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||Neutral Citation Number:  EWHC 488 (Admin)
||Case No: CO/7612/2008
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
THE HONOURABLE MRS JUSTICE COX DBE
|| The Queen on the Application of
THE POLICE FEDERATION OF ENGLAND AND WALES
||ROBERT JAMES KITCHEN
||- and -
||THE SECRETARY FOR THE HOME DEPARTMENT
||THE GOVERNMENT ACTUARY'S DEPARTMENT
Gavin Millar QC and Martin Westgate (instructed by Russell, Jones and Walker) for the 1st, 2nd and 3rd Claimants
Nigel Giffin QC and Martin Chamberlain (instructed by Treasury Solicitors) for the 1st Defendant
James Strachan (instructed by Treasury Solicitors) for the 2nd Defendant
Hearing date: 17 December 2008
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mrs Justice Cox :
- The Claimants are challenging the decision of the Home Secretary on 13 May 2008 to introduce new tables of lump sum commutation factors, for the purposes of Regulation B7(7) of the Police Pensions Regulations 1987, with effect from 1 October 2007 and not from 1 December 2006, when they were prepared.
- Permission to apply was granted, unopposed, on 22 October 2008. A subsidiary challenge relating to the commutation factors themselves has now been withdrawn, following refusal of permission, and the claim therefore proceeds on the main challenge. The Second Claimant is the General Secretary of the First Claimant, whose purpose is to represent members of police forces in all matters affecting their welfare and efficiency. The Third Claimant was, until he retired on 4 February 2007, a police officer serving with the Warwickshire Police Force. On retirement he elected to commute the maximum proportion of his pension. The new tables were not applied in his case, but would have been if they had been introduced with effect from December 2006. He has therefore suffered a significant reduction in the lump sum paid to him.
- At the heart of this challenge is the correct construction of Regulation B7(7), which has not previously been the subject of judicial consideration. It provides, in essence, that the lump sum payable by a police authority to a police officer, who elects to commute part of his/her periodical pension entitlement, is to be the actuarial equivalent of the surrendered portion of the pension at the date of retirement "calculated from tables prepared by the Government Actuary." The tables referred to are not contained in the Regulations. They are prepared from time to time by the Government Actuary, having regard to variations in such matters as life expectancy and interest rates.
- Updated tables were, in fact, prepared by the Government Actuary and produced on 1 December 2006. The Home Secretary decided on 13 May 2008 to introduce them and to back-date them, but she did so only to 1 October 2007. It is not in dispute that the decision to introduce them with effect from that date was taken by the Home Secretary, not by the Government Actuary, and that it was a decision influenced in large measure by cost implications and the views of HM Treasury. Effectively, therefore, although new and more up to date tables capable of being used were available for use from December 2006, the Home Secretary decided to defer their implementation. This has adversely affected officers retiring from the Force between 1 December 2006 and 1 October 2007, whose pensions were calculated using the previous tables, and who therefore received a lower lump sum for the surrendered portion of their pension.
- The Claimants contend that the preparation of tables for the purposes of Regulation B7(7) is a matter solely for the Government Actuary; and that the commutation factors to be applied in any individual case, and the date from which new tables should be used, is a matter of purely actuarial judgement, the object being to ensure that the lump sum accurately represents the value of the proportion of the annual pension specified in the relevant commutation notice. The additional cost of updating the tables from any particular date is therefore irrelevant. The Home Secretary has no role to play under the Police Pensions Regulations 1987 in preparing the tables or in determining the date upon which updated tables prepared by the Government Actuary should take effect. In this case, owing to a misunderstanding of the law, the Government Actuary effectively surrendered his decision-making function under Regulation B7(7) to the Home Secretary, who then took into account irrelevant considerations in deciding to delay implementation of the new tables.
- The Claimants, therefore, seek a Declaration that the First and the Second Defendants acted unlawfully in introducing the updated tables from 1 October 2007 only; and a mandatory order requiring the Second Defendant lawfully to determine the date upon which the updated tables should take effect. That date is said to be 1 December 2006.
