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
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?
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
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 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.
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.
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.
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.
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.
Pensions are a very important part of workers’ overall pay package. It is in the interests of individuals and society as a whole that good pension schemes and good pension benefits are available to workers in both the public and private sectors and that those who pay into pensions schemes should be able to look forward to a good and secure retirement. When that is not the case, there is more pensioner poverty, lower quality of life in old age and a greater reliance on means-tested benefits. In those circumstances, individuals suffer and society is worse off.
The Bill deals with public sector pension schemes. The experience of the past two years has underlined the contribution made by the public sector workers affected by this legislation. Many of them had to be at work physically throughout the pandemic, caring for the sick, delivering key services or keeping our streets and communities safe. They deserve decent pay and decent pensions.
Part 1 of the Bill seeks to correct what the Public Accounts Committee has termed a “£17 billion mistake” made in the reform of this system through changes introduced by the Government in 2015. To state the obvious, £17 billion is a lot of money. Of course, that is the cost over a long period of time, not just one year, but let us think for a moment what that money could do for families facing energy bills which this year could rise by hundreds of pounds a year. Even a fraction of it could make a major difference to those families. Or to put it in another context, the cost of fixing this mistake made by the Government is around three times the annual bill for the £20-a-week universal credit uplift that the Chancellor largely removed in the autumn.
The Government’s main changes to the pension system in 2015 were to move from final salary to career average pensions and to extend the normal pension age in most schemes. But—this is the crucial point regarding the Bill—there was also provision for those within 10 years of retirement to remain in the previous legacy schemes. That provision was challenged in the courts and found to be discriminatory on the grounds of age in what has become known as the McCloud judgment. The Bill seeks to respond to the McCloud judgment and ensure that people are not unfairly impacted on by the changes on account of their age.
The first question for the Minister must be: where will this £17 billion come from and who will pay the bill? Will it come from the taxpayer as a whole or from pension scheme members? We should remember that a very significant proportion of pensioners in this country are members of one of these schemes. It is very important that Ministers give the House clarity on this matter.
The second point is about the design of the remedy for the McCloud judgment set out in the Bill. Consultation took place on this, and the method chosen is known as the deferred choice underpin. It is perhaps not the most user-friendly title, but what it means in simple terms is that, when people retire, they will have a choice as to which pension scheme should apply for the affected years—between 2015 and 2022—to ensure that they maximise their available pension benefits. The second question I have for the Minister winding up is to clarify whether making this choice will incur any extra costs for the pension scheme members concerned. For example, if members opt to remain in their legacy scheme for the seven years affected, because the rate of accrual in that scheme is higher, will they have to pay any backdated pension contributions to do so?
Then there is the question of how people make their decision under this deferred choice mechanism. Anything that involves individual scheme members making a choice that could have a fundamental impact on their income in retirement raises another question, which is about the quality of information that enables a pension scheme member to make such a choice. The recent history of information on pensions has given rise to some real injustices. We have had unscrupulous advisers trying to exploit pension freedoms and get people to transfer out of perfectly good pension schemes in a way that was clearly not in those people’s interests. Indeed, this House has only recently legislated, in the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021, for an increased levy on the pension industry as a direct result of increased levels of pension fraud and mis-selling. So the third question to the Minister is this: how will the Government respond to what has happened in these examples and how will they ensure that, in this case, pension scheme members are equipped with the best possible information to make the choices envisaged under the deferred choice underpin mechanism set out in the Bill?
Finally on this part of the Bill, there is a question about how the cost control mechanism will work. The Chief Secretary has already said that the Government will bring forward amendments on that, and we will have to examine those closely. In brief, it was originally envisaged that, under this mechanism, if costs breached the ceiling, benefits would be reduced, but the Government have said that, in this case, no member will see benefits reduced. What does that mean for where the funding for them will come from, and is there any time period after which this guarantee may lapse?
I now turn to part 2 of the Bill, which makes changes to the pension arrangements for former employees of Bradford & Bingley and Northern Rock. Their assets have, until recently, been managed by UK Asset Resolution, which is an arm of Government. The Bill provides assurance that the pension liabilities for these former employees will be met and underpinned by the Treasury. We welcome pension security for these pension scheme members, but can I ask the Minister what the estimated cost is of these provisions, and whether these costs are additional to the £17 billion budgeted for the McCloud response or part of the same overall costs?
Turning to the part of the Bill dealing with the judiciary, the Bill makes changes to the judicial pension scheme, allowing for the deregistering of this scheme for tax purposes on the basis that judges are an exceptional case. I want to return to the question posed a few minutes ago by Sir Robert Neill, who asked about the annual allowance and the lifetime allowance. Could I ask the Minister to clarify what this deregistering means in the context of the annual allowance and the lifetime allowance? If it is the case that those two restrictions, as it were, do not apply to the judicial pension scheme, how will the Government respond to representation from others saying that they too are an exceptional case? We have already heard the example of doctors being raised. I would be very grateful if the Minister addressed those points in his winding up. Forgive the irony, but if I am right about the interpretation, how confident are the Government that, in making this exception, they will not open the door to legal action from other sectors arguing that they too should enjoy similar treatment?
The Bill also raises the retirement age for judges from 70 to 75, reversing a change made back in 1993. We understand the backlog in the judicial system, and we support measures to reduce the delays in bringing cases forward. There is truth in the old saying that justice delayed is justice denied, but when the Bill was being debated in the other place, concerns were raised that longevity of service might turn out to be the enemy of diversity in the system. How do Ministers respond to those concerns and what more will the Government do to enhance diversity in the judicial system, because it is important that as the country changes the institutions governing the country change with it?
The final issue on which I would like the Minister’s response is the pensions trap, which has been raised by representatives of police officers, among others. Police pensions operate differently from other public sector schemes in that they are based on a 30-year service record rather than a specific retirement age. The Police Superintendents Association, the Police Federation, the Fire Brigades Union and others have raised fears that individual scheme members in their pension schemes could lose out because of the way that the affected years between 2015 and 2022 are treated. I accept that this is a complex matter, but the end result is that a number of police officers feel that a new discrimination is being introduced by the way in which the Government are applying the remedy for the McCloud judgment. In November, the Home Office acknowledged that there is an issue and said that further work was needed. Has any further dialogue taken place with police and fire staff representatives in the past two months, and can the Minister give any further information on how the issue might be addressed?
In conclusion, we will not oppose the Bill, because we understand that the Government had to respond to the McCloud judgment, and they have a duty to ensure that pension schemes do not operate in a manner that is found to be discriminatory by the courts, but in future we will take with a pinch of salt lectures from Ministers about fiscal probity, when the Government have had to introduce legislation to correct what the Public Accounts Committee has defined as a “£17 billion mistake”. We also want assurances that proper, clear and understandable information will be made available to pension scheme members who will have to make important choices for their retirement under the mechanism that we are legislating for today.
Given that the major part of the Bill arose from a court challenge to the Government’s pension arrangements, we also ask how confident the Government are that this is the end of the story, and there will not be further legal challenges that will mean that we have to return to the issue in the future. Labour hopes that this response to the McCloud judgment settles the issues and ensures good quality pension schemes for the workers affected. We owe them all a debt of gratitude for the service that they have given and, in particular, for the outstanding service they have given over the past few years as the country has struggled with the pandemic.
Thank you, Madam Deputy Speaker, for calling me first in the debate. I am delighted to make a contribution to the Second Reading of a Bill that was very much part of the work that I undertook as Lord Chancellor. I was keen to make sure that we made progress with the Bill on several grounds, the first of which was the necessary reform to judicial pensions in light of the McCloud judgment and other legal developments since the previous set of reforms to judicial pensions. The second was the important and generational issue of retirement age for judges. The previous reform to that retirement age had been back in 1995, and it was not of immediate application but took many years to come into effect, bearing in mind its adherence to non-retrospectivity. I took a different view about the way in which we should approach reform this time. I felt very strongly that any change to retirement age should have immediate effect, and that it should benefit those currently in judicial office. I make no apology for that, because with welcome changes and elongations to lifespan, health and wellbeing, I thought that we were losing many talented men and women at the height of their career. I am not going to name names, but there are many people who served in the highest judicial office who left at the age of 70, but who I felt had much more to give. Some of them were able to carry on in retirement, sitting with special dispensation, but I felt that we needed to do something generational. I very much hope that the change that we are bringing about in the judicial retirement age will endure for many years, well into the middle part of this century. We are not saying that people have to sit at 75. We are not forcing people to sit beyond the time they wish to serve, but we are giving them an opportunity to do that.
