My Lords, the Public Service Pensions and Judicial Offices Bill consolidates and strengthens a common UK legal framework for pensions across all the main public services—that is, the NHS, the judiciary, the police, firefighters, the Armed Forces, teachers, local government and the Civil Service. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available on a fair and equal basis. In addition, the Bill includes measures that will address resourcing challenges facing the judiciary, recognising the unique constitutional role of judges. The Bill will also lead to the creation of a new UK asset resolution public service pension scheme for the beneficiaries of the existing Bradford & Bingley and NRAM—that is, Northern Rock —pension schemes.
I will start with the measures that relate to ensuring fairness and equality across public sector pensions, but first I will set out the wider context for reform. As your Lordships will recall, in June 2010, supported by cross-party consensus on the need for the greater sustainability and transparency of public sector pensions, the coalition Government established an Independent Public Service Pensions Commission chaired by the noble Lord, Lord Hutton of Furness. The commission undertook a fundamental structural review of public service pensions. This review was underpinned by a set of principles against which the options for reform were judged. These principles were that the measures should be affordable and sustainable, adequate and fair, supportive of productivity, and transparent and simple. These principles are just as important today as they were then, and they highlight the need to achieve greater fairness between lower and higher earners and for the taxpayer, as well as the future sustainability and affordability of public sector pensions.
Following that review, the Government introduced a number of key changes. Pension benefits would no longer be based 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 specific to the police, firefighters and the Armed Forces. These changes achieved greater fairness for low earners by giving many a more generous pension. In addition, the reforms will save taxpayers an estimated £400 billion over the following 60 years.
Having provided this background, I will turn to the Bill’s specific measures on the remedy. Prior to the 2015 reforms, the Government agreed, following negotiations with trade unions, to protect the pensions of those closest to retirement. They did this by allowing those members within 10 years of retirement in most public service pension schemes to remain in the final
salary schemes, instead of being moved to a career average scheme. This step was known as transitional protection. However, in 2018 the courts found that this step unlawfully discriminated against younger members. Although the legal challenge was specific to the judicial and fire schemes, the Government recognised the wider implications across all public service schemes. We therefore began a thorough programme of work to identify and implement a robust remedy. This Bill brings that remedy into effect and its measures follow public consultations in 2020 and government responses earlier this year.
For the remedy period—that is, from April 2015, when the reforms were implemented, to 31 March 2022—all eligible members will be given a choice between legacy and reformed scheme benefits. For the majority of members that choice will be made at retirement, when it will be clearer which scheme is most beneficial to each individual. This is known as a deferred choice and was the preferred option in the majority of consultation responses. The exception is the judicial schemes, where affected members will make their choice before retirement in a so-called options exercise.
The local government arrangements reflect that the remedy for the discrimination does not require member choice. Instead, protection will be granted to younger eligible members via the extension of the existing underpin, which gives protected local government pension scheme members a guarantee that their reformed scheme pension will be no lower than it was in the legacy scheme. The local government arrangements also reflect that in England and Wales the scheme reforms were implemented a year earlier than other public service pension schemes—from 1 April 2014. For those members who have already taken pension benefits in relation that period, a choice will be offered as soon as is practicable. This measure therefore remedies the differential treatment of younger members as a result of transition protection.
Although the Bill ensures retrospective fairness, it is also right that we ensure that all pension savers are treated equally in future—the so-called prospective remedy. Therefore, from 1 April 2022 all legacy schemes will be closed to future accrual and all those impacted will be placed in their 2015 reforms schemes or, in the case of the judiciary, moved to a new scheme. This measure guarantees that all members within each scheme will be put on an equal footing and underlines our recommitment to the principles of the 2015 reforms. Local government workers have already moved to career average arrangements and these schemes will continue after 31 March 2022.
As your Lordships may recall, the Independent Public Service Pensions Commission also recommended that the new public service pension schemes should include a cost ceiling to protect the taxpayer from unforeseen increases in scheme costs. However, the Government chose to go a step further and establish a symmetrical cost control mechanism that also maintains the value of pensions to members when costs fall. The mechanism was designed in such a way that, if the cost of a scheme rises above or falls below specified margins, the scheme rules must set out a process for agreeing
how costs can be brought back to target. So, where costs rise above a certain level, benefits are reduced, or where costs fall below a certain level, benefits are improved.
