Public Service Pensions and Judicial Offices Bill [HL]

Explanatory Notes

Legal background

Public service pension schemes and the Court of Appeal’s judgment

57 Public service pension schemes in respect of each workforce (civil service, NHS, teachers, police, firefighters, armed forces and judiciary) can broadly be considered to fall into two categories: legacy schemes (pre-1 April 2015) and new schemes (from 1 April 2015). Whilst there is a patchwork of enabling legislation for the legacy (largely final salary) schemes across the main public service pension schemes, all of the main public service new schemes are made under (or deemed to be made under) the Public Service Pensions Act 2013 (PSPA 2013).1 Section 1(1) PSPA 2013 allows the making of regulations for the payment of pensions and other benefits in respect of persons specified in section 1(2) PSPA 2013. The person responsible for making (and maintaining) the regulations in respect of each scheme (defined in the PSPA 2013 as the "responsible authority") is specified in Schedule 2 to the PSPA 2013 and is generally the Secretary of State of the department responsible for the administration of the relevant service (e.g. the Secretary of State for Education, in the case of teachers). Where a scheme is devolved, the responsible authority is the equivalent Scottish or Welsh Minister, or the relevant Department in Northern Ireland. In Northern Ireland, devolved schemes are established under the Public Service Pensions Act (Northern Ireland) 2014 (PSPA(NI) 2014). Where these notes refer to existing provisions in PSPA 2013 comparable provisions currently exist for the devolved schemes under PSPA (NI) 2014, unless otherwise indicated. Before being made, the Treasury (or the Department of Finance in Northern Ireland) must consent to scheme regulations, unless an exception applies (as is the case for some but not all devolved schemes) (see sections 3(5) and 3(6) PSPA 2013).

58 PSPA 2013 permits a scheme made under section 1(1) to make provision as to any of the matters specified in Schedule 3 – this includes eligibility for membership, the conditions subject to which benefits are payable, the recovery of overpaid benefits, the exclusion of double recovery of compensation or damages, interest on late payment of contributions, the return of contributions (with or without interest), the payment or receipt of transfer values for the purpose of creating or restoring rights to benefits, and the administration and management of the scheme (see section 3(2)(a) PSPA 2013).

59 A scheme made under section 1(1) PSPA 2013, if a defined benefits scheme, must be a career average revalued earnings scheme, as defined in section 8(4) of the PSPA 2013 (see section 8(2) PSPA 2013), or a defined benefits scheme of such other description as Treasury directions may specify. A scheme made under section 1(1) PSPA 2013 cannot be a final salary scheme (section 8(3) of the PSPA 2013). The legacy schemes were closed by section 18(1) of the PSPA 2013; the closing date was 31 March 2014 for the legacy Local Government Pension Scheme for England and Wales and 31 March 2015 for any other legacy scheme (note that different provisions applied to public body pension schemes such as those listed in Schedule 10 of the PSPA 2013).

60 Sections 18(5), 18(5A) and 18(6) allowed for scheme regulations to make further exceptions for those members who were in service immediately before 1 April 2012, or who had ceased to be members of a legacy scheme before that date. Most main public service pension scheme regulations made under section 1(1) of the PSPA 2013 exercised the powers contained in sections 18(5), 18(5A), and 18(6) to introduce transitional and tapered protection. Provisions in section 31 PSPA 2013, largely mirroring those in section 18 PSPA 2013, apply to the legacy schemes of certain public bodies currently listed in Schedule 10, such as the Secret Intelligence Service and the Security Service.

61 Those members who did not benefit from an exception in section 18(3) or scheme regulations made under sections 18(5), 18(5A) and 18(6) PSPA 2013 were afforded a ‘final salary link’ in accordance with section 20 and Schedule 7 PSPA 2013. In brief, the provisions providing for a final salary link ensure that, although the member is not accruing further pensionable service in a legacy scheme, it is a member’s salary on leaving service that is used for the purposes of calculating the value of any pension accrued in a final salary legacy scheme before 1 April 2015. Without this provision, a member would be regarded as having left that legacy final salary scheme and their accrued rights under a legacy final salary scheme would therefore be determined by their salary upon leaving that scheme (i.e. on or before 1 April 2015) rather than upon leaving service.