Can I deal head-on with diversity, because I considered that matter very carefully indeed when I was Lord Chancellor? I have had the privilege of serving on the judicial diversity forum, which is a committee of the Judicial Appointments Commission, ably chaired by Lord Kakkar, and we take the issue of diversity very seriously indeed. In the other place, amendments were tabled to reduce the age of retirement to 72, on the basis that there were concerns about slowing the increase in diversity, but I believe that that worst-case scenario is based on a failure to act. In other words, it is incumbent on the Ministry of Justice, the Judicial Appointments Commission and others interested in and passionate about diversity to do more to attract people of diversity to the judiciary.
In particular, many women have had career breaks to bring up their family in their 30s and 40s. At the moment, they face quite a difficult decision to return to practice, and regard a 70 age limit as inhibiting their ability to take up part-time, then full-time, judicial office. Increasing the age limit to 75 will allow more women who have had career breaks actively to consider what is a career of up to 20 years if they are to enjoy the full benefits of the pension.
We should not forget that in 1995, one of my predecessors, Lord Mackay, not only reduced the pension age but increased the time that people had to serve to take their full judicial pension from 15 to 20 years. That combined decision had quite an effect on the career opportunities presented to lawyers when considering whether the bench was for them. In other words, people really had to make up their mind in their 40s if they were serious about reaching the bench. There are plenty of exceptions—some people who have done very well in their profession could go to the bench later and perhaps take a smaller pension—but many people felt that they could not take full advantage of a judicial career because of that time restriction.
That changes with a retirement age of 75. People can come to the bench in their mid-50s and serve the full 20 years. That is a huge opportunity, not just for women but for people who come to the legal profession slightly later in their career, mainly because the financial burdens are so onerous in their younger years that they do not feel able to join it in the first place. Contrary to suggestions in the other place and elsewhere, the measure could be a spur to the Government and the Judicial Appointments Commission to do even more to attract women, people from an ethnic minority, and people who join the profession late to a judicial career.
Can I perhaps reinforce my right hon. and learned Friend’s point? He may have noted from the statistics released by the Judicial Appointments Commission that there has been a particular shortfall in appointments to the district bench and the circuit bench in recent rounds. Those are precisely the people for whom the ability to access a full pension is important. As my right hon. and learned Friend said, the high-earning silk who goes into the High Court may be able to deal with a lesser amount of pension, but the people I am talking about, who are the workforce, particularly in the criminal and family courts—the senior juniors, the senior solicitors—will be under the most pressure if they are not able to get the 20 years’ full pension. That will be most difficult for them.
My hon. Friend makes a really powerful point. There is no doubt that the district bench is under huge pressure at the moment. We are not getting the recruits and the applications that we need in order to have a full district bench. The work is some of the most difficult and challenging in the judiciary; it is unglamorous work, but it is vital because it is the bulk, for example, of the civil and family work that goes on in our courts day after day. We have increasing numbers of recruitment competitions seeking to attract more talented people to the bench, but often the vacancies cannot be filled, because there are not enough applications. That, frankly, is a problem. That is why not only the extended retirement age but the changes to the pension will really send a signal to practitioners that the Government value the judiciary and understand the vital importance of having the quality, independent and high-morale cadre of people we need. Without them, we really do suffer as a country.
I should have declared an interest at the beginning, in that I am the recipient, potentially, of a judicial pension because of my service as a recorder of the Crown court, which finished, of course, on my appointment as Lord Chancellor. That is another story, which I will not regale the House with today, but I did have to resign from the judiciary on my appointment as Lord Chancellor. That was not always the case prior to the Constitutional Reform Act 2005, and I think hon. Members know my strong views about the baleful effects of that piece of legislation. I am sure that, with leadership in the Ministry of Justice, we can come back to those issues, and that was certainly my intention when I was in office. However, I parenthesise.
Let me come back to the germane issue of the retirement age. I note the concerns that the senior judiciary and immediately retired judges in the other place had about the 75-year mark. However, I would respectfully but firmly disagree with them. Some 67% of respondents to the consultation agreed with my ultimate decision, which was to raise the retirement age to 75. The bulk of circuit judges, sheriffs in Scotland and other judges considered that the position absolutely pointed in the direction of 75. With the greatest respect to senior judges, many in the senior judiciary have already made their plans and their provision clear, and I do not expect that all of them will wish to serve until 75, bearing in mind the expectation prior to the expected change in the law. Therefore, I am not so persuaded that the logjam that some fear will take place, and I see no reason why there should not be a rise in the retirement age to 75, despite the concerns expressed in the other place.
I am particularly pleased that there was unanimity across the three jurisdictions that 75 was indeed the appropriate retirement age. I took a lot of time and trouble to make sure that colleagues in Northern Ireland and Scotland were consulted. I was extremely grateful to the then Lord Chief Justice of Northern Ireland, Sir Declan Morgan, for his careful consideration of the matter and for all the consultations I undertook with him, and indeed to the President of the Court of Session, Lord Carloway, who himself undertook extensive consultations with the Scottish judiciary. I was very grateful to colleagues in the Scottish Government for agreeing with the position that I sought to take with regard to the retirement age, because I thought that a cross-jurisdictional, pan-United Kingdom retirement age was highly desirable, bearing in mind the fact that atop it all sits the United Kingdom Supreme Court, with the members of that court therefore able to enjoy the same retirement age limitations irrespective of jurisdiction. That was a very important consideration that I am extremely grateful to colleagues in the other jurisdictions for agreeing to.
We have reached a position where we have come to an elegant solution: one that allows professionals to make decisions that suit themselves within that outer limit of 75 and acknowledges the reality that we see now, where the Lord Chancellor is constantly asked to allow judges to sit in retirement post 70—up to 72, in any event. It acknowledges the fact that, thanks to modern science and medicine, we have an increasingly agile and able cadre of people in their early 70s who are willing to serve. In the light of other societal changes—in the light of the fact that, thankfully, we are able to do more things at a greater age than perhaps we were a generation or so ago—I warmly commend the increase in the retirement age, in particular to the age of 75, to this House.
When it comes to the magistracy, we have suffered quite a decline in numbers in recent years. It was not so long ago that we had 30,000 volunteer magistrates—let us not forget, these are volunteers—sitting and serving in our courts. That number has declined alarmingly, and therefore it seems to me a matter of very good housekeeping for us to make sure that we can retain as many magistrates as possible while encouraging the excellent recruitment exercises that the Ministry of Justice is undertaking at the moment. The MOJ is to be commended on the vigour and focus of the exercises it is currently conducting, but without that additional help, my worry is that we are going to reach a critical position with regard to the number of justices of the peace that would undermine the viability of the system. That, frankly, would be a real problem, particularly in the family proceedings courts, where the lived experience, good judgment and common sense of magistrates is brought to bear on a variety of very difficult and complex family situations every day of the week.
This Bill was something I wanted to see even more urgently. I am glad that it is getting its Second Reading in early January: if I had had my wish, it would have received Royal Assent by now, but I understand that my ministerial colleagues in Government have to work to timetables, and that they themselves have different and conflicting priorities. However, it is an important signal that we are sending to the judiciary and to other public servants: not only that the Government take the judgments of the courts very seriously but, I hope, to make the point that any perception that this Government are somehow at war with the judiciary—that they somehow see the judiciary as enemies of the people, or think of them as an inconvenient encumbrance—is thoroughly dispelled by measures such as these.
