Public Service Pensions and Judicial Offices Bill 2021-22

The briefing paper was prepared for the Second Reading debate on 5 January 2022. Details of that debate and the Public Bill Committee which followed on 27 January are covered in the Commons Library briefing paper Public Service Pensions and Judicial Offices Bill: Progress of the Bill.

The Bill

The Public Service Pensions and Judicial Offices [HL] Bill has been through its House of Lords stages and is scheduled to have its second reading in the House of Commons on 5 January 2022. Its aims include “[consolidating and strengthening] a common UK legal framework for pensions across all the main public services” and “[addressing] resourcing challenges facing the judiciary.” It has four parts:

• Part One would remove unlawful discrimination that arose when existing (‘legacy’) public service pension schemes were closed to certain members in 2014 to 2016 and provide for all scheme members to build up benefits in the new schemes from April 2022.
• Part Two would enable the Treasury to establish new public service pension schemes for the members for two existing pension schemes which provide benefits to former staff members of Bradford and Bingley and Northern Rock, two companies taken into public ownership as a result of the 2007-2008 financial crisis.
• Part Three would increase the mandatory retirement age for judges from 70 to 75 and make changes to their allowances.
• Part Four would provide for regulation-making powers, for the Bill to extend toEngland and Wales, Scotland and Northern Ireland, and for the dates from which parts of the Bill come into force.

Part 1 – public service pensions

The remedy would apply to those in service on or before 31 March 2012 and on or after 1 April 2015, including those with a qualifying break in service of less than five years. It would work in different ways for different types of schemes:

• Eligible members of the main public service schemes (for teachers, NHS, civil service, police, firefighters and armed forces), would be returned to the relevant legacy scheme for the period during which the discrimination occurred (i.e., between 1 April 2015 and 1 April 2022 – the ‘remedy period’) but would be given a choice, either shortly benefits come into payment (or as soon as practicable for members already receiving a pension), of whether to receive benefits from the legacy or new scheme for that period. Going forward, the legacy schemes would be closed and, from 1 April 2022, all those in active service would build up benefits in the ‘new’ (2015) schemes.
• For the judiciary, eligible members would be able to make their choice in an ‘options exercise’, to take place soon after the Bill becomes law. Serving members of the judiciary from 1 April 2022 would be transferred to a new scheme to build up benefits from that point on (in this case not the 2015 scheme, but one subject to further reform).
• Because the transitional arrangements worked differently in the Local Government Pension Scheme (LGPS), the remedy would also work differently. Eligible younger scheme members would be given the same treatment their older colleagues were given when their scheme was reformed. From 1 April 2022, all members in active service would build up benefits on the basis of new scheme rules.

Some issues debated in the House of Lords

Why is so much detail left to regulations?

Significant detail regarding the remedy is left to regulations and Directions. At Committee Stage on 11 October 2021, for example, Peers questioned how the Government intended to use these powers in some areas and how it would be accountable to Parliament.

In his speech on Second Reading on 7 September 2021, the Minister, Viscount Younger of Leckie, explained that the Bill provided an overarching framework. Given the complexity of the pension schemes, which were tailored to fit each workforce’s individual requirements, the detail needed to be in regulations to avoid unintended consequences.

What support would scheme members get to make their decision?

The Government estimates that around 3 million people are in scope of the remedy and, of those, approximately 2 million will also be in scope of the changes to pension provision from 1 April 2022 onwards.

In Committee stage debate on 11 October 2021, Peers noted the complexity of the legislation and the decisions some scheme members would have to make. They raised the importance of them having “accessible, timely, easy-to-understand and easy-to-access information” to help them to understand what has happened and what it means for them. The Minister recognised this and pointed to clause 29, which would require schemes to provide regular statements to members.

Implementing the remedy would also be a significant administrative challenge for schemes. In recognition of this, the Government have given them until October 2023 to fully deliver the retrospective changes (639KB, PDF) needed for the remedy period, including resolving the cases of members who have retired or died since April 2015. The remedy period would still end on 31 March 2022 and all members would build up benefits in the reformed schemes from that date. This is provided for in clause 119.

How would scheme members build up pension rights from April 2022?

Peers raised the effect that having to transfer to the 2015 scheme in April 2022, will have on some legacy members (as proposed in clause 80).

At Committee stage on 11 October 2021, Labour Peer, Lord Davies of Brixton, said there was concern among some in the police service that the Government’s “binding commitment” over the nature of the scheme they belonged to, had been broken. For some members of the police and firefighters’ schemes, there was a so-called ‘pension trap’, meaning that a member making financial decisions based on one pension scheme could find the value of their benefits from the alternative scheme reduced as a result.

Responding for the Government, Viscount Younger of Leckie said he understood the concern but that the Government should be able to make changes to the rules under which public servants build up pension rights in future and that the 2015 schemes were appropriate for this. He rejected Lord Davies’ suggestion that the Government should compensate members affected by the ‘pensions trap’, on the basis that this risked introducing more discrimination as other members would not get this (c351).

In a consultation published on 9 November 2021, the Home Office said further work was needed to “understand the full implications of any potential change in approach to help mitigate this issue” (para 3.6).

Who will pay the costs for the remedy?

Treasury officials told the Public Accounts Committee in April 2021 that ultimately, the costs of the remedy would be “borne by members, but the cost control mechanism will manage that cost” (Q72).54F  

The cost control mechanism referenced was introduced under section 12 of the Public Service Pensions Act 2013 to protect the taxpayer against unexpected increases in pension costs and the value of member benefits. It’s designed to operate symmetrically, so that if valuations showed that costs had risen or fallen by more than two percent above or below a target rate, steps would have to be taken to bring them back to target. It applies to ‘member costs’, such as increases in life expectancy or salaries.

The Government said on 6 September 2018 that initial results of the first post-reform valuations indicated that members should get “improved pension benefits for employment over the period April 2019 to March 2023.” In January 2019, the Government put this on hold due to uncertainty about the value of public service pensions following the McCloud judgment. In July 2020, it said work on the 2016 valuations could proceed and that the cost of the remedy would count as a ‘member cost’.

In February 2021, the Government said that, in light of its concerns that the cost control mechanism was not working as intended, it had decided it would not be appropriate to reduce benefits in schemes where there had been a breach of the cost ceiling, due to the inclusion of the remedy. This is provided for in clause 86 of the Bill. However, classing the remedy as a member cost means that members are less likely to see the benefit improvements or contribution rate reductions originally expected, based on initial results of the 2016 valuations.

Opposition Peers raised concerns about the scope for parliamentary scrutiny over the decision to class the remedy as a member cost. In a debate on 29 November 2021, the Minister said the Government had “received pre-action protocol letters on behalf of some trade unions which have indicated that they may issue judicial review proceedings.

Mandatory retirement age for judges

In debate on the mandatory retirement age (MRA) for judges, there was some Opposition and Crossbench resistance to raising this up to 75.

Amendments were debated at both Committee and Report Stage in the Lords to constrain the MRA to 72, along the lines called for by senior judiciary. One such Report Stage amendment was defeated on a division.