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Judicial Pensions Regulations 2022

Volume 820: debated on Monday 4 April 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Judicial Pensions Regulations 2022.

Relevant document: 35th Report from the Secondary Legislation Scrutiny Committee

My Lords, this statutory instrument establishes the judicial pension scheme 2022 and forms part of the Government’s commitment to delivering a long-term solution to attract and retain high-calibre judges. In turn, this guarantees the proper functioning of our justice system. The international reputation of our legal system is something that I think we are all proud of and is necessarily sustained by the continued recruitment of the finest candidates to judicial office.

The recent Public Service Pensions and Judicial Offices Act closed all existing judicial pension arrangements to future accrual. The purpose of this SI, therefore, is to establish regulations for the new judicial pension scheme 2022—a scheme that is both fair to the taxpayer and attractive to the judiciary. It will be the only pension scheme open to judges for accrual for service from 1 April this year; I will come back a little later to the slight backdating to the end of last week.

The judiciary has an essential role in upholding the rule of law. Every day, judges up and down the country take decisions on important issues that have a real impact on people’s lives, from delivering justice for victims through to deciding care arrangements for vulnerable children. The exceptional work of judges and others who work in the justice system to ensure that our courts and tribunals kept on functioning despite the ravages of the pandemic served as a reminder of the pivotal role that they play in the administration of justice.

However, over the last number of years, we have experienced unprecedented recruitment and retention issues across the judiciary. A lack of judges has significant and damaging operational impacts. Cases take longer, with serious consequences across all jurisdictions. Delays in the family courts and county courts have a significant impact on children and other vulnerable people, who may have to rely on a judge being available for emergency orders and injunctions.

Of course, the importance and influence of our judges reach beyond our shores. Their reputation for integrity and impartiality plays an important role in attracting international business to the UK, contributing to a legal services industry worth around £29 billion a year to our economy. Quite simply, if we do not have enough judges, that undermines our ability to compete internationally for legal services, which are important to our economy.

A two-year comprehensive review by the Senior Salaries Review Body linked the root cause of the recruitment and retention problems in the judiciary to the 2015 pension reforms. In particular, as the 2015 scheme was tax registered, judges were caught by annual and lifetime tax limits. The Government thereafter made a commitment to introduce a long-term solution through pension scheme changes for the entire judiciary.

It is fair to say that the changes made in 2015 were consistent with those made to other public sector roles, but they did not sufficiently take into account the judiciary’s constitutional role and, importantly, its unique career path. Judges, especially full-time ones, often become judges towards the end of their careers; the value of their pensions is therefore of particular significance. They have many years of training, and often successful private practice, behind them. Many will have taken a pay cut to join the Bench but will also have set up other pension arrangements.

It is against that background that it is important that the pension scheme can attract and retain the highest calibre candidates to judicial office. For this reason, the scheme will be tax unregistered, meaning that the benefits accrued will not be subject to annual or lifetime tax allowances. That returns the judiciary to the position before the 2015 reforms. Several of the features of the scheme, such as the member contribution rate, flow from that tax-unregistered status. There will also be no cap on the number of years for which a judge can accrue benefits, and there is an option for judges to give up part of their pension for a lump-sum payment.

However, at the same time it is important that the scheme is fair to the taxpayer. Therefore, it has been designed to be consistent, so far as possible, with the core principles of the wider 2015 public service pension reforms. Those reforms were based on the Independent Public Service Pensions Commission’s review of public service pension provision, chaired by the noble Lord, Lord Hutton of Furness. In line with the recommendations of that commission, the judicial pension scheme 2022 will have its benefits calculated on career average rather than final salary, will have a normal pension age linked to the state pension age, and will have a cost control mechanism.

We have consulted widely with the judiciary throughout the development of the scheme design. In particular, they were invited to provide comments through two formal consultations. The first, in summer 2020, looked at the overall scheme design; the second, in summer 2021, included a draft copy of the regulations.

In consultations, we proposed a uniform contribution rate for the scheme. Although pension benefits are improved, combining the uniform rate with the change to a tax-unregistered status means that some judges might see a reduction in their take-home pay when they transition to the new scheme. We have therefore introduced a temporary option within the regulations. That allows eligible judicial officeholders to reduce their contributions to the scheme for three years in return for a corresponding reduction in the accrual rate.

However, it is fair to say that responses received to the consultations were positive, provided support for the scheme and reaffirmed our view that it will help to achieve our main objective of addressing the serious recruitment and retention issues identified by the Senior Salaries Review Body, while, as I said, being both fair to the taxpayer and affordable and sustainable in the long term.