Without a world-class, independent judiciary of quality, this country is no longer a civilised place. Without the important input of robust judicial independence, none of the jurisdictions for which we sit could call themselves world leading. It is vital that in this world of conflicting and competing calls for international investment, we have the brightest and the best from our legal profession serving in judicial office, because that is the most eloquent way in which we can express to the world the fact that Britain and the three jurisdictions are safe and secure places in which to invest, safe places in which to live, and free and fair places in which we can all be equal under the law. I can perhaps be accused of labouring the point, but I think that this sort of measure, detailed and technical though it is, embodies our commitment to that essential quality. That is why I am delighted to endorse the Bill on Second Reading and look forward to seeing it make a swift passage through the House.
I begin by wishing a somewhat belated bliadhna mhath ùr—happy new year—to you, Mr Deputy Speaker, and to colleagues. I include in that colleagues across the House who would have had something positive to contribute to tonight’s proceedings, or to the proceedings earlier in the day, but have been prevented from doing so because they are not able to travel to be here and for reasons that I will never understand are not allowed to participate without being physically present in this place.
The reason we have the Bill here today is that the court has ruled that the way that the Government have treated 3 million of our most valuable citizens is unfair, discriminatory and unlawful—a £17 billion mistake, as Mr McFadden pointed out. We therefore have to approve either this Bill or something like it very soon. We cannot allow that illegality to continue. We will not oppose the Bill on Second Reading, although there are a number of areas where we have concerns, some of them echoing the concerns raised by the right hon. Gentleman. We may want to raise some of these matters in Committee in due course.
Before I go on to indicate some of the detailed concerns, I will set out some general principles. First, I entirely endorse the comments of the right hon. Member for Wolverhampton South East in that somebody who is giving valuable service anywhere in the public sector is absolutely entitled to a proper wage, to proper conditions of employment, and to a decent pension when they come to retire. This used to be quite a regular source of outrage for those on the Conservative Benches, egged on by their pals in the right-wing press—people like the Rothermeres and the Barclays who do not rely on a state pension, or any other kind of pension, all that much. They used to think it was outrageous that people who had worked a lifetime in the public sector were guaranteed a decent pension when they retired. It is not an outrage that somebody who gives 30 or 40 years of loyal service retires on a decent pension; it is an outrage that so many people who give 30 or 40 years of loyal service do not get to retire on a decent pension.
Although the Bill improves things following the mistake that was made, the Government have not even begun to look at possibly the single biggest weakness in a number of big public sector public schemes, including the ones that we are talking about tonight—that is, that they are unfunded. That does not mean that there is no money for them, but it means, effectively, that somebody making a pension contribution today is paying not their own pension but the pensions of previous generations that have already retired. They are just hoping that when they come to retire a future generation of workers will be there putting into the pot to pay their pension, while the Government—the taxpayer—have to pick up any shortfall. It is almost like a legalised Ponzi scheme.
I would love to know what the thinking was when the schemes were set up. Why did anyone think that that was a good way to set up an employee pension scheme? It is intrinsically unstable, especially if the number of people employed and contributing to the scheme changes significantly over time, because a smaller number of people are trying to pay the pensions of a bigger number of retired colleagues—and clearly over the years most areas of the public sector have seen a reduction in employment. That is why we have the difficulty in affordability and sustainability that we are trying to address just now. To be honest, I do not envy whatever Government Minister it is who will eventually have to find a fair way of squaring that circle, but we cannot afford to keep ignoring it for ever.
Secondly, I believe in principle that for someone in a defined-benefits occupational pension scheme, a career-average scheme will be fairer than a final-salary scheme. It does not necessarily mean that it is cheaper. It does not necessarily mean that they have to contribute more. It does not necessarily mean that their pension has to be less. It would be quite possible to set up a scheme where the workers did not have to contribute any more and where most of them got the same pension or better than they already had. When I say that I agree with the principle that the Government have stated previously that a career-average model will tend to be fairer to a lot of workers than the current final-salary scheme, that does not mean that I want it to be used as an excuse to cut pensions, to force workers to contribute more of their wages to the pension scheme, or indeed to increase the pension age. We can move to a career-average scheme without having to do any of those things.
The third general point is critical. When somebody chooses to contribute to an employer’s pension scheme on the basis of promises that have been made by the employer, by the scheme administrator or by the Government, those promises must be honoured. Retrospectively moving the goalposts is not acceptable. It is not acceptable for public sector workers with regard to their employment pension, and it was not acceptable for the WASPI women. I know that that means that it takes much longer for any changes to pension schemes to have their full effect, but there is an important question of trust at stake. In October 2010, the Independent Public Sector Pensions Commission said that protection of accrued benefits
“is a prerequisite for reform both to build trust and confidence and to protect current workers from a sudden change in their pension benefits or pension age.”
I know that the Government have said that they want to comply with that recommendation, but it remains to be seen whether the Bill, as it is now or as it may be amended later, achieves that.
The contribution that people have made to their final salary scheme gives them an entitlement to the benefits that they were promised from that scheme at the time that they made that contribution. The fact that there seems to be widespread acceptance now that those promises might no longer be affordable for the public sector finances is not the fault of the workers and it is not the fault of their employers. For decades, successive Governments have failed to provide a public sector pension scheme that was affordable and sustainable in the longer term.
The final general point is that we need the Bill because the Government got it catastrophically wrong. They passed legislation that embodied unlawful discrimination. Regardless of what remedy is eventually put forward and agreed, it will have a cost. It will have a direct cost in terms of changes to people’s retirement age, changes to pension contributions, and changes to the pension they get when they do retire, and a substantial indirect cost as a result of the mountain of extra administrative work that will be needed. There should not be any argument about where these costs should fall. They should fall on the Government, not on the workers because it is not their fault, not on the employers, because it is not their fault, and not on the scheme administrators, because it is not their fault either. The Government created the problem and the Government should be making sure that they and they alone carry the costs of fixing it not only in the short term but permanently.
Let me turn now to some of the more detailed provisions of the Bill. The Government’s impact assessment says that there is “a small number of people” who currently have a mix of legacy scheme and new scheme benefits and that that mix is more advantageous than it would be for them to have all of the eggs in one or other of those baskets. Clauses 6(7) and 10(5) will force those people to put all their eggs into one basket. They will lose out. The Government have said that they are only losing out on something that they should not have had, because the Government previously passed a bad law. That is a feeble excuse. I would like the Minister’s clarification on this point. Table 4 on page 68 of the Government’s equality impact assessment—this is not the same as an assessment of impacts, although, presumably, the two should be compatible with each other—says that about 245,000 people have what is termed tapered protection. What assessment have the Government made of the number of people who will lose out from clauses 6(7) and 10(5)? If that number is anywhere close to 245,000, is it right that the Government should just dismiss them as a small number of people? Two hundred and forty-five thousand livelihoods do not seem like a small matter to me.
Clause 5 allows regulations to be made that would let members opt back into a scheme if they opted out during what is termed a “remedy” period. That is only fair as it protects workers from losing out if the rules on which they based their decision are retrospectively changed. Later on in the same clause, subsections (5) and (6) appear to allow the regulations to require the member to provide certain information, including the reasons why they opted out or did not opt out at the time. An excellent briefing prepared for us by the House of Commons Library suggests that those subsections could be used in regulations to restrict the right to reinstatement except when the member can demonstrate that they opted out as a result of that unlawful discrimination.
A similar situation is explicitly set out in clause 24. It allows members retrospectively to pay additional voluntary contributions if they can show, on the balance of probabilities, that they would have done that during the remedy period had it not been for the unlawful discrimination. In both those scenarios, how is somebody supposed to prove, even only on the balance of probabilities, the reasons they did something or opted not to do something seven years ago? Who keeps that information for that length of time? Who will they have to convince—the Government or individual scheme administrators? If it is individual scheme administrators, how do we ensure that there is consistency and fairness in the way that different applications to different schemes are applied?
