Public Service Pensions and Judicial Offices Bill [Lords]

Simon Clarke Excerpts

2nd reading
Wednesday 5th January 2022 Commons Chamber

[The Chief Secretary to the Treasury (Mr Simon Clarke)]

I beg to move, That the Bill be now read a Second time.

Our public servants do so much to support this country, and over the past 22 months their efforts have been more vital than ever before. NHS employees have worked long hours on the frontline of the fight against the covid pandemic, in hospitals and in the community; teachers have helped their classes in the most challenging of circumstances; and our police, firefighters and armed forces have kept people safe and solved new, unforeseen problems throughout these difficult months. Just as public servants have supported the country during the coronavirus crisis, so it is only right that in turn the Government should support them, which is why the Government have introduced this Bill to make sure that public servants of all ages receive guaranteed rights in their retirement that are among the best available, on a fair and equal basis.

In addition, the Bill includes measures to help to address the resourcing challenges that face our judiciary, to ensure that it can meet the demands of both the present day and the future. The Bill also lays the foundations for new public service pension schemes for beneficiaries of the existing Bradford & Bingley and NRAM—formerly Northern Rock—pension schemes. Currently, those pensions reside under UK Asset Resolution, the holding company for those businesses.

Let me turn to the Bill’s details. I shall start with how it creates fairer, more equitable and more sustainable public service pensions. As Members will recall, in 2010 the coalition Government established the Independent Public Service Pensions Commission, chaired by Lord Hutton of Furness. The commission carried out a deep, structural review of public service pensions. Following the review, the Government accepted the commission’s recommendations as the basis of discussions with members and their representatives, and ultimately introduced a number of major changes. Pension benefits would be based no longer on an individual’s final salary but, instead, on career average revalued earnings. Member contribution rates were increased and the normal pension age was linked to the state pension age for all schemes, except those for the police, firefighters and the armed forces. The changes were fairer for low earners because they resulted in a more generous pension for many. In addition, the reforms were estimated to save taxpayers £400 billion over the next 60 years.

Before the implementation of the reforms in 2015, the Government agreed, after trade union negotiations, to allow those closest to retirement to remain in the legacy schemes. Members within 10 years of retirement in most public service pensions were allowed to remain in the final salary scheme instead of being moved to the career average scheme. This was known as transitional protection. However, the courts found in 2018 that this transitional protection discriminated unlawfully against younger public service scheme members. Although the legal challenge related only to the judicial and firefighter schemes, the Government accepted the need to remedy the position across all public service schemes. A thorough programme of work therefore followed, to identify and implement a robust solution.

Following public consultations in 2020 and Government responses last year, the Bill creates the framework to bring the remedy into effect. For the remedy period—that is, from when the reforms were implemented on 1 April 2015 to 31 March 2022—all eligible members will be given a choice between the legacy and reformed scheme benefits. Some members, especially lower earners, may be better off in the reformed schemes, so it is important that individuals get to choose which benefits they want to receive. For most members, that choice will be made at retirement, when it will be clearer which scheme is best for them. That is known as a deferred choice. There are three exceptions to this. The first involves members who have already retired. They will be given a choice once the necessary legislation and operational implementation are in place. The second involves the judicial schemes, where affected members will make their decisions in an options exercise to be held once the necessary legislative and data requirements are in place. This process is in line with the approach favoured by respondents to the judicial consultation. The third involves the local government pension scheme, which requires bespoke measures to reflect the unique features of that scheme. I intend to table amendments ahead of Committee stage to ensure that members of the local government pension scheme are also provided with a robust remedy. In short, these measures will ensure that all members of a public service pension scheme are treated fairly, whatever their age.

[Richard Graham (Gloucester) (Con)]

The Minister will know that some of us have received correspondence from constituents suggesting, probably on the advice of their unions, that they will lose up to £500 a year when pensioned as a result of these changes. Can he confirm whether this is true? If it is not, what method can we deploy to reassure our constituents accordingly?

