Joint Committee on Statutory Instruments Fourteenth Report


Memorandum by the Lord Chancellor's Department


  1. The Committee considered the above instrument at its meeting of 7th March 2000 and has requested a memorandum on the following point:

    "Regulation 3 alters (by removing certain words) the method of calculation of lump sum payments required by regulation 2.9(2)(b) of the 1995 regulations. Explain the effect of that provision (a) as it now stands and (b) with the words in question removed; and indicate how the removal of those words "clarifies" existing regulation 2.9(2)(b) (as suggested at (a) in the Explanatory Note)."

In what follows:

"JUPRA" means the Judicial Pensions and Retirement Act 1993,

"the Taxes Act" means the Income and Corporation Taxes Act 1988,

"the 1995 regulations" means the Judicial Pensions (Additional Voluntary Contributions) Regulations 1995 and

"the amending regulations" means the Judicial Pensions (Additional Voluntary Contributions) (Amendment) Regulations 2000.

  2. JUPRA provides for a pension scheme for holders of certain judicial posts appointed after the commencement of that Act, and for holders of those posts appointed before then who have chosen to become subject to the Act. The 1995 regulations enable holders of those posts to obtain enhanced pension benefits by making additional voluntary contributions.

  3. Regulation 2.9 of the 1995 regulations provides for an upper limit to the death in service benefits payable under those regulations. That limit is defined in terms of "pensionable pay", which is in turn defined in terms of "pension-capped salary": both these phrases are defined by section 3(3) of JUPRA.

  4. The purpose of the limit in regulation 2.9 of the 1995 regulations is to ensure that the death benefits under the judicial pension scheme, as modified by the additional voluntary contribution regulations, are in line with the Inland Revenue's criteria for approving retirement benefit schemes. Broadly, the relevant Inland Revenue rules are as follows:

    (a)  a scheme obtains automatic approval if (among other conditions) the only benefits payable under it are a pension of no more than one-sixtieth of final remuneration for each year of service up to a maximum of 40 (Taxes Act section 590(3)(a)) and a widow's or widower's pension of no more than two-thirds of that amount (ibid. section 590(3)(b));

    (b)  a scheme providing for a death in service benefit will therefore not obtain automatic approval, but is eligible for discretionary approval (Taxes Act section 591);

    (c)  that discretionary approval will normally be given if (among other conditions) the death in service benefit does not exceed four times final remuneration (Taxes Act section 591(2)(c); statement of practice IR12, paragraph 11.2);

    (d)  for the above purposes, "final remuneration" is defined by means of a formula based on the earnings of (usually) the three years preceding death or retirement;

    (e)  all remuneration in excess of an earnings cap fixed by section 590C of the Taxes Act is disregarded;

    (f)  statutory schemes do not require approval under section 590 or 591, but may be registered as "relevant statutory schemes" if they meet similar criteria (Taxes Act sections 594 and 611A(2));

    (g)  the judicial pension scheme constituted by JUPRA is automatically a relevant statutory scheme without the need for registration (JUPRA section 18), but this does not extend to the scheme constituted by the 1995 regulations;

    (h)  as a matter of good practice it is considered desirable for the benefits available under the combined provisions of JUPRA and the 1995 regulations to conform to the criteria for discretionary approval under section 591 (or, what amounts to the same thing, for registration under section 611A(2)) as closely as possible.

  5. In line with this, section 3(3) of JUPRA defines "pension-capped salary" as so much of the office-holder's salary for twelve months as does not exceed the cap in section 590C, and "pensionable pay" as the pension-capped salary for the twelve months preceding death or retirement or, if more, the pension-capped salary of any other period of twelve months within the three years preceding death or retirement.

  6. It appears that the intention when regulation 2.9 of the 1995 regulations was drafted was to impose an overriding limit on total death benefit of an amount equal to four times the greater of pensionable pay and salary at the time of death, limited in both cases by the earnings cap. This would keep the judicial pension scheme (inclusive of the benefits under the 1995 regulations) in line with the criteria for approval under section 591 of the Taxes Act, and has been the limit applied in practice. Unfortunately the word "pension-capped" was omitted without any equivalent wording being used instead, thus theoretically allowing a death benefit of anything up to four times total salary, which was contrary to the policy intention and would make the judicial pension scheme (again inclusive of the benefits under the 1995 regulations) diverge from the criteria for approval.

  7. One suggested remedy for this error was to insert "pension-capped" before "salary" in regulation 2.9(2)(b). However, as it is impossible for the pension-capped salary at the time of death to exceed "pensionable pay" as defined, it was considered that the words "the greater of the annual rate of the member's [pension-capped] salary or" would have been mere surplusage; it was therefore preferred to omit the whole phrase.

13th March 2000

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