It is right that the additional benefits that members will receive as part of the remedy are considered by this mechanism as a cost, by giving members a choice of benefits. The value of schemes to members will increase and therefore costs will rise. This assessment of the costs of member benefits is precisely what the mechanism was established to do. However, to ensure that no members’ benefits are reduced as a result of this assessment, the Bill contains a measure to waive any results that might lead to benefit reductions. This should mean that no member will be worse off. In addition, the Government have committed that, where benefit improvements are due, these will be delivered.
As I have outlined, the Bill builds on the Public Service Pensions Act 2013 to create an overarching legislative framework for all public service pension schemes. While this piece of legislation is comprehensive, I am sure your Lordships would acknowledge that pension schemes are extremely complex and must be tailored to fit each workforce’s individual requirements. As a Government, we intend that our legislation accounts for those differences, many of which are found in scheme regulations. Therefore, given the level of detail involved, these measures will come before Parliament as statutory instruments for further scrutiny. Furthermore, to demonstrate the approach to secondary legislation, I pledge to deposit policy statements in the House Library in the coming weeks for further scrutiny.
Allow me now to turn to the Bill’s next element: the package of reforms to help address the resourcing challenges facing the judiciary, recognising the unique role that judges fulfil in our constitution. The UK justice system is known across the world for its excellence, objectivity and impartiality. This is due in no small part to the exceptional expertise of our courts, our tribunal judges, our coroners and our valued magistrates.
However, as the structure and operation of our courts and tribunals have developed, so has the resourcing needs of the judiciary. The frequency and volume of judicial recruitment has increased considerably in recent years and, despite recruiting about 1,000 judges and tribunal members per annum since 2018, we have not been able to recruit the full number of judicial officeholders needed across all courts and tribunals, putting considerable pressure on judges and the justice system.
I am sure your Lordships will agree that it is vital that we continue to attract and retain high-calibre judges to secure the proper functioning of our justice system. This Bill brings forward bespoke measures to address some of the current recruitment and retention challenges facing the judiciary. It enables the provision of a new, reformed career-average judicial pension scheme. It increases the mandatory retirement age of judicial officeholders to 75, extends the potential for sitting in retirement to the fee-paid judiciary and puts judicial allowances on a firmer legal footing. Taken together, those measures represent significant steps that will allow us to continue to support our world-class judiciary, for which we are so rightly renowned, to meet the demands of the present day and the future.
I now move to the measures to establish new UK asset resolution public service pension schemes for the beneficiaries of the existing Bradford & Bingley and Northern Rock asset management pension schemes—so-called NRAM. These two schemes cover the pension schemes of the former staff members of both bodies, some of whom worked for in the region of 30 years for each company respectively. These measures are an important step in the Government’s careful long-term management of the financial assets acquired as a result of the 2007-08 financial crisis. The new schemes will provide former Bradford & Bingley and Northern Rock staff members with the assurance that their pensions are secure over the long term. Let me stress that members’ pensions and pension promises will be unaffected by this change. In addition, this measure will ensure better value for the taxpayer through the creation of a more efficient structure for the Government to meet their liabilities towards those two schemes.
There is no doubt that the Bill before the House is complex legislation. It is therefore crucial that all technical changes are robust and legally operable across all schemes. As I mentioned, we are committed to getting the detail right and to giving in-depth consideration to each scheme’s specific circumstances. Therefore, to ensure a comprehensive and effective remedy with consistent application of measures across all relevant schemes, it is expected that some technical amendments will be required during the Bill’s passage. In addition, I am pleased that the Welsh, Scottish and Northern Irish Governments are considering legislative consent Motions to aim to ensure parity across the UK for the areas where legislative competence is devolved.
Our public servants provide vital services on which we all rely. Their unwavering commitment has been particularly vital during the pandemic. We have an obligation to continue to provide guaranteed pension benefits to reward those workers for their dedicated service, but we must do so on a fairer basis, in a way that ensures that pensions are affordable and sustainable in future.
In conclusion, I believe that the package of measures contained in the Bill will bring about long-term sustainable changes that are in keeping with the original principles of the 2015 reforms and provide fairness for members, employers and taxpayers. I hope noble Lords will recognise the Bill as a clear sign of the Government’s responsible approach to public service pension provision, as well as responding to the specific resourcing challenges facing the judiciary. It is for those reasons that I commend the Bill to the House.
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