The SI therefore establishes a pension scheme for the judiciary which is sufficiently attractive to recruit and retain high-calibre candidates to the Bench, while upholding the core principles of the 2015 public service pension reforms, thus ensuring value for the taxpayer. For those reasons, I commend the SI to the Committee.

My Lords, I welcome the regulations: I am in favour of good pension schemes for our public servants, and this certainly counts as a good scheme. I thank the Minister for his clear and detailed explanation of the regulations and the reasons for the specific characteristics of the proposals compared with other public sector pension schemes.

As has been explained, the fact that the scheme is good is because of the particular characteristics of the workforce, as it were, and a strong case has been made. I would just express a word of caution here. It is difficult to constrain unique circumstances. There are always other circumstances that might be argued to be similar. There will obviously be room for debate about how similar the circumstances need to be to trigger the special circumstances. A strong case has been made for this being a good scheme, but similar problems of recruitment and retention, at least potentially, might arise—for example, with persuading senior medical surgeons to remain in the workforce. There is a clear suggestion that surgeons are leaving because of the impact of the normal rules on pensions. I have heard the same problem raised in relation to senior figures in the military. In some way I welcome the fact that it is possible to argue that other people are entitled to similar advantages.

The beneficial deal that the judges are receiving here does not consist just of the scale of the benefits, although they are undoubtedly good. There is also this special issue of the tax treatment; it is a slightly separate issue. The Minister needs to bear in mind that his colleague the Chancellor of the Exchequer has frozen the limits on the lifetime allowance and the annual allowance for prolonged periods, and this is having an increasing impact on people’s pensions. It is now reaching well beyond those who might be characterised as high earners. It is reaching down and becoming a problem, not for people with average earnings but certainly for those well below the rate at which the upper-tier tax rate comes into effect.

There is an issue here that the Government will need to confront. I understand that this is not in the Minister’s remit, but I am just flagging it up. It cannot be said that this problem applies only to the judiciary. It is a general issue and will become increasingly difficult for the workforce, given that the limits are currently being frozen for prolonged periods. One suspects that what the Chancellor has in mind here is increasing public revenues, but there is inevitably a cost to be paid in its impact on people’s pay.

We touched on these issues when the Bill—now Act—was going through, but I think our focus was on other issues; I mentioned these points in passing. Given the regulations, I emphasise that I do not think these issues are quite as self-contained as the Government suggest.

The temporary reduction is an interesting development. It is very scheme specific, but it is an issue raised by a number of the public sector schemes. Given that we have now passed the deadline, do we have any idea at this stage how many members have opted for the lower-rate contributions? The difference in what they are being asked to pay is not all that substantial, but one understands the sensitivity of take-home pay, even for judges. It would be interesting to know whether any figures are available. We are now into the new scheme, so presumably people must by now have opted for the lower or the higher rate, and it would be interesting to know what impact that option has had.

As a final point, I just wish that the terminology was slightly different. This has been referred to—I raised this point when we were discussing what is now the Act—but I struggle with the concept of tax being unregistered. To me, a “tax unregistered” scheme is a scheme where people and their employers are not entitled to any tax relief at all. However, in this case, they clearly are entitled to tax relief so the term “tax unregistered” does not make a lot of sense in practice. Given more time, a more judicious term—I am not making a pun—could have been used for these circumstances.

My Lords, I do not know whether the noble Lord has come to the end of his remarks; it appears that he has. There is a Division in the Chamber. The Committee will adjourn for as long as it takes for noble Lords to vote—perhaps not less than five minutes and not more than 10—but we will go with the flow.

Sitting suspended for a Division in the House.

My Lords, on one level, I do not object to this legislation. In 2015, I think, the Finance Act made yet another round of changes to the various pension rules in our usual, chaotic way because we do not have properly consolidated legislation. Nobody recognised the unintended consequences that would flow from that for a wide range of taxpayers.

I am entirely with the noble Lord, Lord Davies of Brixton, on this: it was not just judges who found themselves in an unacceptable position that made it difficult to recruit and retain. We have had the same thing with senior medics, as he said, and senior people in the military. After ignoring the problem for months—people were constantly trying to raise the issue with them, for perhaps more than a year—the Government finally recognised that something had to be done. They have made different changes in different situations. I suspect that the temporary fixes that were put in place for the medics, military and senior civil servants will now run into serious trouble, given the inflationary pressures that will push up wages and the freezing of various thresholds.