Most importantly, where will the legal risk lie if, as seems inevitable, somebody is aggrieved that they have been prevented from opting back into a scheme or from making backdated additional voluntary contributions and takes legal action? Will the legal risk lie with the Government who caused the problem or with the pension fund administrators who are desperately trying to fix it?
One further query concerns the admittedly hugely complex interplay that has been mentioned among the amount of money that someone contributes to a pension, the amount of money they get as a pension, and their tax liabilities when they are paying into a pension and when they are collecting it after they retire. Again, I do not want to give the impression that I doubt the Government’s sincerity; I appreciate that they are entirely sincere in trying to ensure that tax consequences do not undermine the intention behind the Bill. All too often, however, I have seen the irrational way that the UK tax system works, even before the Bill has been enacted, so I genuinely do not have a good feeling about it. It concerns me that in passing the Bill, we will be relying on clause 11 of the Finance (No. 2) Bill, which is still in Committee and has not received Royal Assent, to sort out the problem that the Bill creates in relation to the potential impact on someone’s pension annual allowance. I do not like the idea that we are deliberately giving Second Reading to a Bill tonight while relying on a Bill that is somewhere else in the parliamentary system to fix the problem that we are creating. It does not seem to be a good way to do business.
After Second Reading and several days of Committee in the Lords, the Government had to come back with 123 amendments on Lords Report, and we have just been told that they are preparing an unknown list of amendments to table on Commons Report. That should make us all wonder how many other serious flaws that nobody has yet spotted are still lurking in the 116 pages of the Bill. The Bill should receive its Second Reading tonight, but I fear that many further amendments may be required before it is close to being fit for its stated purpose.
I welcome the Bill and I am pleased to make a few brief comments. Like my right hon. and learned Friend Sir Robert Buckland, I was involved in its preparation and followed the consequences of the McCloud judgment as a Treasury Minister and as Secretary of State for Housing, Communities and Local Government.
I welcome the fact that the Bill will now provide certainty and enable the important reforms that began with Lord Hutton’s report and were enacted in the Public Service Pensions Act 2013, the regulations that subsequently followed and the reforms of 2015. It will help to enable those changes to proceed and will enable all concerned to be given the confidence and certainty that they deserve.
Again like my right hon. and learned Friend, I welcome the changes to the judicial age of retirement. In the early 1990s, when I think there was no retirement age, it was right to bring in a retirement age of 70. Senior members of the judiciary, such as Lord Denning, retired at 83. It was then right to bring in a somewhat lower retirement age but of course, to all our benefit, the world has moved on and we are living longer, so it is right to have a somewhat later retirement age than was legislated for in the 1990s.
The primary reason that I wanted to speak in today’s debate was with respect to an issue that arose out of the 2013 Act, which was ultimately tested by the Supreme Court when I was Secretary of State in 2020. The issue was whether the Government, acting through the Secretary of State at the Ministry of Housing, Communities and Local Government or its successor Department in this case, have the power to issue guidance to those who administer certain public service pension schemes, primarily funded pension schemes, the most prominent of which is the local government pension scheme, to guide those trustees and administrators away from making investment decisions that are contrary to the United Kingdom’s foreign and defence policy.
The reason why this came to court in 2020 was that when it was brought forward, initially by my predecessor, now the noble Lord Pickles, and his successor, my right hon. Friend Greg Clark, the guidance issued by the Department was designed to guide local councils, primarily, away from adopting boycott, divestment and sanctions policies against Israel through their pension funds, although of course other examples were occurring at the time and might occur in future.
The Department issued guidance at that stage that was entirely within the spirit of the then law in 2013, but was subsequently found by a split decision in the Supreme Court to overstep the Secretary of State’s legal powers. The guidance was, I think, perfectly valid; it said that “there are certain circumstances where the trustees of the pension schemes should be careful not to make decisions which would conflict with UK national foreign policy and defence policy.”
Two issues arose when this was tested in the Supreme Court, in a case brought by a campaign group. The first was that some members of the Supreme Court felt that the 2013 Act itself did not give the Secretary of State the necessary powers. The Act clearly states that the Secretary of State can bring forward guidance on how the fund should be administered, but there was perfectly legitimate debate within the Supreme Court about whether the guidance went sufficiently far to cover this particular point. Three of the Supreme Court judges deemed that it did not, while two had a dissenting view.
There was a second, not totally unrelated point made: some members of the Supreme Court were of the view that some of the pension funds in question were not within reach of the British Government, that they were essentially not part of the British state, and that by contributing to a pension fund, a civil servant or an officer of a local council is contributing to a pension scheme that is ultimately outwith the reach of a Secretary of State’s issuing such guidance. That, again, was subject to debate and conflicting views within the Supreme Court, and Lady Arden and Lord Sales dissented.
Both judges took the view, which I agree with, that a scheme such as the local government pension scheme is liable to be identified with the British state for a number of reasons, not least the fact that ultimately the money to pay for it is coming from the taxpayer, but also because it is underwritten by the taxpayer and by statute. Those looking in from afar, for example in a foreign country such as Israel, would be likely to deem a decision by the trustees of one of these pension funds to reflect in some respects the British Government and the views of the British state.
The outcome of the Supreme Court decision in 2020 was that the rule and guidance issued by the then Ministry of Housing, Communities and Local Government was disapplied. I would argue that the time has come, in this Bill, to make the modest change that we need in law to ensure that we can rectify that issue and change the situation. A small amendment to the Bill would give the Secretary of State the powers he or she needs to issue the necessary guidance. That was essentially the message that came from the Supreme Court: if the Government wish to do this, they must ensure the law is clearer than it was in 2013.
I am here to suggest to my right hon. Friend the Chief Secretary that a small amendment be made to the Bill to ensure that that can happen. The Government took this matter to the Supreme Court; unfortunately they lost, and of course we respect the Court’s decision, but the matter is able now to be rectified with a small technical amendment. It is one that I think is appropriate. It is the Government’s policy that we do not support BDS. The Government wish to bring forward a Bill on BDS later in this Parliament, and I hope that they do so, but this is the appropriate place to make the amendment because this is, after all, the successor Bill to the 2013 Act in which this issue arose.
It is important to say why we would want to do this. BDS is a divisive matter. It damages and undermines community cohesion and sows distrust, and we do not want to see local councils trying to influence foreign policy decisions, which are properly the purview of the United Kingdom Government. This is not about politicising public sector pensions, as was implied, I think, by one member of the Supreme Court; it is precisely the reverse. It is ensuring that public sector pensions, which are ultimately paid for by us all as taxpayers, are not politicised, and that political judgments do not come into decisions on the types of investments that are made by these funds.
I will conclude my remarks and leave the matter with my right hon. Friend the Chief Secretary, and I hope that, between us and other interested Members in all parts of the House—there are a significant number—we can find a resolution to this issue, which has been hanging around now for several years, between 2013 and that judgment in the Supreme Court a year and a half ago, and put it to bed.
I have to give it to Robert Jenrick for his ability to describe possibly one of the most inflammatory amendments that we shall consider in this House as a modest technical amendment—but there you are. I am sure we will come back to that debate as part of a wider discussion of the issue.
I want to focus briefly on part 1 of the Bill, which addresses the McCloud judgment. I think we have to acknowledge that what we are having to deal with is an absolute mess in the management of public sector pension schemes by the Government, exposed by the McCloud judgment. It was a mess created not by the members of the public schemes themselves, who have been congratulated across the House this evening on the public service commitment that they are demonstrating at the moment, but by Government decisions. As this mess was created by Government decisions, it follows that the cost and the burden of clearing up this Government-created mess should fall not on the pension scheme members themselves, but on the Government.
Because I have received so many representations from constituents on this matter, I want to get some of the narrative clarified on the record. It is worth going back into the mists of time to fully understand the context and the genesis of this dog’s breakfast, as it was described in the other place.
