New Judicial Pension Scheme progresses despite concerns

The MoJ put its proposals to consultation in July this year, inviting comments on the creation of a new Judicial Pension Scheme 2022. 

It followed a 2018 review by the Senior Salaries Review Body, which identified “serious recruitment and retention problems” in the judiciary, stemming in part from existing pension arrangements. The goal was also to better account for the principles of the 2015 public sector pension reforms, though the MoJ was also keen to retain “some key elements” of the current schemes.

The JPS 2022 is intended to be a tax-unregistered scheme, meaning that benefits accrued would not count towards the annual or lifetime allowance.

Even with the time-limited mitigation, it is difficult to support a proposal whereby the least well-paid judicial tier is the one that will suffer a month-on-month reduction in income

Council of District Judges

Under the proposals, all eligible salaried and fee-paid judicial officers will join the JPS 2022 from the date of implementation, unless they decide to opt out.

Judges with pension arrangements under the four existing schemes — the Judicial Pensions and Retirement Act, the Fee-Paid Judicial Pension Scheme, the New Judicial Pension Scheme, and the Northern Ireland Judicial Pension Scheme — will transfer to the JPS 2022 and accrue future service benefits under it. The pre-2022 schemes will then be closed to future accrual.

Consultation raises concerns

The MoJ’s consultation response, published on Thursday, said the feedback it received “generally welcomed” the proposed changes.

However, it also acknowledged “some concerns regarding the proposed regulations”, since a number of responses compared elements of the JPS 2022 with the equivalent JUPRA and FPJPS provisions, it stated.

One of the concerns regards the proposals for a uniform contribution rate, which will be 4.26 per cent, with an option for judges in service on March 31 2022 to choose a lower rate of 3 per cent for a period of three years. That option would come with a lower accrual rate of 2.42 per cent for that period.

“This option was added following the feedback from the scheme design consultation, where concerns were raised that salary group [seven] judges, and some fee-paid and part-time judges, moving from NJPS to the JPS 2022 would see a reduction in their take-home pay with the contribution rate set at 4.26 per cent,” the consultation explained.

Salary group seven is the second-lowest earning tier, earning £114,793 a year. 

“The time-limited option of a lower contribution rate of 3 per cent was therefore added to give judges the option of mitigating the take-home pay impact of moving to the reformed scheme, by reducing their contribution rate in return for a commensurate reduction in their accrual rate,” the consultation stated.

However, two judicial associations voiced their concerns about the proposal, with the Council of District Judges responding: “Even with the time-limited mitigation, it is difficult to support a proposal whereby the least well-paid judicial tier is the one that will suffer a month-on-month reduction in income.”

Additionally, the Association of Her Majesty’s District Judges was disappointed that there will be no option to make additional contributions in the JPS 2022, while the Sheriff’s Association asked that the option for an “added pension” to be made available, and the Council of District Judges wished to see an option to attain a lower effective pension age.

In response, the MoJ reiterated its belief that a uniform contribution rate would “promote fairness between members, remove anomalies that occur at the boundaries of different bands in a tiered structure, and ensure that fee-paid judges who sit the same number of days, regardless of their sitting pattern, contribute the same amount to their pension”.

Options for an added pension and a lower effective pension age would be tax-unregistered extensions of the JPS 2022, and therefore “considerably less attractive”, it said, “as members would receive no tax relief on their contributions and no employer contributions on payments made into the schemes. In addition, any benefit purchased would also be subject to tax”. 

“The JPS 2022 is intended to deliver equivalent benefits to a registered scheme without the restrictions on registered benefits. It would therefore not be appropriate to establish standalone registered schemes for the purposes of purchasing added pension or attaining a lower effective pension age alongside the reformed scheme,” the MoJ said.

Lump sum and other worries

The consultation confirmed that there would be no automatic lump sum, like that available in the JUPRA and FPJPS. Rather, members would have the option to commute part of their pension in exchange for a lump sum, at a commutation rate of 12:1.

There would also be a commutation supplement to compensate for the fact that any such lump sum would be taxable.

Concerns were raised, however, that the optional lump sum arrangement would be less attractive than the automatic lump sum afforded under the pre-2022 schemes. Members in those schemes could be justified in expecting similar benefits, one of which being the automatic lump sum.

The Council of District Judges argued that, “while the commutation supplement to compensate for the tax-unregistered status of the scheme is helpful, a neater solution would be the JUPRA 1993 automatic entitlement to an automatic lump sum”.

In response, the MoJ said it had “carefully considered” the comments, but it felt that “the commutation offer is fair, affordable and sustainable in the long term”.

“It is important to note that all benefits previously accrued in pre-2022 schemes will be preserved, including the preservation of the automatic lump sum in respect of service in those schemes. Therefore, judges moving into JPS 2022 from JUPRA or FPJPS will have their automatic lump sum preserved for the pension they have accrued up until April 2022,” it added.

There were also concerns about the MoJ’s plan to prohibit the transfer of pension rights into the scheme on tax grounds, as any such transfer would attract charges on both members and scheme administrators, and the trustees of the transferring scheme would therefore be unlikely to authorise such a transfer.

In addition, some respondents highlighted that the provision of death benefits were reduced by comparison with the JUPRA, which the MoJ acknowledged. However, in both cases, it opted to proceed with the proposed structures.