Judiciary pension ruling – possible impact on AFPS

Yesterday, an Employment Tribunal upheld a claim by 210 judges that they suffered age, race or sex discrimination during changes made to their occupational pension scheme.  The government had claimed that transitional protection (i.e. preserving existing pension scheme benefits for elder judges closer to retirement) ran contrary to discrimination legislation.

Judges have form.  Back in 2012, thousands of part-time judges were made eligible for a retirement pension after the European Court of Justice suggested there appeared to be no justification to treat them differently from other part-time workers. Step forward Dermod O’Brien QC, who sat as a recorder for 27 years and was refused a pension when he retired in 2005. UK regulations at the time, on the rights of those part-time workers, excluded part-time judges because they were ‘office holders’.

The Luxembourg court chewed that government case over, and promptly threw it out. It pointed out that Dermod was required to work during defined periods of time and was already entitled to other benefits available to his full-time counterparts such as sick pay and maternity or paternity pay, anyway. The court said that just because part-time judges and recorders retained *the opportunity* (my emphasis) to practise as barristers as well, it didn’t mean they weren’t “in a comparable situation” to full-time judges because they performed “essentially the same activity”.

This, I know. My dad ended his legal career as a part time judge. He had the same obligations bestowed upon him as a full timer, he attended the same retreats, had to ensure he kept up to date with legislation etc etc. After all, there had to be one standard and rather pointedly, ECJ reminded the parties that “budgetary considerations were no justification to discrimination”. Why is that important within the context of AFPS? Because the similarities are many – because to understand your bearing, sometimes, you have to work out your back bearing.

AFPS’s 75, 05 and FTRS 97 (Full Commitment) have a NPA of 55. RFPS 05, FTRS 97 (Limited/Home Commitment) and NRPS have a NPA of 60. This meant that if you were a member of AFPS 75, AFPS 05 or FTRS 97 (FC) and were aged 45 or over on 1 April 2012, if you were a member of RFPS 05 (including those on Additional Duties Commitment), FTRS 97 (on LC or HC) or NRPS and were aged 50 or over on 1 April 2012, you remained in your (at the time) current pension scheme and your benefits were unaffected.

In fact, the military regulation went further. If you were covered by said transitional protection you *had to* (my emphasis) remain on your current scheme until you exited the Armed Forces. The MoD suggested that you had “no legal right to be able to choose your pension scheme in order to maximise your benefits”.  Consequently, as we now know, reservists and part time personnel currently have the right to membership of the same scheme as full timers.

Fast forward five years.   The cut off point for transitional protection for judges was brutal, in much the same way that AFPS15 pension transition and redundancy terms for many in AFPS were also brutal.  In essence, the judge threw out the government’s case that transitional protection for elder judges was an overriding one.  He didn’t say the principle of protection in such a way was flawed, he said that in this instance, the ends didn’t justify the means.  It should be remembered that taxation plays a part, uniquely, in the judges pension scheme – it remains unregistered and therefore, unaffected by annual or lifetime allowance criteria.  Therefore, changes to taxation legislation affect judges far more accutely.

Similarly, before the general transition to AFPS15, the MoD offered transitional protection for anyone within ten years of their respective scheme’s Normal Pension Age (NPA) on 1 April 2012, and one’s retirement benefits could depend on many things outside one’s control, let alone one’s ability. Someone born a day after another person in the same mess, could have a markedly better retirement in financial terms purely because they were born one day prematurely.  Yesterday, the judge wondered how the ten year provision was arrived at, let alone confirm its validity. He noted that there was no study on it carried out, that it seemed to have been the result of horse trading done with trades union across the public sector, and that therefore, it seemed a good place to start.  No one questioned it.

He noted too, that for affected judges to reformulate their retirement investment strategies, a sum in the order of £30,000 per annum may be required, which, in practical terms, required financial commitment almost impossible to replicate.  Further, the judge seemed to question the need for transitional protection at all, stating that it was based on accepted generalisations, and, per se, seems to have been accepted as a device to aid industrial relations, and not supporting the edifice of importance that the government had relied on it.  He also noted that the case that judges wouldn’t have time to change their investment profiles was erroneous, as most should have done it anyway.

The challenge from the judges was also brought against changes to the scheme on the grounds they were discriminatory, not just on the basis of age, but also gender and race. The judges who bought this action claimed that Liz Truss had discriminated against younger judges by requiring them to leave the judicial pension scheme in April 2015, while older judges could remain in it. If we look at the demographic breakdown of most flying units, I’m pretty certain that most so called black, minority ethnicity female personnel will be found at the lower reaches of the command structure.