- The Home Secretary's case is that the 1987 Regulations confer no statutory obligation on the Government Actuary to keep the tables under review. There are choices to be made as to the dates for use of such tables and as to their structure. Such decisions do not rest solely on actuarial considerations and are, therefore, decisions to be taken by the Home Secretary, as the Minister responsible for the funding of the scheme, in determining when to commission reviews of the tables. Whilst the selection of commutation factors and the preparation of the tables is plainly a matter of actuarial judgement, it does not follow from this that the function of determining the date at which new tables should be applied has also been conferred on the Government Actuary.
- Given that the Regulations permit the Home Secretary to determine, in the exercise of her discretion, when to commission reviews and the date on which updated tables proposed by the Government Actuary should come into effect, there is nothing on the face of the Regulations to limit the range of factors which she may take into account in deciding these matters, provided that she acts reasonably in the Wednesbury sense, and provided that the tables in use at any particular time remain within the limits of what is "actuarially acceptable". She acted in this case on actuarial advice that the existing tables remained actuarially acceptable up to and beyond 1 October 2007; and she was therefore entitled to take into account affordability and the state of the public finances in deciding to back-date the proposed tables only to that date. Her decision was both lawful and rational.
- The Government Actuary has adopted the Home Secretary's detailed grounds for resisting the claim. Witness statements, with supporting documentation, have been filed by John Gilbert, acting head of the Police Finance and Pensions Unit, on behalf of the Home Secretary, and by Stephen Humphrey, a Chief Actuary in the Government Actuary's Department (GAD), on behalf of the Government Actuary.
- It will be helpful in this case, before referring to the facts, to set out the relevant legislative provisions, as to which, save as to the correct construction of Regulation B7(7), there is no dispute.
The Statutory Framework
- Pensions for officers who joined a police force before 6 April 2006 are governed by the Police Pensions Regulations 1987 (SI 1987/257) as amended (the PPR).
- The PPR are made under the Police Pensions Act 1976. Section 1, as amended, provides so far as material as follows:
"(1) Regulations to be made by the Secretary of State with the consent of [HM Treasury] and after consultation with the [Police Negotiating Board for the United Kingdom], shall make provision –
(a) as to the pensions which are to be paid to and in respect of members of police forces, whether as of right or otherwise;
(b) as to the contributions in respect of pension rights which are to be made by members of police forces;
(c) as to the times at which and the circumstances in which members of police forces are or may be required to retire otherwise than on the ground of misconduct.
(5) Regulations made under this section may be framed so as to have effect as from a date earlier than the making of the regulations.
(6) The power to make regulations under this section shall be exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament."
- The 1976 Act was a consolidating Act. It consolidated, among other Acts, the Police Pensions Act 1948, section 1 of which was expressed in similar terms to section 1 above. The Home Secretary's power to make Regulations can be exercised only after consultation with the Police Negotiating Board (PNB), formerly the Police Council. The PNB is currently constituted under the Police Act 1996, sections 61 and 62:
"….. for the consideration by persons representing the interests of [among others police authorities and the members of police forces] of questions relating to hours of duty, leave, pay and allowances, pensions or the issue, use and return of police clothing, personal equipment and accoutrements."
- The PPR 1987 have evolved into their current form over many years, and the present, complex provisions have been arrived at following the established, statutory consultation procedures during which, no doubt, the views and interests of the various parties are all taken into account. Terms relating to police pay and conditions must also, for example by section 50 Police Act 1996, be the subject of consultation. Mr Millar QC, on behalf of the Claimants, submits, without dissent, that the PPR represent a balance struck between a number of different objectives, including the provision of fair pension benefits for officers who have a relatively short working life and the need to retain officers of suitable experience.
- The PPR provide for a "final salary" pension scheme, in which members become entitled to receive a periodical pension calculated as a proportion of salary at the point of retirement. It is funded in part by contributions. By Regulation G2(1)(b) officers contribute 11 per cent of their pensionable pay, subject to a right to opt out.