[Mr Clarke]

I thank my hon. Friend for his question; it is a good one. It is important to provide reassurance on this point. The McCloud remedy aims to ensure that where pension members are offered a different benefit to remedy the discrimination they have faced, they will be returned to the same financial position that they would have been in had they always been entitled to the benefits that they end up choosing. That reassurance should be clear. For the majority of individuals affected, there will be no change to the tax position. It is important to get on record that there will be no change for the vast majority, and that the Government will ensure that all the appropriate guidance is provided in good time so that people can make an informed choice and not worry about incurring any losses.

As well as giving our public servants fair treatment for the remedy period, the Bill will ensure that remains the case into the future. From 1 April this year, all the legacy schemes will be closed to future accrual. All eligible members will be placed in the 2015 reformed schemes or, in the case of the judiciary, moved to a new scheme. This guarantees that members within each scheme will be put on an equal footing. It also underlines the Government’s commitment to the 2015 reforms and the principles that underpin them. Those principles are greater fairness between lower and higher earners, fairness for the taxpayer, future sustainability and the affordability of public service pensions as a whole.

The Independent Public Service Pensions Commission also recommended that the new 2015 public service pension schemes should include a cost ceiling to protect the taxpayer from unforeseen cost increases. However, the Government have chosen to go a step further in establishing a symmetrical cost control mechanism. This will not only protect the taxpayer from unforeseen increases in pension scheme costs but protect the value of pension schemes for members when costs fall.

On how the remedy in the Bill will interact with the cost control mechanism, it will give members a choice between two sets of benefits and allow them to choose which will be better for them. The result is an increase in the value of schemes to members, and, as is usual, this is managed through the cost control mechanism. Crucially, however, to ensure that no members’ benefits are cut as a result, the Bill includes a measure to waive any result from the 2016 valuations that would otherwise have led to benefit reductions. That goes to the point made by my hon. Friend the Member for Gloucester (Richard Graham). In addition, the Government have committed to honour any benefit increases that are due.

Hon. Members will be aware that, in the light of concerns that the cost control mechanism was not operating as originally intended, the Government Actuary was asked to conduct an independent review of this particular element. Following that review, and a public consultation last summer, the Government confirmed that three changes would be made to the mechanism. All three changes are recommendations from the Government Actuary.

The first change is to implement a reformed scheme only design. This means that the cost of legacy schemes will no longer be included in the mechanism. The second is to widen the margin of the cost corridor, which triggers a correction, from 2% to 3% of pensionable pay. The third change is to introduce what is called a symmetrical economic check. This economic check will ensure that any breach of the mechanism is implemented only if it would still have occurred had the impact of changes to long-term economic assumptions been considered. These reforms will make the mechanism more stable and ensure that it operates more in line with its objectives of protecting the taxpayer and providing stability and certainty on member benefits and contribution rates.

I therefore wish to notify the House of my intention to table amendments before the Committee stage, to set the framework for implementing a reformed scheme only design and the economic check. The wider 3% corridor will be implemented through secondary legislation in due course. This approach will ensure that the reforms are in place in time for the next scheme valuations. That is important to ensure that the mechanism is operating more in line with its objectives to protect both taxpayers and members the next time it is tested.

As I have explained, the Bill builds on the existing legislative framework for all public service pension schemes. Each scheme is complex, because each one is tailored to fit each workforce’s individual requirements. The Government intend the Bill to reflect those differences, many of which are found in the detail of scheme regulations. Additional detail will therefore come before Parliament in the form of statutory instruments for further scrutiny. To demonstrate the approach to secondary legislation, policy statements have been deposited in the Library of the House for further scrutiny.

