Judicial review could hold up public sector exit payment reform

Three appeals for judicial review will be heard together in March, according to an update on the Local Government Pension Scheme Advisory Board website, which noted fears that the current uncertainty around the new regulations will persist and future reform of exit payments could be delayed, pending the outcome of the review.

The legal action is being brought by the Association of Local Authority Chief Executives and Senior Managers and Lawyers in Local Government, Unison, and GMB/Unite, which are contesting the new regulations on a number of grounds including their effect on the existing LGPS rules. 

Pensions Expert reported in November on the likelihood of legal challenges emerging, after a disjointed government approach to the reform (which was a manifesto commitment) led to the passage of new regulations by the Treasury that contradicted existing regulations from the Ministry of Housing, Communities and Local Government.

I just go back to the fact that this is impacting real people, and so it’s a real shame that we have this mess. It shouldn’t have happened

Kirsty Bartlett, Squire Patton Boggs

The Cabinet Office only opened its consultation on the move the day before the Treasury rules came into effect, leading the FDA union to accuse the government of having “patently failed” in its duty to consult over the changes, per a report in Civil Service World.

At issue is the fact that the Treasury rules include strain costs in the £95,000 cap on exit payments. Strain costs are incurred when members are allowed to retire early on grounds of efficiency, redundancy, or otherwise with the consent of the employer.

Existing and as-yet unamended LGPS regulations, however, entitle those members to an immediate and unreduced pension. The result is that it is impossible to settle such cases without breaking one or the other set of regulations.

The government is officially of the view — confirmed in a letter sent last year to LGPS administering authorities by Luke Hall, minister of state for regional growth and local government — that the Treasury regulations override MHCLG regulations.

This relies on a legal concept called implied repeal, under which a law passed that contradicts some earlier piece of regulation or legislation takes precedence as the expression of the government’s current intent.

However, legal counsel sought by the LGPS Advisory Board by James Goudie QC casts doubt on the veracity of this defence. He said “there must be a clear inconsistency” for implied repeal to be a valid recourse.

“Here it can be said that there is an incompatibility. But a lack of compatibility is not necessarily an inconsistency, still less the clear inconsistency that the law requires for any implied repeal,” Goudie said.

Legislation was ‘rushed through’

Irwin Mitchell partner Penny Cogher told Pensions Expert: “There is a generally accepted view that the legislation was rushed through as secondary legislation (as it is contained in regulations rather than a statute) to become law, as part of the government’s election manifesto, without there being sufficient scrutiny and joined-up thinking about its implications and how it should be documented.”

Besides the odd decision to introduce Treasury rules only a day after the Cabinet Office consultation, she pointed to the fact that the government only confirmed in December that the £95,000 cap does not include employer national insurance contributions, more than a month after the new regulations came into effect, as an example of “slipshod” thinking.

Cogher explained that, among the many legal complaints being levied by the unions, questions of statutory interpretation are crucial, and they differ slightly between the different types of public sector pensions.

“The main public sector pension legislation has not been updated to reflect the exit cap regulations, nor is there any disallowance of that legislation in the exit cap regulations,” she noted. 

“This means that for the civil service, the exit cap regulations conflict with the Superannuation Act 1972, which is primary legislation. Under the general rules of statutory interpretation, primary legislation takes precedence, and so it sets out the law in the case of a difference between that and secondary legislation like the exit regulations.”

However, she added that each public sector scheme is subject to its own set of statutes and regulations. For LGPS, the main regulations “have not been updated, so the conflict over the exit cap is between two sets of regulations, so there is a different question of statutory interpretation there”.

Uncertainty and delays

Squire Patton Boggs partner Kirsty Bartlett told Pensions Expert that until the hearings have been completed, “we’re just in this awful, awful situation where the cap regulations are in force — so all the employers listed in the back of those regulations have got to abide by them — and where that doesn’t quite fit with the rules of the particular scheme, for example LGPS, we’re sort of muddling through as best we can”.

Although Bartlett said she expects the government to push on with implementing the cap, she seconded the concerns raised on the LGPS Advisory Board website that the current legal uncertainty could continue for some time.

In its update, the board stated that “the Pensions Ombudsman will not be able to rule on a test case until the hearing is complete”. 

Nevertheless, "scheme members should not be discouraged or prevented from making claims, as there may be elements other than the central question which the ombudsman can hear”, it added. 

“In this connection, the ombudsman has asked that LGPS-administering authorities be clear in communications with scheme members where the authority has determined to follow the recommendations in the MHCLG letter of October 28 and not pay an unreduced pension.”

Bartlett noted that there “have been all sorts of delays over the past few years with LGPS amending regulations coming out of the MHCLG”.

“They did consult on draft regulations towards the end of last year, and I’m very confident that they had a lot of feedback about them because they were defective in some ways, to be perfectly honest,” she said.

“I’m part of the Association of Pension Lawyers’ subcommittee that looks at public sector pensions, and we wrote quite a long and detailed response. So I think they will expect to say that [the regulations] will need some work.

“Even without the judicial review applications, I would have expected that to take some time,” Bartlett continued, adding that “it would be helpful if those regulations were made as soon as possible”.

“I just go back to the fact that this is impacting real people, and so it’s a real shame that we have this mess. It shouldn’t have happened.” 

The MHCLG has been approached for comment.