- Part B defines the entitlement to different categories of personal awards: an ordinary pension (B1); a short service award (B2 and B2A); an ill-health award (B3); and a deferred pension (B5). Each award entitles the officer to an annual pension payment which is payable, depending on the type of award and the time and circumstances of retirement, either from the date of retirement; or when he/she reaches a specified age. If he/she becomes permanently disabled at an earlier date, it is payable from that date.
- Part L places responsibility for payment of the appropriate pension to individual police officers on the police authority of the force in which they last served. By Regulation 3 of the Police Pension Fund Regulations 2007, each police authority must establish a police pension fund for the financial year ending on 31 March, and maintain it for each subsequent financial year. Effectively there is a statutory obligation on each police authority to maintain a ring fenced pension fund each year. Any shortfall in the pension fund must be made up by a transfer from the police fund, which is a Home Office fund, and this in turn is made good by a top up grant by the Home Secretary. This process is explained by John Gilbert at paragraphs 5 and 6 of his statement.
- Throughout the PPR decision-making functions concerning pensionable retirements are imposed upon the individual police authorities. Each authority must determine, for example, questions of compulsory retirement on grounds of efficiency of the force, or on grounds of permanent disability (A19 and A20); the relevant police authorities must send the written notice approving allocation of the pension to a beneficiary (B9(6)); or consider whether to exercise a discretion to recommence a widow's pension, or to pay gratuities to dependent relatives (C9(4) and E2). Under part H police authorities must determine whether someone qualifies for an award; and, under part K, must determine questions of forfeiture, revision or withdrawal.
- It is apparent from the relevant legislative provisions that there is no single or centrally managed pension scheme and no single scheme administrator, each police authority being required to apply the PPR separately in its own area. The occasions when particular functions are imposed upon the Home Secretary under the PPR are, in fact, relatively few and are stated expressly.
- Under parts H and L of the PPR the Home Secretary is treated as the police authority for certain limited categories of officers, for example, overseas police officers, inspectors of constabulary or central police officers, in which case she has powers analogous to police authorities in deciding questions of entitlement to and payment of awards. Functions relating to certifying the appropriate rank or period of service as part of the armed forces, or in relation to service overseas, are also expressly to be exercised by the Home Secretary (eg Part A 16-18), as are arrangements for the appointment of referees to hear medical appeals (Part H 2-3). So far as such functions are exercisable in Scotland they have been transferred to the Scottish Ministers by the Scotland Act 1998.
- The focus in this challenge is Part B of the PPR, providing for entitlement to various categories of personal pension for regular officers who retire from service. Regulation B1, for example, provides for entitlement to the ordinary, long-service pension, which is to be calculated by the police authority in accordance with the formula set out in Part 1 of Schedule B.
- An award which is payable is to be paid by the police authority of the force in which the officer last served. Part L makes provision for funding and for the mechanics of payment by that police authority.
- Regulation B7 makes general provision for commutation and provides, so far as is relevant, as follows:
"(1) This Regulation shall apply to an ordinary, short service, ill-health or deferred pension under this Part, but in relation to –
(a) a deferred pension, or
(b) an ordinary pension which is not payable as from the date of the policeman's retirement,
paragraphs (5), (6) and (7) shall have effect as if any reference therein to retirement or the date thereof were a reference to the coming into payment of the pension or the date thereof.
(2) A regular policeman may, subject to and in accordance with this Regulation, commute for a lump sum a portion of any pension to which this Regulation applies to which he is or may become entitled.
(3) For the purpose of commuting a portion of his pension in accordance with this Regulation a person shall give notice in writing to the police authority ("notice of commutation") of his wish to surrender and commute for a lump sum so much of his pension as, subject to the limitations contained in paragraph (4) and in Regulation B10, he may specify ("the surrendered portion").