I am grateful to Bryn Davies—Lord Davies of Brixton—a Member of the other place, our foremost pensions expert, formerly the TUC’s actuary and pensions adviser, and subsequently adviser to numerous trade unions and associations, for the explanatory notes that he has provided to a number of us and the issues that he has raised in the other place. Bryn Davies reminded me of the history of the pension reforms that have laid the path to this chaotic state that we are now trying to resolve.
The mechanism for managing the future funding of public sector pensions stems originally from the discussions between the Labour Government and the trade unions in 2006. It was those discussions that resulted in a broad relationship agreement—the Warwick agreement—and also agreed a series of pension reforms. The aim, quite rightly, was to stabilise for the long term the funding of pension schemes to enable decent pension schemes to be provided, and to tackle, to be frank, the fact that some people who had provided a service throughout their career were finding, contrary to what Peter Grant said, and contrary to what was being reported in a number of papers, that they were being provided with a pension on which they were hardly able to survive.
In 2011, following those discussions, the coalition Government commissioned the Hutton report, which led to the Public Service Pensions Act 2013. That Act provided the basis of the existing system, including the cost control mechanism that we are addressing in this Bill. The key element of the cost control mechanism was that the cost to the employer of each of the public service schemes was fixed as a percentage of pay, which meant that if the cost of providing a scheme increased—I remember the debate and the predictions that were made—for instance due to some scheme members living longer than expected, it was agreed that either benefits would be reduced or members’ contributions would be increased. A number of us did not like it, but that was what the House agreed because it was seen by some as a fair process for the future.
If the cost of providing a scheme fell, such as if pensionable pay did not increase at the expected rate, benefits would be increased or members’ contributions would be reduced. That was the equivalence that was agreed, and it was considered fair. I remember the debate, and it was also agreed that things would stay as they were if the change was less than 2% in either direction.
It was always agreed that some types of additional costs would be the responsibility of the Government—employer costs, as defined, as opposed to member costs. In 2012 the Treasury published a report that spelled out the difference. Employer costs were exemplified by changes in actuarial methodology or changes in the discount rate. The logical argument made by the unions is that the additional costs resulting from remedying the Government’s actions in this case, as exposed by the McCloud judgment determining that the Government’s actions were unlawful, are the responsibility of the Government, and therefore fall squarely into the category of employer costs, not member costs.
This is critical because the cost of the schemes, as used for control purposes, has usually fallen, largely because pay rises have not been as high as expected or because life expectancy has not improved as was previously predicted. If we abide by the agreements that were legislated for in this House, pension scheme members should have received either improvements in benefits or reductions in contributions, or a combination of the two, because the cost of the schemes has fallen.
Instead it appears that the Government are minded to treat the remedy costs of the McCloud judgment—the costs of remedying the Government’s illegal actions—as member costs. We have heard from my right hon. Friend Mr McFadden that the cumulative cost could be £17 billion. This kicks in the cost control mechanism, as in some schemes the cost will rise by more than 2%. This would usually have resulted in cuts in benefits or increased contributions, so at least the Government have introduced a waiver to prevent that from happening.
However, this does not assist my constituents who rightly argue that they have been robbed by the Government and forced to pay over the odds in pension contributions but will receive no additional benefits. In fact, they feel they have been hit by a double whammy, having had their pay virtually frozen or cut but, as a result, still losing out on pension contribution savings. The impact for some will be the prospect of hardship in retirement as a result of not receiving the full benefits of their scheme as originally agreed. For many others, the measures will undermine the incentive to contribute to the pension schemes that are available to them. We have already seen more than 270,000 who are open to joining the scheme dropping out of it. This disincentivisation means that pensioners will be living in greater hardship and poverty and will therefore be reliant on state benefits, so there will be no saving to the Government overall. From the discussions I have had with my constituents and a range of trade union representatives and members, I know that there is a sense of betrayal among pension scheme members.
Another issue that my right hon. Friend the Member for Wolverhampton South East raised was the pensions trap, which has been highlighted by the police associations, particularly the Police Superintendents Association, and by the firefighters, in which the value of the contributions and the pension declines with additional years of service. That is a contradiction that needs to be resolved by the Government, and I hope that that will be undertaken as the Bill goes into Committee and comes back to this House.
The discussion around pensions is as sensitive as the issue of pay, if not more so at times. These are always sensitive policy issues, and people naturally have strong feelings about them. It is worrying to me that, as Bryn Davies—Lord Davies in the other place—highlighted, the key decisions on whether the remedy cost is a members’ cost or an employers’ cost, and on whether the cost of the remedy should be spread over four years as suggested by the Government, are neither on the face of the Bill nor being dealt with by delegated legislation. Instead, under section 12 of the Public Service Pensions Act 2013, these issues will be dealt with by “Treasury directions”. That means that financial obligations will be placed on scheme members without effective parliamentary decision making or scrutiny. These are not technical matters; they are matters of high policy and they affect many of our constituents. They are a matter of public concern and they have generated anger among many of our constituents at what they feel is the unjust way they are being treated. Members of this House should insist that these decisions are subject to proper parliamentary scrutiny and proper parliamentary decision making.
Much of what we are debating in part 1 of the Bill will almost inevitably be the subject of further legal challenge by a large number of trade unions and possibly, we hear, even by the British Medical Association. I fear that, rather than remedying the Government’s errors and lack of judgment, the Bill will almost wilfully compound those past errors and possibly exacerbate the strong feelings of injustice felt by many of our constituents. I say to the Minister that considerable thought needs to be given to these issues in Committee and possibly on Report, to ensure that the Government do not lay the burden of the failure of past Government policy making on the innocent shoulders of many of our constituents, who, as has rightly been said today, are providing essential services across a communities at a time when we desperately need them.
It is a pleasure to follow John McDonnell. He brings detailed knowledge of these matters to the debate, and although we do not always agree, it is always interesting to listen to the careful arguments that he deploys on pensions matters. I remember that from my time as the junior Minister responsible for the local government pension scheme.
I note the points raised by my right hon. Friend Robert Jenrick about the potential conflict between a boycott, divestment and sanctions approach involved in taking a political attitude to pension schemes and the fiduciary duty of the trustees of those schemes to their members. That is something that we will return to, but with no disrespect to other Members, I want to concentrate on the elements of the Bill that concern judicial pensions and the retirement age, which obviously engage my interests as the Chair of the Justice Committee.
I will not repeat much of what has been said with great eloquence by my right hon. and learned Friend Sir Robert Buckland, who made the case very clearly. I welcome what the Government have done, as it was clearly right to respond to the McCloud judgment, and I am glad about the way in which they have done so. It is also good news that the Bill brings an even-handed approach to fee-paid judicial office holders—recorders and deputy district judges, for example—so that they are on a much more equitable basis with the full-time judiciary. That is a sensible approach.
By and large, the changes are welcome and necessary, but I hope that the Minister will take away the point about the interaction of the annual cap and the lifetime cap, which is particularly important to those who tend to be appointed to the High Court bench. Generally, those people are drawn from high-earning, highly experienced Queen’s Counsel and senior partners in solicitors firms. The reality is that we have to make it worth their while to undertake what is a public service in the latter stages of their career. Having been successful in practice, almost inevitably they take an income cut to go on the bench. There should not then be a tax penalty on top. If we want the very best on the bench, especially in the commercial court and other specialist jurisdictions, which have a reputational and financial value for the United Kingdom because our judicial system is a centre of excellence and venue of choice for high-value litigation, we have to make sure that we always get the very best to sit in those jurisdictions.
