Empty benches


Adrian Jack crunches the numbers on High Court judiciary pay and warns of a looming recruitment catastrophe

Recruitment to the High Court bench is facing a crisis due to collapsing pay and pension.

A newly appointed, younger, judge will have an after-tax salary £11,000 less than existing, older, judges, due to new pension arrangements. Moreover younger judges will receive no tax-free lump sum.

A High Court judge’s gross salary is now £177,998, but a 48-year-old High Court judge’s take home pay is about £85,300, whereas a 58 year old’s is £97,040. The reason for the drop is what on its face is a minor technical matter: the New Judicial Pension Scheme (NJPS), which took effect on April 1, 2015, is a “registered” scheme, whereas the older Judicial Pension Scheme (JPS) was not.

Moreover, the take home pay for both is less than in 2007-08. A High Court judge was then paid £165,900, but took home £103,550 (less a small contribution for a widow’s and dependants’ pension), more than the nominal current take-home figure. (All tax and NI figures are taken from http://www.uktaxcalculators.co.uk/.)

Adjusted for RPI inflation, the current real value of that salary would be £205,700 gross, £128,400 net. Real take home pay has declined by a quarter for older judges, whilst a newly appointed younger judge receives only two thirds of the real net salary of a High Court judge eight years ago (and has lost the tax-free lump sum on retirement). These are truly astonishing reductions in real expendable income.

The salaries of judges are falling far behind the earnings of successful practitioners. A 2010 survey for the Senior Salaries Review Body (SSRB) showed recruits to the High Court bench facing a drop in earnings of 68% from £535,417. The gap is likely to have widened. The 2014 Judicial Attitudes Survey showed that 78% of judges considered that their pay and pension did “not adequately reflect the work they do.” The survey notes: “An overwhelming majority (83%) of judges said one key factor would help to keep them in the judiciary until they reach retirement age: higher remuneration.”

The SSRB’s 2013 report said “the combination of the reduction in the value of the pension and prolonged pay restraint will result in a tipping point when there will be too few of the right quality willing to make the transition. We believe we may be at that tipping point now.” Its latest report says that the Judicial Appointments Commission has “some anxiety about whether a High Court competition due to finish in March 2015 would succeed in appointing sufficient candidates of the required quality.”

The effect on diversity in judiciary is likely to be serious. Firstly, the job will remain much more attractive to older new recruits. As a sidewind of the O’Brien litigation, which gave fee-paid judges a pension entitlement, a candidate for the High Court who was 55 years old on 1 April 2012 and at that date held a fee-paid judicial post will be entitled to go into the old JPS, even though in general the JPS will be closed to new recruits. Most candidates now aged 58 or above will fall into this category.

Older candidates are more likely to be male and white than younger candidates. Paying younger female and BAME judges less than older white male judges will send a terrible message on encouraging diversity. Discrimination litigation is almost pre-programmed. The statistics for female QCs shows the numbers increasing slowly from 9.5% in 2007 of silks to 12.3% in 2012 (Bar Standards Board, Bar Barometer 2014, fig 51): similarly BAME silks increased from 3.6% to 5.5% over the same period (ibid fig 55). This shows that younger silks are more likely to be female and/or BAME than older silks, because it is as older silks die or retire that new female and BAME silks come in to replace them. This is borne out by the precise statistics at https://www.gov.uk/government/news/queens-counsel-in-england-wales-2014-... show women and BAME having more success recently than in the years from 1995.

Further there is a risk that lawyers who have accumulated great wealth during practice will consider the High Court as a hobby to pursue for a few years. Such lawyers are also less likely to be women or ethnically diverse, because the latter candidates are more likely to practise in less remunerative areas of law.

Lastly, younger applicants may refuse to work full-time, because it is the only way to avoid the special tax on large pension accruals. Whilst part-time work might be attractive for some candidates, it will mean that the financial disincentives to taking judicial office are even greater. It is a disgraceful waste of legal talent to incentivise the best judges to work less.

