Yesterday morning I made my usual trip to the local newsagents to buy the Sunday papers before returning home to browse through them with a cup of tea.
I added News of the World to my usual batch of Sunday morning reading material, as on Friday afternoon they had called me to ask for some research and comments in respect of the Judicial Pension Scheme.
The NOTW article, with the headline “M’luddy Disgrace” looked at how judges are protected from the recent public sector pension reforms proposed by Lord Hutton.
I was quoted in the article saying “It’s one rule for judges and another for everyone else when it comes to pensions”, which is accurate because of the way their pension scheme is based on different legislation to the other public sector pension schemes.
The Judicial Pension Scheme is interesting.
In keeping with other public sector pension schemes, it is a defined benefit scheme based on ‘final salary’. The scheme offers a very generous accrual rate, where members earn 1/40th of their final salary as a pension for every year of service.
In simple terms, this means that judges can earn a pension of half of their salary in return for twenty years of membership of the scheme. Benefits from the scheme are based on an earnings cap of £123,600.
In line with other defined benefit pension schemes, a tax-free cash payment of 2.25 times the pension is also payable at retirement. In terms of maximum benefits from this scheme, a pension income of £61,800 per annum and tax-free cash of £139,050 is available from this scheme after twenty years.
Unlike other public sector pension schemes, the Judicial Pension Scheme is non-contributory for members.
They do make a personal contribution of 1.8% of salary, but this is to pay towards the cost of spouses’ pensions, rather than personal benefits. It is important to note that judges do not receive tax relief on this contribution.
The balance of the cost of funding benefits from this pension scheme is met by taxpayers. This is what prompted the News of the World to publish this article on the intricacies of this pension scheme.
For the sake of balance, it is worth noting that judges tend to be appointed later in their careers and therefore have to work for longer to earn this maximum pension. It is typical for a judge to be appointed at around age 50 and therefore he or she would need to work until their 70th birthday to be able to retire on maximum benefits.
There is a minimum retirement age of 65 as long as the judge has at least five years service in the scheme.
As part of our research for the paper, which they did not use within the article, we calculated that to fund the equivalent benefits in the private sector would require a pension pot of £1,546,154 for a 70 year old male.
Assuming he started to contribute to a pension at age 50, and that this pension fund grew by 7% before charges each year, he would need to make a contribution of £3,235 per month.
It is always difficult to make a direct comparison between different pension schemes, because they all have different mechanics and features. Trying to make a fair comparison involves various assumptions and forecasts.
Judges perform a vital and important role for society. Their pension scheme stands head and shoulders above others being offered within the public sector and the disparity between these schemes will become even more apparent assuming the proposals made by Lord Hutton are implemented in the Budget next week.
The News of the World has raised an important issue about the fairness and sustainability not only of public sector pensions but some of the particular schemes within the public sector.
Photo credit: Flickr/James Cridland