I want to deal with the issue of the retirement age, particularly the impact that that has elsewhere in the system. The Justice Committee considered the legitimate point that has been made and referred to about the impact on diversity of increasing the retirement age to 75. It is a fair point to make. There is no doubt that 70 is too low. The world has changed massively since the time when, as has been observed, Lord Denning was sitting into his 80s. Happily, many active 70-year-olds are well able to continue to contribute in many areas, and the judiciary should reflect that, as much as this House and anywhere else. My right hon. and learned Friend the Member for South Swindon rightly, prompted by others and by me, some time ago increased the age at which jurors can sit to 75. The burdens on people serving on a jury, even in a long case, are nothing like those for a full-time judge, but it is significant that we accepted—and the House accepted—that decision makers, in fact, could continue perfectly reasonably until 75. There is no reason, for example, why that should not be the case for the magistracy as well. I can think of many able magistrates whom we have needlessly lost at an artificial cut-off age of 75.
The same applies to the bench. One can think of a number of distinguished former members of the High Court and the Supreme Court who have had to retire at 70, with many years of service still to give, and still do so, often sitting as arbitrators in important areas of commercial litigation and mediation. I am glad that they can do so, as they perform a great service, but many of them would be happy to continue in public service as justices in the High Court and the Court of Appeal. We are therefore right to reflect societal and medical changes that have taken place.
The concern about opening up vacancies was debated at some length in the other place. As I say, it engaged members of the Select Committee, and a majority expressed concerns about it. I speak for myself in this regard, as I think that 75 is the right age in the circumstances. I am persuaded by the majority of respondents. I am conscious that a number of those in the senior judiciary would have gone to the age of 72, but it is currently possible to make a business case on an individual basis for members of the judiciary to sit until they are 72, so I do not think the difference is great.
The impact assessment indicates that the potential diminution in diversity opportunities is minor in reality. As has already been observed, there is a great gain in particular for women practitioners who have taken a career break and have therefore not necessarily had the opportunity to gain sufficient seniority within the professions to qualify for appointment, but who will be able to serve for the full 20 years required to qualify for the full judicial pension.
As my right hon. and learned Friend the Member for South Swindon observed, in essence we had a reduction of the age to 70 and an uplift in the number of years that had to be served from 15 to 20—in other words, if someone was not on the bench by the time they were 50, they would not get their full pension. As I observed in my intervention, those at the very high-earning end of the Bar and the solicitors’ profession may well have made other provision in that regard during their earnings in practice, but it is of particular value for the people who are—I hope they will not regard my use of this phrase as in any way disrespectful—the real workhorses of the system, who sit in the Crown court and the county court, to have the full judicial pension. Those on the circuit bench and the district bench take on the vast volume of judicial work and generally—certainly in crime and family work—will have largely done publicly funded work so will not have been in the position to put by great provision for the future while they were in practice but will none the less have undertaken important, critical work in the latter stages of their career and have a reasonable expectation of being able to serve the full 20 years to get their pension and to bring their expertise to bear.
It is significant that in the latest recruitment round there has been a shortfall of around 49 in respect of recruitment to the district bench. The vacancy rate in the latest round was 106, and 57 appointees were recommended for appointment to the district bench, and in the circuit bench there were 63 vacancies and 53 were recommended. Despite the excellent work done by the Judicial Appointments Commission, there is a shortfall—the Lord Chief Justice indicated recently in evidence to the Justice Committee that it is a continuing shortfall—in those key areas that deal with the vast volume of serious work: crime, family and civil. It is important to give people the opportunity to serve that much longer in terms both of judicial people power, if I can put it that way, and of making the career prospects attractive.
We do need to make the judiciary more diverse and more representative, but the way to do that is not to keep down the retirement age to such a low level that able people are needlessly lost to judicial service. We must redouble our efforts to attract people from diverse backgrounds and particularly from some ethnic minorities. The truth is that it varies, because it is not a homogeneous issue: the Select Committee heard compelling evidence that some minority groups are much more willing than others to consider a career in the law and in the judiciary. Let us do more to reach out right across the board to engage other groups and let us reach out to get more women to return. There has already been improvement on that, particularly in the magistracy and elsewhere, but there is more to be done.
We must of course encourage people to advance up the judicial ladder and to recognise that to advance from, for example, the district bench to the circuit bench and then into the High Court is something that is open and to be encouraged for all. I commend the work of the noble Lord Kakkar and his colleagues on the Judicial Appointments Commission in that regard. They recognise that we can always do more, and we as a House would recognise that, as would the Minister and his colleagues. We should not accept that the commitment to diversity that we all share, and our equal commitment to excellence and to having the very best people available to serve on cases which, after all, at almost every level change people’s lives to a greater or lesser degree, mean there must be an either/or trade. It is perfectly plausible and viable to have both, and that must be our objective. I therefore think that, on balance, we have the right position. I am conscious that I differ from some Members of the other House, who, as lawyers, I greatly respect. Equally, however, other highly experienced lawyers in the other place came to a different view. I am persuaded on this occasion, not for the first time, by the noble Lord Mackay of Clashfern, who reduced the age to begin with. If James Mackay is prepared to do a John Maynard Keynes and say, “The facts have changed; I have changed my opinion”, that is probably good enough for the rest of us and it certainly is for me.
On balance, I think the Government have got this right. I am sure that we will return to it on Report but, overall, this is a good measure. I hope that it is a part of package that we must have to make a judicial career attractive. I say to the Minister—this is strictly outside the scope of the Bill, but I hope you will indulge me, Mr Deputy Speaker—that it is not just the pensions that matter, but the tax treatment, as I mentioned, and, as the Minister is responsible for the courts, the working conditions, including the maintenance of the courts, the support that judges get from court staff, some of the lowest-paid in the public sector, and making sure that there are not leaks in the corridor and that the heating does not break down, as he and I know happens in some Crown courts. It is also about ensuring that there is general public respect, which we can all have for the judiciary at every level. All of us, whether we agree with any individual decision, should treat the judiciary at every level with the utmost respect because they are fundamental to the maintenance of our democracy just as much as this House is.
I hope that the House will pass the Bill swiftly and send it forward to an early Royal Assent.
It is a pleasure to follow Sir Robert Neill, and it was very interesting to hear his views on that aspect of the Bill and the judiciary. It is one of the reasons why— as other Members have mentioned—I do not think that the Liberal Democrats will oppose the Bill, although we may, at a later stage, table a number of amendments, which I will return to later.
As has been mentioned, there have been a considerable number of amendments to the Bill, which is intended, as the Government said, to ensure that we have equal treatment for all members in each of the main public service pension schemes. It would remove unlawful discrimination and bring in the remedy to age discrimination, as identified in the McCloud judgment, enable the Treasury to establish new public service pension schemes, increase the mandatory retirement age for judges, as the hon. Member mentioned, and provide for regulation-making powers. I believe that all of us in this place would support those aims, but the Liberal Democrats have several concerns, some of which Mr McFadden mentioned. Many of the concerns were raised in the other place in relation to the amount of detail that is left to regulation and direction and what support will be available to members in making important decisions about their future pension planning.
In considering the Bill, we should reflect on lessons that we have learned, or should have learned, from previous, well-intentioned but ultimately problematic pension reforms, when issues of discrimination and unfairness emerged. I am thinking of the unintended consequences, a lack of information and poor communication, the implications of which have characterised the changes to the state pension age for women, particularly those born in the early 1950s. Ministers could do worse than to listen to some of the 6,000 so-called WASPI women in my Edinburgh West constituency talking about the hardship that the mismanagement or miscommunication of complicated pension changes can cause.
Our experts fear that up to 3 million pension holders will be affected by these important changes. Although consultation responses were supportive of the deferred choice method in the Bill, they warned that the complexity of implementing it may have been underestimated, and that was one of the concerns the Liberal Democrats mentioned in the other place. We believe that not enough support is being offered to members of schemes faced with complex decisions that could involve heavy losses. In the other place, we tabled an amendment to require the Secretary of State to issue guidance to help members understand the choice in front of them, and that could include something like a helpline.
We are also concerned about fairness and the disproportionate effect that some of the provisions in the Bill may have on women, and we tabled an amendment in the House of Lords on women and the gender pensions gap. The Government do not seem to have any real policy on how to rectify the problem, and women will potentially be adversely affected by the Bill, given the time they will have taken out of work for childcare and so on.
