The JPS 2022 was established in April 2022 and all active members of past schemes were transferred to the new scheme to accrue future pension benefits. This prompted the need for judges to review their retirement planning.
How did we get here?
The JPS 2015, introduced on the 1st of April 2015, introduced a number of changes. Active scheme members of past schemes were transferred to the new scheme unless they were close to retirement, in which case they could remain in their previous scheme under transitional arrangements.
The main differences between the JPS 2015 and previous judicial schemes were:
- The scheme retirement age would be linked to State Pension Age.
- Career average revalued earnings, rather than final salary, would be used to calculate benefits.
- The scheme would be registered for tax purposes.
The change to registered status meant that judges with Lifetime Allowance Protection accruing further benefits in the new scheme lost their protection, creating potentially significant future tax liabilities. Furthermore, benefit accrual in JPS 2015 was tested against the Annual Allowance for pension saving, restricting an individual’s ability to contribute to other pensions. For those that could still contribute, the calculation of any remaining allowances was complex and increased the risk of exceeding the Annual Allowance
In January 2017 McCloud vs MoJ ruled that the transitional arrangements amounted to unlawful age discrimination, as they only protected older members and this was upheld in December 2018 by the Court of Appeal.
The reformed JPS 2022
The MoJ launched the new scheme in April 2022 and all future benefits transferred to the new scheme.
The key features of the 2022 scheme are as follows:
- The scheme is set up as unregistered for tax purposes.
- Normal retirement age will still be linked to State Pension Age.
- Career average revalued earnings would still be used to accrue benefits however the benefit accrual rate increased marginally to 2.50% from 2.32% of pensionable earnings for each scheme year.
- Members contribute a flat rate of 4.26% of pensionable earnings rather than variable rates based on earnings bands.
- There continued to be no cap on the number of service years that one can build up.
Options exercise
It was announced in 2021 that, for those judges who were not subject to the transitional provisions in 2015, an options exercise would be put in place allowing a retrospective choice on whether to have accrued benefits in the 2015 scheme or the legacy scheme. Exact details of this options process have not yet been announced and a consultation process closed on 10th February 2023.
Planning opportunities
The most important change to note is the unregistered status of the JPS 2022. As member contributions to the new scheme will not receive tax relief, the pension savings accrued are not tested against either the Annual Allowance or the Lifetime Allowance. This presents some tax planning opportunities:
- Individuals with Lifetime Allowance protection can accrue benefits within the 2022 scheme without loss of their protection.
- Benefit accrual within the 2022 scheme won’t count towards the pension Annual Allowance. The standard Annual Allowance is £60,000, although this is ‘tapered’ for those with an adjusted income of £260,000 or more and can be as low as £10,000 for those with an adjusted income of over £360,000.
- Those paying into personal pensions can reduce their income tax liability as pension contributions will benefit from tax relief at your highest marginal rate.
- Savings into personal pensions are not subject to Inheritance Tax and can be passed on to dependents. Deferring the withdrawal of funds from personal pensions and generating retirement income instead from investments that are subject to Inheritance Tax is often a very sensible strategy.
- Part time judiciary should check that all judicial roles have been accounted within the JPS accrual since records may not be accurate especially when multiple roles are held.
In summary, the new 2022 scheme goes some way to addressing concerns highlighted by the introduction of the 2015 scheme, creating new planning opportunities for judges. If you are in doubt on how the changes impact you, it is important to seek independent financial advice which is tailored to your circumstances.
The information is based on our understanding of current allowances and rates which could be subject to change. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. It is important to take professional advice before making any decision relating to your personal finances.