I must say that judges clearly have the ear of those in power in a way that other professions do not. They have done an absolutely brilliant job of managing to carve out a solution that protects them entirely from the impact of those thresholds, which essentially meant that every additional penny people earned required them to pay a huge number of pounds in additional tax—talk about badly drafted legislation that was not thought through. I was particularly involved with some members of the military. We now have almost no three-star colonels as a result of people leaving that profession, and we had so many consultants, even during Covid, going out and working over weekends but knowing that it would have an awful impact on their take-home pay because of tax consequences which were probably never originally intended. I do not have a problem with that, but here is my problem.

The Government say that they have put in place the new scheme to deal with the threshold problem, and that it will cost an initial £20 million a year. That is not that much; what I object to are the other measures that the Government have taken to offset the full cost of the scheme. One change which flows from it is to raise the retirement age of judges from 70 to 75. I am afraid I was involved only in the early stages of the Bill but was then trying to juggle too much legislation and relieved of duties on it.

The Minister said that we must have a scheme that encourages recruiting and retaining the highest calibre of judges. Unfortunately, over many years—this country is like many others on this—we apparently looked at those who were women or people of colour and decided that they did not meet that high calibre, on the grounds of either their gender or race. We have embedded discrimination that has affected the shape of our whole legal system. In this day and age, we find that unacceptable and are attempting to change it fundamentally but it has been a very slow process.

The Government produced a judicial diversity statistics report in 2021. The higher courts in this country in no way reflect our population among their judges—not by a wide margin. That flows out in all kinds of ways. When judges are appointed, an eligible pool is first identified and then there are recommendations for appointment. I read from the Government’s report:

“From the eligible pool, recommendation rates for Asian, Black and Other ethnic minorities candidate groups were an estimated 36%”—

that is for Asians—

“lower respectively compared to White candidates.”

For black candidates, they were 73% lower respectively compared to white candidates and for “Other ethnic”, which I think includes mixed-race people, 44% lower. The report noted:

“All of these estimates were statistically significant.”

It goes on:

“The proportion of Asian and Mixed ethnicity individuals in the judiciary has increased since 2014, while the proportion of Black individuals has stayed the same in that time.”

The number is shocking:

“As at 1 April 2021, 5% of judges were from Asian backgrounds, 1% were from Black backgrounds, 2% were from Mixed ethnic backgrounds and 1% were from Other … The proportion of ethnic minorities is lower for senior court appointments (4% for High Court and above) compared to others”—

that is for the entire cluster. The Minister will know that I could go on and on with similar statistics showing the lack of diversity in our more senior courts.

When the core legislation that sits behind this SI first came to the House, the noble and learned Lord, Lord Judge, gave an estimate that the Government have not challenged: that by extending the retirement age from 70 to 75, producing sets of judges on our courts who reflect the population was put back by 13 years. It is huge, and the report on diversity helps us understand why. It says:

“It is worth bearing in mind that changes in representation will always be gradual due to the relatively low numbers of joiners to and leavers from the judiciary each year”.

The number of leavers from, and therefore joiners to, has been dramatically slowed by that increase in the retirement age.

I understand the concern of many people who become judges. They step away from very lucrative practices and cannot take side business to enhance their income. They are concerned about the impact on their pensions for the rest of their lives, and therefore they are keen to keep working longer. I notice that we have Members of this House, often with friends whose calibre they admire and whose skills they regard very highly—I have no question about that calibre and those skills—who are very supportive of allowing people to extend their working life from 70 to 75. But no one has been able to give me any satisfactory answer on the issue of diversity and courts where the judges reflect the make-up of our population.

I know there are various programmes to get more and more people from different backgrounds into the legal profession, but that is at the beginning of the pipeline. At the end of the pipeline, in effect, a major block has now been put on that progress. The consequence of trying to save them money has driven the impact of this statutory instrument, so I would like to know why the Government did not simply decide to bear the additional cost—I am not sure what that number would have been, but I doubt it is huge—and allow diversity to come into our courts in the way it would have with the retirement age of 70. We need to understand how the Government set their priorities and how much they thought was too much to spend on avoiding 13 years of delay in getting senior courts that reflect our nation, which I think is fundamental in any democracy. There will be a number, and I am sure the Minister is able to give it to us.

My Lords, I thank the Minister for introducing this statutory instrument. The parent Act to it, if I can call it that, is the Public Service Pensions and Judicial Offices Act 2022 and the Explanatory Memorandum states:

“These regulations establish the Judicial Pension Scheme 2022 … a scheme for the payment of pensions and other benefits to, or in respect of, eligible members of the judiciary … The JPS 2022 will be the only judicial pension scheme in which eligible judicial office holders can accrue a pension for service from 1 April 2022, on which date all other judicial pension schemes will be closed to future accrual”.