(4) The surrendered portion shall be such that-
(a) the basic rate of the pension does not fall to be reduced in accordance with this Regulation by more than a quarter and, for the purposes hereof, that rate shall be taken to be the rate at which the pension would be payable not only if it did not fall to be so reduced by also disregarding any reduction-
(i) in accordance with Regulation B9 (allocation),
(ii) in accordance with Part Vll of Schedule B (reduction of pension at state pensionable age),
(iii) as provided in paragraph 6(1) of Part V111 of Schedule B (reduction of pension equivalent to outstanding additional or further contributions), in accordance therewith, and
(b) in the case of a regular policeman who retires or retired with an ordinary pension when entitled to reckon less than 30 years' pensionable service otherwise than in the circumstances mentioned in sub-paragraph (a) or (c) of Regulation B2(1) [or having attained his relevant voluntary retirement age or, where he does not have a relevant voluntary retirement age, having attained the age of 65], the lump sum calculated in accordance with paragraph (7) (disregarding any reduction in accordance with the proviso thereto) does not exceed an amount equal to 2 ¼ times the annual amount of his pension calculated in accordance with Part 1 of Schedule B (disregarding any reduction therein under paragraph (7) of this Regulation or any other provision of these Regulations):
Provided that, where a person wishes to surrender and commute for a lump sum a portion of a pension which falls to be reduced under paragraph (8)(b), the portion which, in accordance with the preceding provisions of this paragraph, may be surrendered shall be reduced by the reduction under paragraph (8)(b) expressed in like manner.
(5) The notice of commutation shall be given by a person not earlier than 4 months before his intended retirement nor later than 6 months after his retirement.
(6) The notice of commutation given by a person shall become effective-
(a) as from the date of his retirement, or
(b) as from the date on which the notice is received by the police authority,
whichever is the later:
Provided that the notice of commutation shall not become effective if-
(i) it was given more than 4 months before his retirement, or
(ii) it relates to an ill-health pension and the unsecured portion of that pension has sooner been terminated under Regulation K1"
- The provision under consideration in this case is paragraph B7(7), which provides as follows:
"(7) Where the person retires or has retired and a notice of commutation given by him becomes or has become effective, the police authority shall reduce the pension to which the notice relates in accordance with the notice as from the time from which the notice is effective and shall pay him a lump sum of such amount as is the actuarial equivalent of the surrendered portion of the pension at the date of his retirement, calculated from tables prepared by the Government Actuary.
Provided that where the notice is effective as from the date mentioned in paragraph (6)(b), the lump shall be reduced by an amount equal to the difference between the aggregate payments made in respect of the pension and the aggregate payments which would have been so made had it been reduced from the date of the retirement."
- Commutation of small pensions is provided for in Regulation B8, which enables the police authority, at their discretion, to commute such a pension for a gratuity. Paragraph B8(2) provides that:
"(2) A gratuity under this Regulation shall be of such amount as is the actuarial equivalent of the pension, calculated from tables prepared by the Government Actuary."
- The tables referred to in both B7(7) and B8(2) are not annexed to the Regulations because from time to time, as is common ground, they require review, having regard to actuarial considerations. It is also common ground that Regulation B7(7) requires a calculation of the actuarial equivalent of a surrendered portion of a pension. The calculation of the actuarial equivalent requires a valuation of the income stream foregone by virtue of an officer's election to surrender part of his pension. Ascertaining the actuarial equivalent of the surrendered portion of a pension involves the use of tables prepared as a result of the exercise of a professional judgment by the Government Actuary.
- Commutation tables are based on two main assumptions, as Stephen Humphrey explains in his statement (para. 9 onwards): (1) the longevity of the pensioners; and (2) a discount rate. When a review is carried out, the Actuary must follow a detailed process in order to reach a judgement as to the appropriate assumptions to adopt. This constitutes the bulk of the work. Thereafter the calculation of the factors is a largely mechanical process. In addition, the Actuary must also apply actuarial judgement in order to decide on an appropriate structure for the tables, for example whether or not the factors should differ according to a member's sex or according to whether they are retiring on grounds of ill-health. In relation to longevity, a wide range of evidence is taken into account, including recent mortality rates for the UK population as a whole, as measured by the Office of National Statistics or by life insurance companies and occupational pension schemes; recent mortality rates for the members of other pension schemes with whom useful parallels may be drawn, such as teachers or NHS workers; assumptions made by the ONS about expected future changes to UK population mortality rates; or projections of future changes to mortality rates made by other actuaries or academics; and guidance from bodies such as the Pensions Regulator, which assists in forming a view as to the consensus of opinion relating to future mortality rates.