One last concern, which we may return to, is that raising the mandatory judicial retirement age from 70 to 75 could have a negative impact on the diversity of the judiciary, which at the moment is dominated by older, white men. To return to the statement by the hon. Member for Bromley and Chislehurst, the judiciary—its diversity, its fairness and its reflection of the country—is as important in many ways to our democracy as this place is.
That is all we would want to add at this stage, but we will return to these issues, perhaps on Report, and certainly with some amendments.
I am grateful for the opportunity to close the debate on behalf of the Opposition. As my right hon. Friend Mr McFadden said, we do not oppose this important Bill—indeed, I welcome the serious debate that has taken place this evening—but we will continue to hold the Government to account as the Bill progresses. I thank Members on both sides of the House for their valuable contributions, and I am grateful to the hon. Members for Gloucester (Richard Graham) and for Bromley and Chislehurst (Sir Robert Neill), Sir Robert Buckland, Peter Grant, Robert Jenrick, my right hon. Friend John McDonnell and Christine Jardine.
Our public sector workers play a vital role, and I pay tribute to the hard work of our NHS staff, teachers, police, firefighters and many other dedicated public servants, all of whom are affected by this Bill. We owe these public servants an enormous debt of gratitude for their vital work during the pandemic. As we heard, these workers had to be at work physically throughout the pandemic—not at home or working online. They were caring for the sick, delivering key services or keeping our streets and communities safe. It is right that these dedicated workers can expect a decent pension in their retirement. It is not always understood that most of the schemes in question operate on a pay as you go basis, with workers themselves contributing throughout their working lives.
The shadow Chief Secretary, my right hon. Friend the Member for Wolverhampton South East, raised a number of important questions in his speech, and I am afraid to say that, so far, Ministers have failed to fully answer them. I hope the Minister, in his closing remarks, will now reassure these hard-working public servants about a number of matters.
The most important question is, where will the £17 billion it will cost to fix the Government’s mistake in 2015 come from, and who will pay this enormous bill? Will it be the taxpayer, or will it be the pension scheme members?
The next question is about the design of the remedy the Government have put forward. I welcome their decision to accept the mechanism favoured during the consultation, but we need clarity about whether that choice will incur any costs for the pension scheme members concerned. If the Government are going to ask scheme members to take potentially significant decisions, will they commit to providing much more information to pensioners and savers to help them avoid making costly mistakes? Ministers have failed to do so in the past, and even now they seem reluctant to include pension scams in their important Online Safety Bill, despite the spiralling costs of pension fraud and mis-selling.
We also ask the Government to be clear about how the cost control mechanism will work. We were told at first that if costs breached the ceiling, benefits would be reduced, but the Government have said that no member will see benefits reduced in this case. What does that mean? How will the necessary funding be provided, and is there going to be a time after which such a guarantee may lapse? Ministers have left a number of crucial questions unanswered about part 2 of the Bill as well: what are the estimated costs to the Treasury of underpinning the liabilities of former employees of Bradford & Bingley and Northern Rock, and are those costs additional to the £17 billion budgeted for the McCloud response, or are they part of the scheme and the overall response?
Carrying on to the next part of this important Bill, which concerns the judiciary and has been the subject of much of the debate this evening, do the annual allowance and lifetime allowance not apply to judges? I ask the Minister to clarify that very important point: it is unclear, and it must be clarified. If judges are not covered by the same rules, how will the Government justify that decision to other pensioners? Indeed, does that decision leave the Government open to legal challenge in the future? Furthermore, colleagues in the other place voiced concerns that raising the mandatory retirement age for judges could make it more difficult to increase diversity in our legal system. I hope the Government will make available further details of how they plan to ensure this does not happen. We understand the need to clear the backlog of cases, but I urge the Government to do far more to increase diversity in this very important profession.
I will also take this opportunity to underline the concerns raised by the Police Superintendents’ Association and, indeed, the Fire Brigades Union. Scheme members in the police and fire services could be adversely affected by this Bill because of the ways in which the years between 2015 and 2022 are treated. We know that the Home Office said that further work was needed on this issue, and Ministers have discussed it with representatives of the police and fire services. How will the Government now address this important point? I hope the Minister will speak to that in his closing remarks.
Finally, I urge the Government to respond to the points raised by the Public Accounts Committee when it went through the proposals in a great deal of detail. We must fully understand the consequences this Bill could have for both employees and employers, and I am concerned that the Government have not properly considered the knock-on effects on public service recruitment and retention, which are both absolutely critical issues for these vital public services. There is also a risk that more means-tested benefits may be required if there are changes to public service pensions, and that public service pensions may be worse off. I hope that we will hear reassurance from Ministers on those crucial points. I assure the House and the wider public that we in the Labour party will keep raising these important questions, and I hope the Government will respond in a timely and appropriate manner.
I realise that time is pressing, so I will end my remarks with the following: on an issue of such great importance as the future pensions of so many public sector workers, the public deserve to be confident that the Government have adequately prepared for all eventualities and fully understand the consequences of their actions. Public sector workers, as well as Members of the other place, have made their concerns and questions clear, and it is regrettable that they have not been answered in full so far today. I hope that the Minister will now take his opportunity to reassure the House, the wider public, and public servants about these important points.
Let me start by thanking all right hon. and hon. Members for their contributions. Before turning to the specific points raised during the debate, I join other colleagues in recognising that this Bill is ultimately about public sector pensions, and comes at a time when our teachers, nurses, police, judiciary, and the entire public sector workforce are once again being tested by the ongoing challenges of the pandemic. I join others in expressing my profound thanks to all those working so hard on the frontline, particularly—as the Opposition spokesman, Matt Rodda, has quite rightly just said—those who have not been able to work at home. They have been out there, risking their health for our benefit, and we owe them a huge debt of gratitude. That is why this Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement on a fair and equal basis.
However, of course, the Bill also includes provisions to help address the resourcing challenges facing the judiciary. I wanted to start with this crucial point about capacity in our justice system, not least because it gives me an excuse to offer my profound congratulations to my right hon. and learned Friend Sir Robert Buckland on his honour in the new year’s honours list. It is richly deserved, and as the Minister responsible for court recovery, I hope that a particular part of that honour was due to the massive effort that my right hon. and learned Friend put in with the Lord Chief Justice to keep jury trials going in this country against all the odds. That was incredibly difficult when the pandemic started, because let us be clear: 2 metre social distancing and jury trials go together like a fish on a bicycle, to put it bluntly.
If anyone is in any doubt about this very serious point, they should look at the situation in Wales today, because I can confirm to the House that the new 2 metre social distancing rule in Wales could have profound implications. It is our calculation that, of the 17 Crown courtrooms in Wales, five could be out of use if 2 metre social distancing is enforced strictly, and the two we were planning to open could not be opened. In other words, that would lose seven out of 19 courtrooms, or almost 40% of capacity. My right hon. and learned Friend is of course very familiar with the Welsh criminal courts, where he cut his teeth. I have been able to speak to the Counsel General for Wales, who is my opposite number. We had a good discussion this afternoon, and officials will keep talking, because there may be ways to mitigate this, but it really outlines why we have a capacity issue. When the pandemic hit, it slashed the capacity of our courts to hold jury trials, and it was in the Crown court that this was so crucial.
To give the mathematical quantification, in January and February 2020 we averaged about 8,000 disposals per month. I am pleased to say that last year we were averaging about 8,000 disposals per month from January to October, so we have been getting back to pre-covid capacity. However, in April 2020 there were just 3,000 disposals, with 4,000 the following month and 5,000 the month after that. The massive hit to capacity initially was to physical space—courtrooms and so on.
Therefore the initial focus, led by my right hon. and learned Friend, was on Nightingale courts, which are particularly good for bail cases; the use of IT, so that we had remote hearings; and of course the super-courts, which have been so important for multi-handed cases, where, with multiple defendants, social distancing is even harder. All those measures were about capacity in terms of physical space or using the internet in effect to increase our capacity, but the key thing, as we have got near to pre-covid capacity, is that the labour force has become the issue. That is why the Bill is so important for the judiciary and for our constituents, because it is all about the backlog.
