Public Service Pensions And Judicial Offices Act 2022

Policy background

Public service pensions reform and the Court of Appeal’s judgment

7. In 2010, the Chancellor of the Exchequer invited Lord Hutton of Furness to chair the Independent Public Service Pensions Commission ("the IPSPC"). The IPSPC was tasked with undertaking a fundamental structural review of public service pension provision.
8. The IPSPC published its final report in 2011, setting out recommendations to reform public service pensions to balance better the interests of taxpayers, employers and members. The Government accepted the IPSPC’s recommendations as the basis for discussions with public service workers, trade unions, and other representative bodies.
9. In November 2011, the Government published a Command Paper 1 setting out the Government’s framework for reform of the public service schemes. Further discussions were undertaken with each of the workforces to develop scheme design proposals.
10. In April 2015 (April 2014 in the case of the Local Government Pension Scheme in England and Wales), new schemes were introduced for each of the main workforces – local government, teachers, the NHS, the armed forces, firefighters, police, judiciary, and the civil service. The reforms were implemented by regulations made under the Public Service Pensions Act 2013 (PSPA 2013).
11. As part of the 2015 reforms, those within 10 years of retirement remained in their legacy pension schemes. This transitional protection was not a recommendation of the IPSPC but was agreed following discussions with member representatives.
12. In December 2018, the Court of Appeal found in Lord Chancellor v McCloud, Secretary of State for the Home Department v Sargeant [2018] EWCA Civ 2844 (the McCloud judgment) that transitional protection unlawfully discriminated against younger members of the judicial and firefighters’ pension schemes, and also gave rise to indirect sex and race discrimination. On 27 June 2019, the Supreme Court denied the Government permission to appeal the Court of Appeal’s judgment.
13. On 15 July 2019, the Chief Secretary to the Treasury made a written ministerial statement 2 setting out that the Government considered that the Court of Appeal’s judgment had implications for all of the public service pension schemes and planned to come forward with proposals to remedy the discrimination across the schemes.
14. On 16 July 2020, the Government published a Command Paper: Public service pension schemes: changes to the transitional arrangements to the 2015 schemes3. The consultation set out two proposed options for retrospectively removing the discrimination suffered by members who were not eligible for transitional protection due to their age and proposed that the legacy schemes would be closed to all members on 31 March 2022.
15. It is normal practice in discrimination cases to remedy unequal treatment by reverting to the most beneficial option. However, the reforms that were introduced in 2015 were progressive reforms and were in part intended to even out the value of pensions between some of the highest and lowest earners, resulting in some, particularly lower and middle earners, being better off in the new schemes. Simply extending transitional protection to all affected members would address the discrimination identified by the Court but would also mean that some members would be placed in a worse position. Instead, the Government proposed that members should be given a choice of which scheme benefits they wish to receive during the period from when the new schemes were introduced to the date that the legacy schemes are to be closed. The consultation sought views on whether the choice should be made immediately (once the necessary legislative changes were made) or deferred until the point that a member’s pension benefits become payable.
16. In February 2021, the Government published its response 4 , confirming that the legacy schemes would close on 31 March 2022 and that affected members would be given a choice of which pension benefits they wish to receive when those benefits are paid. The Government explained that it preferred this approach as it would provide members with greater certainty about their decision and avoid the need for them to make assumptions about matters such as their future career and retirement age, which would increase the risk of making imperfect decisions, particularly for younger members. The response confirmed that affected members who are already in receipt of pension benefits will be given a choice as soon as possible after necessary changes to the schemes are implemented via legislation, or earlier if possible.
17. Separate consultations were undertaken in relation to the Judicial Pension Schemes and the Local Government Pension Schemes because of the unique arrangements within those schemes. The Northern Ireland Department of Finance also undertook a separate consultation in relation to the public service pension schemes that are their responsibility under the devolution arrangements.
18. In the Queen’s Speech on 11 May 2021, the Government announced its intention to bring forward legislation to implement retrospective changes to remedy the discrimination that arose when transitional protection was afforded to older public service workers when new public service schemes were introduced in 2014/15 and to ensure equal treatment for all members within each of the main public service pension schemes by moving all members into the reformed schemes on 1 April 2022.
19. For the main public service pension schemes (the non-judicial schemes), where the Act refers to the "new scheme", this refers to the reformed 2015 schemes, introduced following an independent review of public service pensions, and made under the PSPA 2013. In respect of the judiciary, the scheme made under the PSPA 2013 is referred to in the Act as the "judicial 2015 scheme" rather than "new scheme". This is to avoid confusion with the newly designed, reformed scheme which will provide for future accruals for the judiciary from 1 April 2022 onwards. The pre-2015 public service pensions schemes are in each case referred to as the "legacy scheme".