- Mr Humphrey points out that recent mortality rates are statistically verifiable and based on the evidence of actual deaths that have occurred amongst the stated population or grouping. Projected future mortality rates contain inherent uncertainties. The Actuary weighs the various different sources of information in order to form his or her own judgement as to the appropriate longevity assumption to use for scheme members retiring during the next few years. The relative weight accorded to each of the different pieces of evidence is very much a matter of professional judgment for the Actuary.
- There is also a broad array of information and a range of professional opinion to take into account when considering what discount rate to adopt for a particular scheme. In the context of the police pension scheme the primary considerations are its institutional structure and its financing arrangements.
- The provisions enabling serving officers to surrender part of their pension in return for a lump sum have been in place since 1958. The Police Pensions Regulations 1955 were amended in that year by the addition of a new Regulation 6A, which was in substantially the same terms as the current Regulation B7(7). Successive Regulations have since then used the same language in the relevant provision. This is, therefore, a long-standing entitlement and there is no doubt that Government Actuaries have been exercising the function envisaged by these provisions for many years.
- Even before the entitlement to commute part of the pension was introduced, the Government Actuary had functions under the Police Pensions Regulations from at least 1949. Regulation 57 of the 1949 PPR, for example, provided for allocation to a nominated person of part of the pension, which would be "… of such amount as, according to tables from time to time prepared by the Government Actuary, is actuarially equivalent to … that part of the pension which he has surrendered." Allocation is now dealt with at paragraph B9, sub paragraph (8) of which imposes upon the Government Actuary certain requirements as to the tables prepared, as follows:
"(8) For the purposes of paragraph (7)(b) the actuarial equivalent of the surrendered portion of the pension shall be calculated from tables prepared by the Government Actuary and in force at the time when the notice of allocation became effective, which tables shall-
(a) take account of the age of regular policeman and of the age of the beneficiary at the time, and
(b) make different provision according to whether or not the notice of allocation became effective in accordance with paragraph (6)(a),
and separate calculations shall be made in respect of separate allocations."
- Other functions are to be exercised by the Government Actuary under other parts of the 1987 PPR, for example the issue of guidance and tables in relation to contributions to widowers' awards; and determination of contributions where special considerations apply (G6); the preparation of tables for the calculation of pension credit (M1); and the calculation of transfer values to be notified to the police authority – see Schedule F Part lV.
- Stephen Humphrey describes the Government Actuary's Department as "an actuarial consultancy working within Government", and as primarily a pensions consultancy specialising in providing advice to public bodies in the United Kingdom and overseas. The Government Actuary's Department has stated in its summary grounds of resistance to this claim that the GAD is an "independent" actuarial consultancy working within Government.
- Correspondence between GAD and the Home Office between 1976 and the present day appears at Tab 11 of the bundle. What happened in the earlier decades, in relation to the preparation of tables for use under Regulation B7(7) or its predecessors, is both relevant and instructive in considering this claim.
- Writing to Ms Ryan at the Home Office on 7 July 1976, GAD said, so far as is material:
"You spoke to me on the telephone about the commutation table used in the Police Pensions Scheme, and asked (a) whether it was likely that a new (possibly improved) table would be produced as a result of the police mortality investigation which we are currently undertaking, and (b) whether it would be available by 31 August. This date is important as it is one full year since the Police had a large pay rise in August 1975, and so many officers would then be considering retiring, and commuting. I promised to telephone you by 23 July, just before a meeting of the Staff Association of Superintendents, as you had been asked to give them some indication of whether or not a new table is to be produced.