The scheme is made by the statutory instrument which we are dealing with today.

In his introduction, the Minister rightly said that the objective is to attract and retain excellent judges and to diversify the cohort of judges who apply to the court. The noble Baroness, Lady Kramer, majored on that issue and I will come back to it later in my comments. It is right that the noble Lord pointed out the substantial contribution that the legal services industry makes to the national Exchequer. He mentioned the figure of £29 billion a year and it is clearly right that we should support that. He also gave examples of judges being caught by lifetime tax limits on the amount that they can put into their pension schemes and reiterated the point about getting the best people to apply.

My noble friend Lord Davies made a substantial contribution to the Public Service Pensions and Judicial Offices Bill when we dealt with it relatively recently, for which I was personally grateful. He made a very fair point: it is difficult to constrain unique circumstances. He used those exact words, and it was an interesting challenge for the Minister. I agree that judges are special people in the way that we run our society, but there are other special people as well, as both noble Lords who spoke before me have said. Everybody, including humble citizens who just have an ordinary pension scheme, is suffering from the freezing of the overall pension pot and of the amount of money that one can put in regularly.

Turning to the contribution of the noble Baroness, Lady Kramer, perhaps I might give a brief anecdote. One of my magistrate colleagues has recently been appointed as a judge. His career profile is interesting: he qualified as a barrister and then, when he was in his early 20s, decided to become an airline pilot. He worked as a pilot for nearly 20 years, at the same time as sitting as a criminal and family magistrate. He has just resigned from the magistracy and is sitting as a criminal recorder—in south Wales, as it happens. That is a good example of widening the cohort, which is to be welcomed. But the noble Baroness raised a much more substantial problem about the lack of diversity among judges, particularly senior judges, and gave some stark statistics of which I suspect the Minister is well aware.

The noble Baroness also made the point about the delaying effect of the extension of the retirement age from 70 to 75. I know that she made that point at Second Reading of the Public Service Pensions and Judicial Offices Bill, because I was there. I was very sorry that she could not follow that up in later stages of the Bill because I moved an amendment to make the retirement age 72 rather than 75, partly to mitigate the effects that she talked about. Unfortunately, that amendment was not won. Nevertheless, the substantive point remains: there is a very long way to go to diversify the judiciary, particularly the senior judiciary. I will be interested to hear the Minister’s answer as I know that he is very much aware of that issue.

However, we on the Opposition Benches support this statutory instrument. I suspect that this is not the last we will hear of it, as it seems to be an iterative process to amend public sector pensions and judicial pensions, but we support the instrument.

My Lords, I am grateful to all those who have contributed this afternoon. I will try to respond to the points that have been made because I apprehend that there was general support for the overall aims of the scheme. Therefore, I will not reiterate the points I made in opening.

One point I said I was going to come back to, but then remembered I had not, was on timing. I want to explain why we are using the “made affirmative” procedure. That is simply because it was considered—with hindsight, correctly—that it might be the case that we could not get this before the Committee until after 1 April. That would leave two alternatives. The first would be to have a gap in the scheme. Even I, who is pretty untutored in pensions—I am conscious that we have the noble Lord, Lord Davies of Brixton, here—know that that would not be a good thing. Alternatively, we could try to start the new scheme not on 1 April, but we were told that would not be a good thing either and would lead to complexity. That is why we are using this procedure. I therefore hope that the Committee is aware of that.

I will respond to the substantive points. The central point that the noble Lord, Lord Davies of Brixton, made was that judges might be in a special circumstance but it is not just them—other people can be as well. Indeed, it is fair to say that the noble Baroness, Lady Kramer, and the noble Lord, Lord Ponsonby of Shulbrede, made a similar point. As a Justice Minister, I should underline that judges are in a special position when it comes to their constitutional role, but that is not the basis on which the special treatment, so to speak, applies here. It certainly has nothing to do with denigrating the work of any other public servants, whether they be medical professionals, in the military or the police, nurses or anybody else.

The issue with judges is this: unlike in many other countries, we do not have a career judiciary. We have a system where people generally practise as lawyers—sometimes as aircraft pilots as well—and then become a judge. That means two things: first, that people become judges later in their career; and, secondly, that they are likely to have built up other pension provision because, when they were in their 20s, 30s or perhaps 40s, they did not know and certainly could not guarantee that they were going to become a judge.