62 As set out above, the genesis of the Bill was the judgment of the Court of Appeal in Lord Chancellor v McCloud, Secretary of State for the Home Department v Sargeant [2018] EWCA Civ 2844, which found that the judicial and the firefighters’ new pension schemes, that were introduced under the PSPA 2013 with effect from 1 April 2015, contained transitional provisions which led to unlawful direct age discrimination, and in neither case could that discrimination be justified; there was also a finding of unlawful indirect discrimination in relation to equal pay and indirect race discrimination.

63 The Bill provides a comprehensive remedy to address the discrimination identified by the Court of Appeal, both retrospectively and prospectively, as well as the consequential effects of that remedy.

Cost control mechanism (CCM)

64 The Government made provisions to establish the CCM in the PSPA 2013. However, the detail regarding the parameters of the CCM – including the costs or changes in costs that are to be taken into account for the purposes of measuring changes in the cost of a scheme – are delegated to Treasury directions made under sections 12(3) and 12(4) of the PSPA 2013. These directions are known as The Public Service Pensions (Valuations and Employer Cost Cap) Directions 2014, as amended.

65 A key component of the CCM is the "employer cost cap". Section 12(3) of the PSPA 2013 requires that the "employer cost cap" (i.e. the rate, expressed as a percentage of pensionable earnings of members of the scheme, to be used for the purpose of measuring changes in the cost of the scheme) is set in accordance with Treasury directions. Those Treasury directions may in particular specify how the first valuation of a new scheme (carried out under section 11 of the PSPA 2013) is to be taken into account in establishing the ‘employer cost cap’ for that scheme. The "employer cost cap" was incorporated into the secondary legislation (made under section 1 of the PSPA 2013) containing each scheme.

66 Section 12(6) of the PSPA 2013 allowed a new scheme to provide for a procedure for returning the scheme to the "target cost" in agreement with employers and members (or their representatives), with a default where agreement could not be reached. Schemes set the default as a change to the rate of accrual. A consequence of this framework is that scheme regulations also require the cost of a scheme to be returned to the "target cost" when there is a breach of the employer cost cap in excess of the margins.

67 Treasury regulations (made under section 12(5) of the PSPA 2013) specify the upper and lower margins as specific percentages of pensionable pay above and below the employer cost cap, and require that the cost of the relevant scheme must remain within those margins. The upper margin forms a ‘ceiling’, with the lower margin forming a ‘floor’. Where the cost of the scheme has gone beyond those margins on either side of the employer cost cap, the regulations (as required by section 12(5)(a) of the PSPA 2013) specify that the cost of the scheme must be brought back to the "target cost". The Regulations set the "target cost", which must be between the margins, in accordance with section 12(5)(b) of the PSPA 2013. The target cost is currently the employer cost cap, which, as mentioned above, was set for each scheme pursuant to the first valuations.

Judicial schemes

68 The older judicial pension schemes for salaried judges were substantially set out in primary legislation: most notably the Judicial Pensions Act 1981 (the 1981 Act) and the Judicial Pensions and Retirement Act 1993 (JUPRA). The 1981 Act consolidated the legislation applying to different salaried judicial offices, while JUPRA provided a unified scheme for all holders of salaried qualifying judicial office. The 1981 Act schemes closed to new members on 31 March 1995. The JUPRA scheme was open to all holders of salaried qualifying judicial office appointed on or after that date, and also to judges who held office before that date who elected that it should apply to them or who were appointed to a different office where the 1981 Act would have required a change in pension arrangements.

69 As a result of the O’Brien litigation, 2 the Fee-Paid Judicial Pension Scheme (FPJPS 2017) was commenced on 1 April 2017. FPJPS 2017 was established under the Judicial Pensions (Fee-Paid Judges) Regulations 2017 (FPJR 2017), which were made under a new power inserted into JUPRA (section 18A) by the Pension Schemes Act 2015. FPJPS 2017 provides benefits for eligible fee-paid judicial office holders which are intended to mirror as far as possible those available to salaried judicial office holders under JUPRA.

70 The PSPA 2013 implemented the cross-Government pension reforms following the Hutton report. It provides the vires for the new Judicial Pension Scheme 2015 (NJPS) which was established under the Judicial Pensions Regulations 2015 (JPS 2015), which came into effect on 1 April 2015. On 1 April 2015, active scheme members of the legacy schemes were transferred into the NJPS except where a judge was entitled to either full or tapered transitional protection; and by the operation of section 18(1) PSPA 2013, the legacy schemes were closed to further accrual except where a judge was entitled to either full or tapered transitional protection.

