Govt to compensate judges for additional McCloud tax bills

Multiple departments including the Department of Health and Social Care, the Home Office, the Ministry of Justice and the Ministry of Defence launched consultations into the implementation of phase one in December.

Phase one deals with moving all members from legacy into reformed schemes by April 1 2022, when the legacy schemes will be closed, while phase two will concern the choice members will have to make with respect to the transition period, which accounts for all service between April 1 2015 and March 31 2022.

Most public sector schemes have opted for a deferred choice underpin, under which members will be able to choose between the benefits accrued under both the legacy and the reformed schemes and pick the larger of the two.

Where judges incur financial losses as a result of the discrimination, the MoJ will provide compensation accordingly — for example, covering the difference in tax liability

Ministry of Justice

The only exception so far is for members of the Judicial Pension Scheme, which will offer its members a retrospective choice of pension scheme membership backdated to April 1 2015, when the discrimination began, until March 31 2022, after which all judges would move to a reformed pension scheme.

The choice available in the options exercise would be between the pre-2015 scheme, the Judicial Pension Scheme 1993 (Jupra) — or its fee-paid equivalent, Fee-Paid Judicial Pension Scheme — and the 2015 scheme, the New Judicial Pension Scheme 2015.

While very few changes were made to the MoJ’s proposals for the judges’ pension schemes, the department acknowledged the “strength of feeling” around some of its proposals, in particular over plans to restrict the circumstances in which judges — who will be given an immediate choice as opposed to the deferred choice underpin — could make their choice earlier than the 2022 deadline.

The MoJ’s proposals were that only judges who retire during the remedy period should be able to make their choice sooner than 2022, but it acknowledged the many consultation responses, arguing that all judges should have this ability, not least because they may suffer financial losses by being made to wait.

In response, the MoJ acknowledged the concerns but said it would stick to its plans for a “structured options exercise”, largely because it would afford judges time to make an informed decision.

It recognised, however, that some judges could incur financial losses due to tax with respect to both the personal and annual allowances, and pledged it would compensate any judges who incur additional tax liabilities.

On personal allowance, the government explained that some judges with income between £100,000 and £125,000 could have made contributions to tax-registered schemes if they were in the Jupra or FPJPS, so they could reduce their taxable income to £100,000 and take advantage of 60 per cent effective tax relief on those contributions (because of the abatement of the personal allowance on income above £100,000).

“The fact that judges will remain members of the NJPS until 2022 means that when they retrospectively return to Jupra/FPJPS they will have lost the opportunity to make those contributions in the relevant year and retain the benefit of 60 per cent effective tax relief,” the consultation response stated.

On annual allowance, since the NJPS is a tax-registered scheme, remaining in the pension fund until 2022 will contribute towards an individual’s annual allowance.

“Where judges ultimately return to Jupra/FPJPS via the options exercise, they will return to a tax-unregistered scheme and will have lost the opportunity to maximise their annual allowance through investing in non-judicial, tax-registered pension schemes during the remedy period,” the response continued.

“We plan to address both losses in full via the options exercise. Where judges incur financial losses as a result of the discrimination, the MoJ will provide compensation accordingly — for example, covering the difference in tax liability.”

Ill-health changes for firefighters

Phase one with respect to members of the Firefighters’ Pension Scheme will include transitional protection for ill-health benefits, to ensure that “the member moving across to the reformed scheme will not be placed in a worse position than they would have been in had a decision been made on March 31 2022 under the relevant legacy scheme,” the Home Office said.

It found that there was only one circumstance in which a member transitioning to the reformed scheme with a pending ill-health decision could find themselves in a worse financial position, but nonetheless consented to make changes after concerns were raised during the consultation.

It otherwise made no changes to the initial proposals.

The age discrimination within this proposed remedy exactly mirrors the unlawful age discrimination within the transitional protections, and in many ways is more objectively clear as it lacks even the veneer of justification that was present in the transitional protections case

Pension Challenge/Cops Against

Police proposals unchanged despite criticism

The Home Office has come under sustained attack from police officers unhappy with the McCloud remedy proposals.

Police officers from every federated rank in the UK have previously written to the government alleging that the government’s approach to McCloud undermines protected pension rights and creates age and sex discrimination.

The Pension Challenge/Cops Against campaign group has previously argued: “The age discrimination within this proposed remedy exactly mirrors the unlawful age discrimination within the transitional protections, and in many ways is more objectively clear as it lacks even the veneer of justification that was present in the transitional protections case.”

Despite this, the Home Office did not see fit to make any amendments to its proposals, judging that to take the example of purchasing additional service under the legacy scheme, allowing female officers who had worked part-time to continue to access this provision while denying it to all other members, would amount to unjust discrimination.

It did announce that the government would “continue to consider” potential mitigations, after concerns were raised about the interaction between the retirement ages of the reformed and legacy schemes.

Opinion split on NHS scheme changes

The DHSC found that respondents to its consultation were evenly split as to whether its proposals adequately met its policy objectives, with one-third of respondents agreeing, a third disagreeing, and a third unsure.

It noted, however, that “this should be viewed in context of the individual responses, many of which appeared to consider the proposals in relation to their own pension position rather than whether the amendments delivered the policy and requirements set by the bill”.

The British Medical Association raised concerns about provisions made for ill-health benefits. The DHSC proposals were that members of the legacy scheme who have an application for ill-health retirement under way before that scheme closes from April 1 2022, should have their application assessed against both the terms provided under the legacy scheme design and the new scheme design.

The BMA expressed fears that this change gave rise to the potential for unfair treatment towards those who made an ill-health retirement application before March 31 2022, but who do not receive the initial outcome until after April 1 2022.

In response, the DHSC said it “has agreed that this provision is to be included in part two of the remedy for members who moved to the new schemes before April 1 2022, made an application before March 31 2022, and have new scheme service on April 1 2022”.

On the back of another BMA recommendation, the department said it would amend regulations around additional voluntary contributions to allow members more time to claim their AVC benefits.

Communication issues at MoD

The MoD’s consultation into implementing the McCloud remedy for the Armed Forces Pension Scheme appeared to suffer from significant member communication problems, as a majority of responses received from individuals (31 of 34) “did not provide the targeted feedback sought”.

“Instead, most responses concentrated on wider pension issues, made comment on or challenged the premise of retrospective remedy, asked more general pension-related questions, or posed questions about their specific circumstances,” the MoD’s response explained.

It acknowledged that the responses highlighted “a potential communication gap”, and reiterated “the need to review communications output to ensure the right message is delivered, in the right format, at the right time, to the right audience”.

“The MoD will address these issues through the established Armed Forces Remuneration Communications Working Group, in partnership with the Single Service Pay Colonels,” it said.

The MoD made no substantive changes to the draft regulations following the consultation, having dismissed an appeal by the BMA to have an ill-health underpin included.

It said it saw no need to make such a change, and that to its knowledge no AFPS member would stand to benefit from an ill-health underpin — though it promised that “further workforce analysis will be conducted to ensure this is the case”.