Non-judicial schemes (except local government)

20. Following consultation on the approach to implementing the remedy, the Government is proceeding with the Deferred Choice Underpin (DCU), which enables members to make a choice as to whether to take legacy or new scheme benefits for the remedy period when their pension benefits become payable. The Act brings forward changes required for effective implementation of the remedy.
21. The new schemes themselves are not discriminatory, and the Government wishes to ensure that all members are treated equally in respect of the scheme design available to them after the discrimination has been addressed.
22. Therefore, all public servants who continue in service from 1 April 2022 onwards will do so as members of their respective new scheme. Legacy schemes will be closed in relation to service after 31 March 2022, closing the remedy period during which members in scope have a choice of benefits.

Local government schemes

23. A different approach was adopted for the Local Government Pension Schemes (LGPS), where all members still accruing benefits were moved to new schemes either on 1 April 2014, for the LGPS England and Wales, or 1 April 2015, for the LGPS for Scotland and Northern Ireland. In those schemes, older members in service on 31 March 2012 were provided with an underpin - giving them the better of accrual as if under their previous legacy scheme provisions or under the reformed scheme provisions, for pensionable service from the date they moved to their new LGPS scheme.
24. For these LGPS schemes there will be no change that service should be under reformed schemes. However, the underpin will be extended to all those members affected by the discrimination. The underpin will not apply to service after 31 March 2022 or for service rendered after the member’s Normal Pension Age (NPA) 5 , if earlier.

Judicial schemes

25. There are a number of important differences between the proposed remedies for the judiciary and for the wider public service which arise from the unique nature of judicial office and the judicial legacy schemes. The key difference is that, unlike the wider public service remedy in which eligible individuals will be returned to their legacy scheme and make a choice at retirement as to the basis on which they would like their benefits calculated, for the judiciary the remedy will be provided by way of an ‘options exercise’. It is envisaged that this will take place once the necessary legislative and data requirements are in place.

Cost control mechanism

26. The cost control mechanism is a mechanism designed to ensure a fair balance of risk with regard to the cost of providing public service defined benefit (DB) pension schemes between members of those schemes and the Exchequer (and by extension taxpayers). If, when the mechanism is tested, those costs have increased or decreased by more than a specified percentage of pensionable pay compared to the employer cost cap, then member benefits (and/or member contributions) in the relevant scheme are adjusted to bring the cost of that scheme back to target. The target cost is currently the same as the employer cost cap. So, there is effectively a corridor either side of the target cost, with a margin representing the ‘ceiling’ and ‘floor’. If costs fall below the lower margin (a "floor breach"), then benefits must be increased to bring costs back to target. If costs increase above the upper margin (a "ceiling breach"), then benefits must be reduced.
27. The first test of the mechanism was at the 2016 valuations. Provisional 2016 cost control results indicated a breach of the cost cap floor in all schemes for which results were assessed. In the context of these provisional results, the government announced that it was asking the Government Actuary to review the cost control mechanism. The government was concerned that the cost control mechanism was too volatile and might not be operating in line with its original objectives; in particular, the intention that benefit rectification would only be triggered by ‘extraordinary, unpredictable events’.
28. The cost control element of the 2016 valuations was paused due to the uncertainty arising over the value of member benefits following the judgments in the McCloud and Sargeant litigation, and with it so was the Government Actuary’s review of the mechanism. On 16 July 2020, alongside the publication of the Government’s consultation on addressing the discrimination identified in the McCloud and Sargeant judgments, the Government announced that the pause of the cost control element of the 2016 valuations process would be lifted and the Government Actuary’s review would proceed. In addition, the Government announced that the costs associated with addressing the discrimination would be considered when completing the cost control element of the 2016 valuations.
29. Since the government was concerned that the mechanism may not be working as intended, it decided that there should be no benefit reductions for members of any schemes at the 2016 valuations. HM Treasury published amending directions in October 2021 which will allow schemes to complete the cost control element of the 2016 valuations and specifies how this should be done. 6 The Act contains provisions to ensure that any ceiling breaches that occur at the 2016 valuations (or 2017 valuations for the Local Government Pension Scheme (Scotland)) are not rectified. So the Act ensures that no member benefits will be cut as a result of the 2016 valuations.
30. Furthermore, the Government Actuary has concluded his review of the mechanism, and his final report was published on 15 June 2021 which contained several recommendations on how to improve the mechanism. 7 The Government consulted on three of those recommendations and published its response in October 2021. 8 All three proposals consulted on are being taken forward, all of which were recommendations by the Government Actuary. They are: (i) reformed scheme only design; (ii) wider cost corridor; and (iii) an economic check.
31. All three changes will be implemented in time for the 2020 valuations and are expected to make the cost control mechanism more stable, as was made clear in the Government Actuary’s review of the mechanism. A more stable mechanism means changes to member benefits or contributions become less likely. The proposed reforms thus help provide greater certainty regarding members’ projected retirement incomes and level of contributions.
32. The Act includes measures which implement the framework for two of these reforms: the reformed scheme only design and the economic check.