I am writing to you instead of telephoning as I feel our present views should be properly recorded."
After recognising the cost implications and referring to the two actuarial decisions to be made, the author concluded:
"Consequently, I think it is pretty clear that we will not be preparing new commutation tables for the Police Scheme before 31 August, which is the date you had in mind."
- Later that year there were clearly complaints by the police associations as to the Government Actuary's delay in producing new tables, to which GAD referred in their letter to the Home Office of 2 December 1976, the author concluding:
"In the circumstances I think it would be reasonable to prepare a new set of commutation factors for the Police scheme, if this can be justified on the evidence of the recent mortality experience, without waiting for the general review of the interest rate basis to be used in the commutation factors for all the Public Service schemes. I do not think that the Police scheme could be singled out for a review of the interest basis and in the circumstances your suggestion of a two-stage revision would seem to provide the best solution to the problem. It is by no means certain, of course, that the interest basis will be changed.
If, as we suspect, there has been some improvement in the mortality experience of Police pensioners, the new tables that would be required can be prepared quite quickly. You should hear from us later this month or early next month."
- GAD's subsequent letter of 1 February 1977 included the following:
"In my letter of 2 December 1976, I agreed to prepare a new set of commutation factors, if this could be justified on the evidence of the recent mortality experience, pending a review of the interest rate basis to be used for all the Public Service schemes. We have now completed our analysis of the mortality experience of Police pensioners during the 5-year period from 1968 to 1973.
For ordinary and short service retirements, there is little significant difference in the mortality experience between England & Wales and Scotland, and accordingly it seems reasonable to use the same basis for all GB police forces. Compared with the mortality basis underlying the present scale of commutation factors, the 1968-73 experience is quite close to what would be expected for the older ages, but there has been a small improvement at ages under 60. Since the present scales of factors were based on quite recent experience (1965-1969 for firemen and 1968-70 for policemen), it is hardly surprising that there has not been a dramatic improvement in mortality over the relatively short period of years that has elapsed. However, the improvement that has been observed is sufficient to justify slightly higher commutation factors at the younger ages, at which most retirements take place, and we enclose a revised table for male pensioners. For female pensioners and for the pre-1964 pensioners subject to a medical examination, we recommend that the existing scales of factors continue to be used."
A revised table was attached, which was then communicated to the police authorities by means of Home Office Circular Number 32/1977 dated 14 March 1977 and commenced on 1 April 1977.
- Subsequently, having undertaken a review of interest rates, GAD wrote to the Home Office on 31 July 1978 as follows;
"… Because of the similar considerations applying to the commutation factors for policemen and firemen, it seems appropriate for the interest basis of these factors to be consistent with the basis used for commutation of Armed Forces' pensions and for the general compensation tables. Accordingly, we recommend that the factors should now be calculated on a basis of 11% gross interest and 4% net of pensions increases. Specimen factors on the revised basis now proposed are compared in the Appendix to this letter with the existing factors for the corresponding ages. The full set of proposed factors have already been calculated, should you wish to see them at this stage."
- Final tables were prepared and then forwarded by GAD by letter to the Home Office dated 5 September 1978, in which full explanation was provided for the changes made, the author concluding:
"We have taken this opportunity to make some slight alterations to the mortality assumed for females. We have had no new data on female mortality, but we think that our new assumptions are more consistent with our assumptions for male mortality. This change in mortality is responsible for the decrease in the female factors at the oldest ages, and without it the change from 5% to 4% net rate of interest would have ensured that the new factors were higher at all ages for which we provide figures.
I hope this gives you sufficient explanation of the new tables, and we would be glad to look at any circular, giving an explanation of the changes, in draft."
- The revised tables were then circulated on 20 October 1978 to the police authorities by HO Circular 172/1978, stating:
"Enclosed are copies of revised Tables prepared by the Government Actuary for the purpose of calculating the lump sums payable to persons who commute a part of their police or fire pension."