Overall there is a grave danger that successful lawyers will no longer see the High Court bench as an attractive career option.

The pension changes

Consider two High Court judges: one aged 48, the other aged 58. The 58 year old will remain in the JPS under the transitional arrangements, whereas the 48 year old will be in the NJPS.

The tax payable on both High Court judges’ salaries of £177,998 is £66,242 and the National Insurance £6,831, thus leaving £104,925. From this, pension contributions need to be deducted. Here the treatment of the two judges diverges. The 58 year old pays a contribution of 4.43%, or £7,885. This contribution is not tax-deductible, because the JPS is unregistered. The 58 year old’s take home pay is thus £97,040.

The 48 year old pays a contribution of 8.05%, or £14,329, however this is tax-deductible at the judge’s highest rate of tax of 45%. The net cost of the contribution is thus £7,881, which is ostensibly less than that paid by the 58 year old.

The annual allowance

However, this ignores the “annual allowance” for pensions. Tax-payers and their employers are limited to making contributions of £40,000 per annum to their pension funds (see https://www.gov.uk/tax-on-your-private-pension/annual-allowance). Now the NJPS gives a pension based on the judge’s salary. Each year the judge accumulates a pension of 2.32% of his salary, or £4,130, payable annually from his or her retirement at normal retirement age. In order to calculate the “contribution” made in a particular tax year the Revenue multiply the annual pension earnt by a factor of 16. Thus the increase in pension of £4,130 is notionally converted into a capital contribution of £66,073 (£4,130 x 16, ignoring rounding errors). This is £26,073 more than the £40,000 annual allowance. The judge pays tax at 45% on that excess, or £11,733. (In the first years on the bench there may be some scope for bringing forward unused allowances from earlier years, but this will cease after a maximum of three years.)

The lifetime allowance

Nor is this the end of the differences. Let us assume both judges have 20-year careers. The 58 year old accumulates a pension at a rate of 2.50% per annum, or £4,450, so on retirement he or she will be entitled to a pension of £88,999 per annum (£4,450 x 20). In addition this judge is entitled to a tax-free lump sum of twice that, or £177,998.

The 48 year old accumulates only £4,130 per annum, so the pension is £82,590. However, in addition the “lifetime allowance” for pensions kicks in (see https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance, but note the Chancellor of the Exchequer in the 2015 Budget announced a reduction from 2016-17 to £1 million). The notional capital contribution of £66,073 per annum will over 20 years give a notional capital of £1,321,457. This is over the lifetime allowance, which from 2016-17 will be £1,000,000. The pension attributable to the £321,457 capital will be taxed at 25% in addition to the judge’s normal marginal rate tax.

This is, however, a best case scenario for the 48 year old. Most judges will, before their appointment, have made private pension arrangements. If a judge had contributed £360,000 during private practice, that investment would be worth £1,000,000 after 20 years on the bench (assuming a real return of 5% per annum). In this (very likely) case, the whole of £82,591 pension would attract the special addition 25% tax. The pension actually payable would (before further ordinary tax) be £61,943 per annum, against the 58 year old’s £88,999.

In addition, the 48 year old is entitled to no tax-free lump sum at all. There is an option to give up part of the annual pension for a capital sum of 12 times the pension sacrificed, but lump sums from pensions in excess of the lifetime allowance are taxed at an additional rate of 55%, so this is hardly an attractive option. The Government is also giving the option of a “Partnership Pension Account”, which is a defined contribution plan available in place of the NJPS, but the terms are very much less attractive than the NJPS.

Contributor Adrian Jack is a Justice of the Supreme Court of Gibraltar

Author details: 
Adrian Jack

Adrian Jack was a Justice of the Supreme Court of Gibraltar for three years. He is starting an appointment as a Justice of the Commercial Court in the British Virgin Islands.