The proof of the pudding was in the eating. In 2015, when we moved away from tax unregistered—I will call it that but I hear where the noble Lord, Lord Davies, was coming from—the feedback was that that was a real disincentive to recruitment and retention. Indeed, we had a number of competitions where we were not filling as many judicial posts as we wanted. Therefore, although I certainly do not want this to be seen as in any way denigrating anybody else, whether in the medical sector or the military, judges have a particular background before they become judges that sets them apart from other public sector workers.

The noble Lord, Lord Davies, also made a point about the Chancellor freezing lifetime limits. He then offered me a way out by saying that he noted this issue is not within my particular remit. I gratefully grasp that rope. I hear the point that is being made but this is obviously not the place to debate pensions policy generally. I am sure the noble Lord will pick this up with my Treasury colleagues in due course.

The noble Lord asked a specific question as to the number who have taken up the option I mentioned. The position is that the option is open until 30 June so I do not have a figure but, in any event, it would not be meaningful. I do not know whether that figure will be made public. I respectfully suggest that the noble Lord waits until after 30 June and then finds me, either formally or informally, and I will see what I can do.

The noble Baroness, Lady Kramer, made a few points. Obviously, she referred to the point about other professionals; I hope that I have dealt with that already.

I think the noble Baroness made two other linked points in some detail. The first was the retirement age changing from 70 to 75, and the second was diversity. She is certainly right that diversity remains an issue in the judiciary, particularly the higher judiciary. I would say, however, that diversity remains an issue in the legal profession generally. It is quite good at the lower end, among people going in, but there is a real problem with diversity among senior solicitors and senior barristers. That is not an excuse, but it is relevant to judicial diversity. If that is the pool you are fishing in for the more senior roles, it necessarily remains an un-diverse role.

Unfortunately, I handed my notes to Hansard, but I think that if the Minister looks at the diversity report he will discover that yes, there are fewer people in the pool but those who are recommended from within the pool have a relatively low appointment rate—in fact, dramatically lower—than white male candidates, so it is not just a pool problem but what happens as people are selected, or put themselves forward, from that pool.

I am very happy to accept that. I was not putting forward the point I just made as the only reason; there are a number of factors here. I know that the department and the Judicial Appointments Commission have been encouraging people to apply. Too few people apply, and of those who apply, the acceptance rate is also lower.

I do not want to throw statistics around, but there has been some improvement. For example, women now make up 50% of tribunal judges and, since 2014, the proportion of women judges in all courts has improved by nine percentage points to 34%. When it comes to minority ethnic background, however, there is still a long way to go. Black, Asian and minority ethnic judges are 9% of court judges. That is a three percentage point increase since 2014 but, as the noble Baroness pointed out, one problem in this and other areas of lumping together black, Asian and other minority ethnic is that particular problems for particular groups within that cohort can be overlooked. I heard what the noble Baroness said when she drilled down into the statistics. We are very conscious of that; there is more to be done, but it is an issue to which we are very alive.

However, I say respectfully that to link that too closely to the increase in retirement age is unwarranted. There was quite a lot of debate on this when the Bill went through. I do not have all the statistics at my fingertips, but I recall that the difference in diversity impact between, for example, 72 and 75 was, we estimated, pretty marginal. It is not really an either/or: it is not a question of saying that we can either have better diversity or increase the retirement age. The increase in the retirement age from 70 to 75 is expected to retain about 400 judges and tribunal members, in addition to about 2,000 magistrates, annually. That is very significant because, as I have said in other fora, the real issue we face at the moment, certainly when it comes to the criminal justice system, is judicial capacity—a lack of judges. We are very concerned to make sure that we have enough judges, and increasing the retirement age from 70 to 75 will, we hope, have a very significant impact in that regard.

The noble Lord, Lord Ponsonby of Shulbrede, also made the point that judges are a special case and reiterated the points on diversity I have just addressed. I am conscious that he put down that halfway house amendment suggesting 72. One issue that has an effect on this House—the noble Baroness, Lady Kramer, mentioned that we are fortunate to have a number of judges here—is that if we are to continue the position of not appointing sitting judges here, increasing the age to 75 will have an effect on the judicial input of the House. That is perhaps something we need to think about as well. As a Minister, I find their input extremely useful—I did not say helpful—informative and interesting.

I hope I have responded to the main points raised. I am conscious that each of them could be a debate in themselves, so I hope it is not taken amiss if I do not deal with them in any more detail. For the reasons I have set out, I commend this instrument to the Committee.

Motion agreed.

Committee adjourned at 5.56 pm.