Additional copies of the Circular and tables attached were enclosed for the attention of the Chief Fire Officer, and the tables commenced on 1 November 1978.
- During the late 1970s, as this correspondence shows, the Home Office was seeking information from the Government Actuary as to when revised tables would be prepared. The Government Actuary was carrying out the actuarial exercise required of him by the legislation and advising the Home Office as to when it would be advisable to revise the tables. The final tables were then prepared and forwarded to the Home Office for onward circulation, and were then communicated to the police authorities, coming into force within a period which varied between approximately four and eight weeks.
- In the 1980s a GAD memo dated 28 July 1982 followed informal discussions with Ms Ryan at the Home Office and the latter's request for explanation of a letter from GAD to the Police Negotiating Board. The author of the memo noted:
"This seemed a reasonable request as I wouldn't be saying anything new. We have to be careful at this stage as we are actuary to the PNB not the Home Office."
And, later on:
"I also told her that we are currently considering revising the tables even though the next revision was not due till 1984. She thought it was reasonable to have a revision whenever we thought it necessary."
- A further GAD memo dated 12 August 1982 recorded that:
"I told [Ms Ryan] that we would definitely be reviewing the tables. She was happy for us to take the initiative."
Five days later a further GAD memo records a telephone call from Bob Pitcher of the Home Office in which:
"He 'phoned me again to tell me that there would be a PNB meeting in November which would probably be stormy. They would like us to make some progress on revising the tables by then so that they can have something to placate the staff side. I agreed to try and do something in time."
In a subsequent telephone call the Home Office said they would like to have the tables by the end of November 1982.
- The Government Actuary completed the review and prepared new tables, which were sent to the Home Office by letter dated 1 December 1982. This letter also informed them that GAD no longer believed it was appropriate to issue a separate table for officers subject to medical examination; that the table was the correct one to adopt if the Home Office wished to have a common set of factors for the Police and Fire Pension Schemes; and that they had provided a single table blending the different commutation factors to be applied simultaneously to age and ill-health retirement. The table was then circulated to police authorities by the Home Office on 22 December 1982, and commenced on 1 January 1983.
- There does not appear to have been any consideration given to back-dating to the date when the tables were first prepared for use and forwarded to the Home Office. Mr Millar submits that once the new tables had been prepared, any lump sum calculated on the basis of the old tables for an officer who elected to commute part of his pension in the interim period before circulation would have been unlawful. However, he contrasts the position in the present case with what was happening during this earlier period, when the delay between preparation and circulation of the commencement date for the new tables was far shorter and due only to administrative requirements; and when the change in mortality and interest rates was not as marked as it has become subsequently.
- In my view, the available evidence as to what happened over the decade from the mid-1970s to the mid-1980s (not addressed in the witness statements) does not indicate that any distinction was considered to exist between the date of GAD's review and preparation of new tables and the date when those new tables commenced. It appears to have been understood on both sides that the date of GAD's review was the trigger for the date that the tables came into force. Any delay was for the purposes only of the necessary administrative arrangements, in a pre-technological age, and of communication to all police authorities.
- It is clear from subsequent correspondence, referring back to this period, that there had been a number of conversations between GAD and the Home Office as to the bases for the review. A note was prepared by GAD in July 1983 explaining the actuarial assumptions underlying the commutation tables introduced on 1 January 1983. It included the following:
"[The Pension Scheme] provides for the lump sum under the commutation option to be of such amount as is the actuarial equivalent of the surrendered portion of the pension, calculated from tables prepared by the Government Actuary. The factors in these tables are used to convert the stream of pension payments surrendered into a single lump sum payment. A lump sum is said to be actuarially equivalent to a stream of payments if it equals the discounted value of these payments, taking into account the probability that each payment will be made and allowing for the effect of interest earnings on the advance payment of the lump sum.