Judicial Pensions

33. The Public Service Pensions Act 2013 (PSPA 2013) introduced a statutory framework for the reform of public service pension schemes. Following a public consultation exercise, the New Judicial Pension Scheme 2015 (NJPS) was established under the Judicial Pensions Regulations 2015 (JPS 2015).
34. This resulted in many changes to judicial pensions, with the most significant being that members in NJPS were now subject to annual and lifetime allowance limits on the tax-relieved benefits accrued due to the tax-registered nature of the scheme. These changes had a disproportionate impact on the judiciary, resulting in recruitment and retention issues. These were underlined by the fact that the first ever unfilled vacancy at the High Court occurred in the 2014/15 recruitment exercise.
35. In 2018, the Senior Salaries Review Body (SSRB) published its Major Review of the Judicial Salary Structure which confirmed evidence of significant and escalating recruitment and retention problems at all levels of the judiciary. They concluded that the principal cause of this was the cumulative impacts of the 2015 public pension reforms and subsequent changes to pension tax thresholds.
36. This is an issue for the judiciary because many senior judges are in a position where they have accrued significant private sector pensions prior to taking up judicial office, which means that the pension tax charges would be felt more acutely and by a significant proportion. Moreover, owing to the judiciary’s unique constitutional role, salaried judges are not able to work in private practice after taking up office and they are also appointed on the understanding that they will not return to private practice once they have retired. Their options for supplementing their income are therefore limited. Furthermore, many judges are also in the unusual position of taking a pay cut to join the judiciary. These factors are key to explaining why the judicial pension scheme is a vital part of judicial remuneration and integral to recruitment and retention.
37. Responding to the SSRB’s review in June 2019, the Government introduced a temporary Recruitment and Retention Allowance for certain senior salaried judges who were eligible to join NJPS and made a commitment to develop a pensions-based solution for the whole judiciary, which would address, in the long-term, the recruitment and retention problems identified by the SSRB.
38. In July 2020, the Government published a consultation setting out its plan to introduce a reformed judicial pension scheme that would be in line with the main principles of the 2015 reforms but also retain key elements of the legacy schemes. For this reason, the reformed scheme contains many features of the 2015 schemes: benefits are based on career average earnings rather than final salary; the Normal Pension Age is linked to State Pension Age; and members have an option to commute part of their pension in exchange for a lump sum, instead of being given an automatic lump sum on retirement. Crucially, to address the recruitment and retention issues, the reformed scheme will be tax-unregistered, like the judicial legacy schemes, and have a higher accrual rate compared to the NJPS. The aim, as confirmed by the consultation, is to have this open to all eligible salaried and fee-paid judicial office holders from 1 April 2022, where they can accrue benefits under it.
39. The response to this consultation published by the Ministry of Justice in February 2021 confirmed the intention to implement the reformed scheme in line with the proposals set out in the published consultation document in July 2020.
40. Public service pensions are a devolved matter for Northern Ireland (NI) and are established under separate primary legislation to that in Great Britain. NI scheme provisions are broadly identical to the comparable schemes in Great Britain. Separate consultations were carried out for public service pensions schemes in Northern Ireland. The Department of Finance consulted on the broadly identical policy options to the Treasury and the outcome of their consultation reflected that of the Treasury. The Department for Communities carried out a consultation for the Local Government pension scheme NI. Their approach remains identical to that proposed for the equivalent scheme in Britain.

Judicial Allowances

41. The judicial allowances measure will place the power to determine allowances for judicial office holders on a statutory footing. Allowances have been used to recognise work undertaken outside of a judge’s core work of hearing cases, such as providing leadership or significant support to other judges and courts administrative staff, to address temporary recruitment and retention problems, or to recognise temporary periods of additional responsibility. Allowances are useful as, unlike judicial salaries which are subject to statutory protection, they can be removed when the need for them falls away, for example, a judge stops undertaking leadership responsibilities, and so will be used to make temporary and ad-hoc payments where appropriate.
42. There are inconsistencies within current legislation in that the Lord Chancellor has a statutory power to determine provision of an allowance to some, but not all, judicial office holders for which the Lord Chancellor has the power to determine salary. This measure is therefore intended to resolve such inconsistencies by putting any residual common law powers in this area on a statutory footing and to ensure sufficient flexibility in judicial remuneration in certain specific circumstances, particularly where such remuneration is on a temporary basis.