71 These transitional protections were intended to protect judges closest to retirement. They were given effect by regulation 14 of and Schedule 2 to NJPS, which provide for exceptions to section 18(1) PSPA 2013. The exceptions gave full protection to judges who were in service on 1 April 2012 and aged 55 years (i.e. within 10 years of the NPA in the legacy schemes) or older at that date, thereby allowing them to remain in the legacy schemes until retirement. Tapered protection was available to judges who were in service on 1 April 2012 and aged between 51 and a half and 55 years. These judges were given the choice of whether to join NJPS on 1 April 2015 or to ‘taper’ across at a later date, determined by their date of birth, so that those judges retained Legacy Scheme benefits for a longer period of time. These provisions were found to be unlawful in the McCloud litigation and Chapter 2 of Part 1 addresses this discrimination for the judiciary.

Judicial Pensions

72 Provision for the reformed judicial pension scheme will be made in secondary legislation under the existing power in section 1 of the PSPA 2013. The use of this existing power will permit the reformed scheme to be delivered in accordance with the principles of the 2015 pension reforms. The PSPA 2013 provides a broad power for scheme regulations to establish new career average revalued earnings (CARE) schemes according to a common framework of requirements. These include an increased governance regime, the requirement for Normal Pension Age to be linked to State Pension Age (with some exceptions) and a cost control mechanism to keep the ongoing costs of the schemes within defined margins. The reformed scheme will also be tax-unregistered, and this is achieved by not registering the pension scheme under Part 4 of the Finance Act 2004.

Judicial Allowances

73 The Lord Chancellor’s powers to determine judges’ pay are set out in the legislation which creates the relevant judicial office. These provisions will be amended to include the express power to determine allowances and as there is no single piece of legislation detailing the power to determine pay, a number of amendments will be made to several pieces of legislation.

Judicial Mandatory Retirement Age

74 JUPRA introduced a standard MRA of 70 for the majority of judicial office holders in England and Wales, Scotland and Northern Ireland. The MRA only applied to judicial appointments made after the relevant provisions were commenced on 31 March 1995. Prior to this, judicial offices had differing MRAs or, in some cases, no MRA at all.

75 While Schedule 5 to JUPRA covers the majority of judicial office holders in the UK, there are a number of judicial office holders who have their MRA set in different legislation, including magistrates (lay justices) and coroners in England and Wales whose MRA is set at 70 by the Courts Act 2003 and the Coroners and Justice Act 2009 respectively.

Sitting in retirement (SIR)

76 There is not currently a single SIR provision by which salaried judges are appointed to fee-paid office to sit in retirement. Instead, various statutory provisions are used to give effect to the policy. These include sections 94A and 94B of the Constitutional Reform Act 2005 and section 9(1) of the Senior Courts Act 1971.

77 The SIR provisions in the Bill will provide a framework to create a bespoke and distinct office in which judicial office holders (whether previously salaried or fee-paid) will sit in retirement. The provisions will create a single appointing power permitting the relevant Senior Judge to authorise the appointment (with appropriate concurrence) of a judicial office holder to a distinct office, only to be used for a judicial office holder SIR.

78 The Bill also provides for a judicial office holder in a SIR office to be authorised to act as and be treated for all purposes as a pre-retired holder of that office, including the ability to be deployed to sit in the same courts and tribunals, subject to the relevant judicial policies.

79 To the extent that existing statutory provisions permit only salaried judges to sit in retirement, those provisions will be repealed.

1 The reformed Local Government Pension Scheme for England and Wales was made under section 7 of the Superannuation Act 1972 and, to the extent that the scheme makes provision for the payment of pensions and other benefits to (or in respect of) a person in relation to that person’s service on or after 1 April 2014 and such provision could also be made under section 1(1) PSPA 2013, the scheme had effect as if it were a scheme made under section 1(1) PSPA 2013 (see section 28 PSPA 2013).

2 The O’Brien litigation encompasses the following cases: O’Brien v Ministry of Justice [2013] UKSC 6; O’Brien v Ministry of Justice (Case C-432/17); Miller and others v Ministry of Justice [2019] UKSC 60.

 

19 July 2021