We have active recruitment programmes. We are doing everything possible to recruit more magistrates, more judges and more recorders—our fee-paid judiciary—to sit, which is incredibly important, but ultimately this measure is one way for us, relatively quickly, to bring some very experienced labour to bear to help us to bear down on the backlog. That is why I am grateful that all of my colleagues have welcomed the increase in the MRA to 75. Is my right hon. and learned Friend intervening? [Interruption.] I thought he was, but I apologise.
No, but I am happy to intervene. I do not want to make this too oleaginous, but the point my hon. Friend makes about capacity is a huge one. We do not have enough recorders or judges, no matter how many the Lord Chancellor signs back in after retirement. That, I am afraid, is because there has been a bit of a crisis in confidence, and therefore a lack of people coming forward to do these important roles. I reiterate what I said in my speech, which is that we need a world-class independent judiciary, and that is why the Bill is so important.
Perhaps in the days without masks it would have been easier for me to tell whether my right hon. and learned Friend was actually intervening, but he is absolutely right.
I can answer the question posed about the lifetime allowance by the Chair of the Justice Committee, my hon. Friend Sir Robert Neill, and by the shadow Chief Secretary, Mr McFadden. To clarify, the legacy judicial pension scheme is unregistered for tax purposes, so the lifetime allowance tax charge does not apply to accruals under that scheme. The new judicial pension scheme, to be introduced from
Diversity, which was raised by several colleagues, is incredibly important. Just as in education we have been asking teachers to return to schools to help out and at the start of the pandemic the health service had many thousands of nurses and others returning to clinical roles, we are in effect doing the same. When we do that, however, we obviously cannot directly influence the diversity of the people who are returning to a profession or being retained for longer. As the Chair of the Justice Committee said, it is about reaching out to the recruits of tomorrow. We are taking many steps: for example, since 2020 we have been funding a two-year pilot programme of targeted outreach and support activity by the Judicial Appointments Commission, providing advice and guidance to potential candidates from underrepresented backgrounds, including those from BAME backgrounds, women and the disabled, and soliciting candidates for specific senior court and tribunal roles. In terms of magistracy, we will be launching a new online magistrates recruitment programme in the coming weeks to encourage applications from younger, more diverse cohorts. This is an important point.
The former shadow Chancellor, John McDonnell, the shadow Chief Secretary, the right hon. Member for Wolverhampton South East, and the shadow Work and Pensions Minister, the hon. Member for Reading East, asked the important question of where the £17 billion will ultimately be coming from. The cost of the remedy is estimated to increase pension scheme liabilities by £17 billion, so it is the scheme liabilities that increase. However, that liability will be realised over many decades. It also represents a small proportion of the total savings of around £400 billion that will arise from the wider reforms to public service pensions. To be absolutely clear, the liability will fall on the Exchequer. I hope that offers clarification.
The shadow Work and Pensions Minister asked for clarity on the issues around the ceiling breaches and so on. As the Chief Secretary to the Treasury made clear in his opening speech, no member will see a reduction in their benefits as a result of the 2016 valuations. I hope that provides some reassurance to the shadow Minister. UK asset resolution schemes currently pay out benefits of about £530 million per annum; this is a cost the Government already bear. The policy creates a more efficient situation for paying these pensions and ensuring the current schemes will have a stable benefit.[This section has been corrected on
The question asked by the right hon. Member for Hayes and Harlington and the shadow Work and Pensions Minister about the so-called pensions trap and the issue around the police has been raised with the Government by police representatives and we have been considering it. The Home Office is consulting on detailed regulations to implement a prospective McCloud remedy for the police pensions scheme, but the Government must not take action contrary to the intention of this Bill to remove discrimination identified by the courts by inadvertently introducing new unequal treatment and discrimination.
Christine Jardine and the shadow Chief Secretary both raised an important point about advice and guidance, and they were right. These are potentially complex issues. Perhaps one important point is that for many members this will hopefully be relatively straightforward; they will be presented with two options, one of which will be financially more generous. Hopefully, therefore, it will be relatively straightforward, but of course it is important that we provide guidance. Providing sufficient guidance for members to make informed decisions about their pensions is of the utmost importance and as such the Bill already requires that schemes provide members with remediable service statements containing personalised information about the benefits available to them. This will include details of the benefits available to them under the legacy scheme and the benefits available to them if they elect to receive new scheme benefits or choose for a period of opted-out service to be reinstated. These statements will be provided to active members on an annual basis.
The hon. Lady also raised the important issue of women and the general point about fairness. The Government agree strongly with the need to ensure that the impact of the Bill is fair on members of public service pension schemes with protected characteristics, including women. A full equalities impact assessment of the Bill was conducted and published alongside the Bill’s introduction. In addition, when making the necessary changes to their scheme rules to deliver remedy, pension schemes will carry out any appropriate equalities analysis for their specific schemes in compliance with the public sector equality duty in section 149 of the Equality Act 2010.
I am grateful for the support of the former Secretary of State, my right hon. Friend Robert Jenrick, on lifting the retirement age and, we hope, its impact on capacity issues. He put his specific point well in saying that his suggestion is the very opposite of politicisation. The Government have made their position on boycotts clear. We do not hesitate to express our disagreement with foreign nations whenever we feel that it is necessary, but we are firmly opposed to local boycotts that can damage integration and community cohesion, hinder exports, and harm foreign relations and the UK’s economic and international security. Local authorities should not undertake boycotts that could undermine foreign policy, which is a matter for the UK Government alone. The Government therefore remain committed to our manifesto pledge to ban public bodies from imposing their own boycotts, disinvestment or sanction campaigns, and we will legislate as soon as parliamentary time allows.
I am grateful to my hon. Friend for his remarks. He has just said that the Government will legislate as possible; this is the opportunity to legislate. Of course, there might be a BDS Bill at some point later in the Parliament—we do not know; there will always be pressures on the legislative timeframe—but even if there were, this is the appropriate Bill to handle the situation, because the issue arose in the 2013 Act, to which this Bill is essentially the successor. I do not expect my hon. Friend to make a commitment here at the Dispatch Box—it is clearly something that we will all have to consider in the weeks ahead—but this is the moment at which to make the amendment, should the Government wish to do so in this Parliament.
I am grateful to my right hon. Friend. As he knows, matters of parliamentary business are above my pay grade—a very humble and new one—but I hear his point, and I think he made it very well. I am sure that he has a great deal of sympathy for our position, and I simply repeat that we will legislate when parliamentary time allows.
Let me finally refer to the points made by the Chair of the Justice Committee, my hon. Friend the Member for Bromley and Chislehurst, and the former Lord Chancellor, my right hon. and learned Friend the Member for South Swindon, about the independence of the judiciary. They are right: this Bill, including the important parts that deal with the judiciary—I make no apologies, as a Justice Minister, for focusing on those in the winding-up speech, not least given all the backlog issues—sends a powerful signal about our support for the judiciary. I believe that the independence of the judiciary is part of the competitiveness of the United Kingdom. The reason people buy our insurance in the City or trade with our banks and our service sector is that they trust this country, and they trust us because they trust the contract and they trust English law, and we should all be very proud of that.
On the basis of the contributions made today, I believe that the House agrees with the principles underpinning the Bill. I am grateful for the support of the shadow Chief Secretary and the Labour party, and indeed for that of the Liberal Democrats and other parties. I think we all agree that we must make certain that those who deliver our valued public services continue to receive guaranteed benefits on retirement on a fair and equal basis, and in a way that ensures that pensions are affordable and sustainable, and that we must also support our world-class judiciary to enable it to meet the demands of the present day and of the future. I extend an invitation to all Members who may wish to discuss these issues further with me and with the Chief Secretary before the Committee stage. I look forward to that further discussion, and I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.