Let me now turn to the next element in the Bill, the package of reforms to help to address the resourcing challenges facing the judiciary. Our justice system is world renowned for its excellence, objectivity and impartiality. That is due in no small part to the expertise of our court and tribunal judges, our coroners and our magistrates. However, as the demands on our courts and tribunals have changed, so too has the need to recruit and retain judicial office holders. While we have recruited about 1,000 judicial office holders a year since 2018, we have not been able to attract the full number needed across all courts and tribunals, which has inevitably put pressure on the system. Raising the mandatory retirement age to 75 will, our modelling suggests, retain about 400 judges and 2,000 magistrates per year at a time when we face challenges in resourcing and recruitment.

It is vital that we continue to attract and retain high-calibre judges. The Bill therefore lays the foundation of a new, reformed pension scheme for judges, increases the mandatory retirement age of judicial office holders to 75, and extends the potential for sitting in retirement to the fee-paid as well as the salaried judiciary. It puts judicial allowances on a firmer legal footing, including those for reserved and excepted posts in Scotland and Northern Ireland. I assure the House that the UK Government will engage with the respective devolved Administrations before the introduction of such allowances.

Taken together, these measures will ensure that a judicial career is more attractive, that more of our experienced judicial office holders are retained for longer, and that additional flexibilities are offered. It is vital that we enable our world-class judiciary to meet the demands of today and tomorrow.

[Sir Robert Neill (Bromley and Chislehurst) (Con)]

I entirely support what the Minister says about judicial pensions reform, but, since he wears another hat in his capacity as Chief Secretary to the Treasury, may I raise a further issue that is sometimes an impediment to recruitment, namely the operation of the lifetime cap on pensions earnings? In particular, many who have earned well at the Bar and who might otherwise seek appointment to the High Court bench still encounter a disincentive because of the operation of the overall lifetime cap. At one point a carve-out was arranged to reflect that. Although this does not feature in the Bill, may I ask the Minister to take it away and perhaps speak to the Chancellor about it? It is the final bit of the jigsaw that could be sensibly introduced to encourage the very best people to seek appointment to the bench.

[Mr Clarke]

As Chair of the Justice Committee, my hon. Friend brings a huge amount of expertise to bear on this issue. I can make an absolute commitment that we will look at this, and I will always discuss plausible options to ensure that the judicial pension scheme supports recruitment rather than being in any way an impediment to it. That is very important, and it underpins our wider work on the new scheme for the judiciary. It will move from being tax-registered to being tax-unregistered, and a variety of consequential benefits will arise from that.

[Richard Graham]

If this were to be reviewed, it would be worth noting that a very similar issue applies to doctors, many of whom are inhibited from returning to work—following the appeal from the Health Secretary—by precisely the same lack of flexibility on the pensions and earnings issue.

--- Later in debate ---

[Mr Clarke]

I recognise my hon. Friend’s considerable expertise on this issue. I thank him for making that point, which is well worth our taking away. I will certainly commit myself to returning to him following any further discussions if that would be helpful.

Let me finally deal with the measures to establish new public pension schemes for the beneficiaries of the existing Bradford & Bingley and NRAM pension schemes. These pensions currently reside under UK Asset Resolution, the company that holds the Government’s remaining interests in Bradford & Bingley and Northern Rock. This is an important step in the Government’s careful long-term management of the financial sector assets acquired as a result of the financial crisis. I stress that all members, some of whom have worked for these organisations for around 30 years, will be protected. Their benefits will be at least as good as they are now under the new schemes and these measures will provide a secure, long-term home for members’ pensions.

My officials have worked closely and collaboratively with the devolved Administrations throughout the passage of the Bill. I am pleased to note that the Northern Ireland Executive have passed a legislative consent motion on the Bill and we are in discussions about a supplementary motion for the amendments that I have announced today. The Welsh Senedd is in the process of considering a motion and the Scottish Government are considering bringing a motion forward. I am grateful for their continued engagement on this issue.

Our public servants are the bedrock of our society. It is right that we reward them for what they do in a way that is fair, affordable and sustainable over the long term. The Bill’s measures seek to achieve all this while helping to address the specific recruitment and retention issues facing the judiciary. For those reasons, I commend the Bill to the House.