Judicial Mandatory Retirement Age

43. The judicial mandatory retirement age (MRA) is the upper age at which judicial office holders, including judges, tribunals’ non-legal members, magistrates, and coroners, are required to vacate office. The MRA does not prevent judicial office holders from resigning or retiring earlier should they wish to.
44. The MRA may be seen as an important requirement of judicial office which helps to preserve public confidence in the health and capacity of those appointed, while protecting judicial independence by avoiding the need for individual assessments and the possibility of judicial office holders being removed at the whim of the Executive. It also supports judicial resource planning and promotes the diversity of the judiciary by ensuring a steady flow of new appointments.
45. Although retaining an MRA is important for the above reasons, it has been over 25 years since the MRA was set at 70 for the majority of judicial office holders. Since then, the structure and operation of courts and tribunals have developed and so have the resourcing needs of the judiciary. Meanwhile, the average life expectancy in the UK has increased significantly and a greater number of people are now working for longer.
46. The UK Government consulted in 2020 on proposals to increase the MRA. Following careful consideration of over 1000 responses, the Government decided to raise the MRA to 75. This is intended to help ensure the judiciary can continue to meet the demands of courts and tribunals by retaining valuable judicial expertise for longer and attracting a greater number of potential candidates for judicial office from diverse backgrounds.
47. Unlike judges, there is no provision which allows magistrates to have their appointments extended beyond the current MRA. To further support the resourcing of magistrates’ courts, the Government decided that, as part of the MRA increase, provision is made to allow the reinstatement of those retired magistrates who are younger than 75 and who wish to return to continue sitting, where this is necessary to meet business needs.
48. The Scottish Government, the Welsh Government and the Department of Justice in Northern Ireland conducted separate consultations on similar proposals for those judicial office holders whose MRA is a devolved matter for their legislatures, and they also decided to raise the MRA of those offices to 75. Their consultation response noted the importance of maintaining parity across the United Kingdom to preserve public confidence in the judiciary and ensure equal opportunities for judicial office holders across jurisdictions.

Sitting in retirement

49. Sitting in retirement (SIR) permits a salaried judge to retire from their salaried office, draw their pension in relation to that office, and continue to sit as a fee-paid judge if there is a business need to do so.
50. While salaried judges can apply to sit in retirement, this option was not equally available to fee-paid judges under previous legislation. To remove this differential treatment and provide a policy which applies consistently across salaried and fee-paid offices, the Act provides for a suite of new judicial offices to which both salaried and fee paid office holders in scope can apply on retirement.
51. While it is hoped that, in time, the changes to judicial pension and the higher MRA will lead to improvements in recruitment and retention of judicial office holders that will reduce the business need for judges to sit in retirement, drawing upon retired judicial office holders remains an important flexibility to help the judiciary meet immediate demands where there may be temporary shortages. Extending powers for judges to be appointed to sit in retirement to a wider range of judicial offices, including relevant fee-paid offices, is designed to enhance this flexibility.

UK Asset Resolution (UKAR)

52. The Bradford and Bingley Staff (BBS) Pension Scheme and NRAM Pension Scheme are two public sector pension schemes which respectively pay the pension payments and other benefits of former employees (and their beneficiaries) of Bradford & Bingley Ltd (B&B) and Northern Rock, two banks which were taken into public ownership as a result of the 2007-2008 financial crisis. 
53. The schemes previously resided under B&B and NRAM Limited (NRAM), two companies holding the mortgage and loan assets of B&B and Northern Rock that the Government acquired during the financial crisis. The Government has gradually been returning these assets to the private sector and announced the completion of the final sale of B&B and NRAM and their remaining assets in October 2021. 9 As part of the sale, the liability for the payment of the pensions was novated from B&B and NRAM to the Government-owned holding company UKAR. 10  
54. The Treasury has a statutory obligation to guarantee that the assets in the BBS Pension Scheme are sufficient to meet the pension liabilities. 11 It has also extended this guarantee in relation to the NRAM Pension Scheme through a credit support deed in May 2019. 
55. The Government is now seeking to relieve UKAR of its remaining liabilities (including the BBS and NRAM pension schemes) such that UKAR may be wound down. 
56. In the 2020 Budget, the Treasury announced its intention to "create a new central Government pension scheme for the members of the BBS and NRAM schemes [and to] sell assets held by the NRAM and BBS schemes over 2023-24 and 2024-25, subject to the necessary legislation being brought forward, supportive market conditions and achieving value for money." 12  
57. This Act confers the necessary powers upon the Treasury to implement this policy. It confers powers on the Treasury to create one or more public pension schemes to provide for pensions and benefits to and in respect of the members of BBS and NRAM pension schemes. It also confers powers on the Treasury to transfer the assets and liabilities of the BBS and NRAM schemes to the Government.
58. The Act contains a number of related provisions, including provisions to ensure that affected individuals’ pension benefits are at least as good following the transfer; and provisions to require the surrender of personal data necessary to make the transfer. The Act also confers powers for the transfer to the Treasury of additional pension payments, which are currently paid directly by UKAR to a small number of beneficiaries outside the BBS and NRAM schemes.