schemes to other types of scheme and equalising the normal pension age with the state pension age.

I have only a couple of brief points. On looking at the Explanatory Notes, I see that the Lord Chancellor, after consulting with the judiciary, announced the intention to establish a stand-alone reformed pension scheme open only to the judiciary, although initially he had talked about bringing it into the Civil Service scheme. Can the noble Lord tell us why in the end the other options were not proceeded with, in particular the decision not to include the judiciary within the scope of the reformed Civil Service pension scheme? Further, will there be any additional costs to the taxpayer as a consequence of that decision?

I would appreciate a little more information regarding the tax concerns which have been raised by a number of members of the judiciary here in terms of the sums of money involved and whether that will result in additional costs which will have to be borne by the scheme and/or the taxpayer. Also, looking at the scheme itself, can he tell us a little about the governance arrangements? Will they differ in any material way from the governance of the Civil Service scheme? It would also be helpful to the Grand Committee if the noble Lord could highlight where in particular the scheme differs from the new Civil Service pension scheme? With those points, I am content to support the regulations before the Committee.

[Lord Faulks]

My Lords, I am grateful to the noble Lord, Lord Kennedy, for his observations. He will know that the judiciary had some concerns about the scheme, one of which turned on the importance of the independence of the judiciary and of attracting appropriate candidates to posts within the judiciary at whatever level. I am sure that Members of the Committee will understand both of those points. A particular concern that was expressed by many in the consultations was about the changes that were to take place to ensure that the judiciary came under the scheme which embraces all other senior civil servants. There was a particular provision which followed the judiciary’s own stand-alone scheme that is set out in paragraph 8.2 of the Explanatory Memorandum. It concerned in particular those whose existing arrangements for their pensions were unregistered so that when they came to accept a judicial appointment, they did so on the basis that their then pensions were unregistered, only to find that as a result of these provisions, the pension in their new post became registered. The result of that was a significant disadvantage to them, and therefore after some consideration, it was thought appropriate for there to be a special arrangement for the judges in that particular position.

The result of the special arrangement was that those who had previously had an unregistered pension could opt out of the government scheme and they would not receive the pension to which they would normally be entitled. However, during the time that they sit as judges, they will receive an increased salary to reflect the fact that their employer—the Government—would be paying a proportion of their income for pensions in the same way that they would in ordinary circumstances, and will be doing for judges in all other cases. This means that although there is an advantage to the individual, it is in fact neutral in terms of the effect on the tax take as a whole. That was the position.

Judges choose representatives to the pension board —I am talking now of governance—and make recommendations to the scheme manager on the question of discretion. The scheme was at the judiciary’s request. There is an increase in costs in the administration of that special scheme. On the scheme generally, the Government’s principle was to develop a scheme that is fair and sustainable for public sector workers and the taxpayer generally and, save for this fairly limited exception, the judicial scheme will bring the judiciary in line, for the first time, in fact, with the reformed Civil Service pension scheme Alpha, while there are some differences, which I have explained. There are also some slight differences in ill health provision, but any benefits to the department will be long term in nature due to the transitional protection provisions which apply to a considerable proportion of the judicial office holders in scope. However, there is a long-term financial benefit to the MoJ in the form of savings from the service award. This is a salary payment to judges upon retirement which compensates them for tax liabilities on their retirement lump sum. The cost to the department of the current annual service award is around £17 million per year. As the new scheme requirements will remove the need for service awards in the long term, this cost will be a saving to the department, and thus to the country in general. There is harmonisation. There are one or two exceptions.

We think judges have satisfactory pension arrangements. In the view of judges, they are not quite as satisfactory as they were before, but in view of the recommendations of the noble Lord, Lord Hutton, which were accepted by the Government, all public servants have had to accept some reductions in their entitlement in view of the overall financial situation, and judges are not considered an exception, but there is some reflection of their particular circumstances in those special arrangements. I hope that that is a satisfactory answer to the noble Lord’s questions.