I’d go one step further, if I were representing service personnel, I’d say that they impact everyone (i.e. all of us) on the grounds of Defence of the Realm. The tribunal judge, Stuart Williams, yesterday, observed that the “combination of adverse pension changes and successive taxation changes have reduced the overall value of a High Court judge’s remuneration to the point where it has become difficult to recruit new High Court judges”.  As things ratchet up across the world again, is our ability to recruit the very best impacting on national security?

Interestingly, if you look back, what really annoyed the judges in the first place, was the fact that the pension changes were imposed unilaterally. There were no true negotiations, in the true sense of the word, over pension changes – there may have been some roadshows, some questionnaires, and even a covenant. But that doesn’t put jam on the table. The grumble always has been, younger service personnel signed up to one set of pay and pension, and ended up getting another, less good set. And that wrankled, in judicial retreats as it does the mess and the crew room. I know.

What of the future, does this mean there will be no transitional protection as AFPS evolves?  Highly likely.  Although the similarities aren’t identical, there are some.   So, why wouldn’t someone launch a ‘me too’ action, what do they possibly have to lose? Even the loosest cash flow modelling shows an incredible range of outcomes if you compare someone who was retained on 75, with someone who was placed onto ’15. Secondly, talk of changes to AFPS15 moves on. We should consider two possibilities.

The judge yesterday didn’t seek to offer a solution, and he stated that the issue wasn’t one of pension reforms; rather, transitional protection proportionality.  Would that even apply to serving senior officers in 2012-2015, as the new AFPS evolved?  If we look at this ruling, the judge would wonder.. did anyone within the MoD carry out an impact statement on them?    He’s not saying they should or shouldn’t have it, but rather, it was unfair to arbitrarily exclude less senior personnel.  But let’s assume the MoD has to act (no one says it has to) and decides to retrospectively apply two years worth of pension scheme changes which don’t discriminate (i.e. result in a scheme outcome where there is not a measure of transitional protection).

If so, will every service person serving at the time, receive an actuarially constructed notional contribution to their pot that places them in the same position as someone who was granted grandfathering rights? If we assume that that is possible, it’s not the most horrendous outcome for the ministry, it would, in effect, mean cancelling AFPS15 scheme membership for anyone already serving before April 15. The other option would be to reverse the principle of grandfathering, and deny it, and that’s not going to happen. A lot of already annoyed Wing Commanders and a lot of surly Group Captains chipping into a legal fund buys you some pretty hefty clout.

In respect of consistency, the judge did state he refrained from commenting on transitional pension arrangements in other (public sector) schemes, but he did say that if it transpired arrangements in schemes such as AFPS were unlawful, it “would not avail the government to argue for consistency between those other scheme and NJPS”.  In effect, he seems to be saying that even if other schemes offered unlawful terms, that in itself, is no reason to allow the judiciary  scheme to be a party to it.

We don’t know if Liz Truss will wind back the clock, or just preserve existing membership to all judges serving at the time.  But, if we apply some of that thinking to AFPS, ano return to everyone already serving, a couple of years worth of their previously applied scheme benefits, then what?  Certainly, it gives an added imperative to bring forward changes already in the pipeline – the government will need to claw back that cost somehow. What was mooted as it evolving into AFPS21 (my conjecture, a year after the next General Election), a so called Defined Ambition scheme requiring new joiners only to make financial contributions, must look decidedly less clear now.

Even if there were grounds to safely (from a legal perspective) exclude AFPS from yesterday’s changes which included everyone, would it happen? I don’t think so. Now is the time we need more protection from the very best our finest sentinels have to offer, not less. So, logically, it can only mean that should the scheme change again (and surely it has to), then the changes must (if the judges ruling is to apply) apply to everyone and the benefits therefore need to be less generous. That would mean, possibly, everyone paying a financial contribution from the word go (not just recruits) and it might mean the normal pension age slipping to the right a little.

There will be a lot of public sector eyes looking at Liz Truss now, as she navigates these stormy waters. The nature of the contract we have with our public sector is at stake. Will she want to be the one to be the catalyst for the government having to go head to head with the public sector?  Let’s remember, the judge didn’t say transitional protection was wrong, he said it was wrong how it was applied in this specific instance.