Commutation is an option which each individual officer may exercise or not, as he chooses, and accordingly it is to be expected that an officer does not opt unless it is beneficial to him. This element of choice by the individual could mean that it is inappropriate to use average factors for the scheme membership as a whole. In fact, it could be argued that, in order to obtain strict actuarial equivalence, each application should be dealt with individually. Thus a medical would be needed for each optant with a view to determining the expected longevity of that optant. Retiring officers in poor health might get very little; healthy officers might get more than the 'average' in these circumstances.
5. In assessing what allowance should be made for interest in respect of the advance [payment] of the lump sum, the most important consideration is the level of interest rates prevailing at the date of commutation. Because the lump sum could be fully invested at the date of commutation to provide the stream of pension payments surrendered, the yield available on investments at the commutation date is much more important than the level of yields prevailing subsequently. Because market yields fluctuate on a daily basis and can change appreciably in a short period, the principle of strict actuarial equivalence noted in the preceding paragraph could be interpreted as requiring commutation factors that change very frequently or alternatively are linked directly in some manner to the prevailing level of market yields at the date of commutation.
6. The Home Office have advised us that all parties concerned prefer, for a number of reasons, that:
(a) while mortality rates for the two services do not greatly diverge the same table should be applicable for Police and Fire officers;
(b) a single set of factors should apply to all retirements, whether the cause is ill-health or on age grounds;
(c) commutation factors should not be changed too frequently.
7. With regard to (a) above, the commutation factors adopted in the table were those calculated on the more generous basis, i.e the basis giving the higher set of commutation factors. The combination of ill-health and age retirements can give rise to practical problems, which are discussed further in paragraph 9 below. The requirement in (c) above means that the interest basis used in calculating the commutation factors cannot be pitched too closely to the level of market yields at the date of introducing the tables. It is necessary to allow some margin for daily fluctuations in market yields, so that the factors can remain valid for a reasonable period of time."
- Further, a letter from GAD, dated 10 August 1994, states:
"Looking back through correspondence to the time in 1982 when the present tables were produced, I noted that there was considerable 'discussion' about the suitability of the bases we proposed. The tables were adopted but it was agreed that when GAD considered that the tables should be reviewed, we would invite comments from the Official and Staff Side of the Police Negotiating Board."
- Mr Millar submits, and I agree, that at this time both parties seem to have accepted both that GAD would take the initiative in deciding when to undertake a review of the tables and that the PNB would also be consulted in the future. The secretary of the PNB, writing to GAD on 3 June 1983, said:
"At the last meeting of Committee E of the Police Negotiating Board, in February, the Official Side reported that the Government Actuary's Department had undertaken to give notice in future of their intention to produce new commutation tables, and to invite comments from either party on the proposed tables, on the understanding that your Department's judgment would remain final. The Committee welcomed this new approach and I am writing to confirm the police Negotiating Board agreement to the revised procedural arrangements involved.
I would be grateful for confirmation that these arrangements will be followed when the commutation tables are next revised."
GAD's reply of 8 June stated:
"I confirm that when we consider that the commutation tables should be reviewed we will invite comments from the Official and Staff Sides. We will follow the procedure outlined in your letter.
As stated in your letter this must be on the understanding that although we are happy to receive comments prior to constructing new tables and would consider the points made to us, at the end of the day any tables that we produce must be based on our judgment."
- A Home Office note date 5 October 1983, relating to the Firemen's Pension Scheme and the role of the Government Actuary in preparing tables, included the following:
"6. The Government Actuary undertakes a similar role in relation to other public service schemes and he has suggested to the Departments concerned that actuarial tables relating to individual schemes should be reviewed on a regular 5-yearly basis, but staggered in such a way that the work load would be evenly spread. On this basis and taking account of recent changes the next review of actuarial tables for the FPS would be in 1989. Where public service pension schemes are subject by statute to periodic valuation, the Government Actuary has suggested that revision of actuarial tables should take place immediately following such a review, so that they are conducted on the most up-to-date actuarial base.
7. It has been suggested that the views of the Government Actuary might be referred to an independent body to arrive at a decision should there be a disagreement about them. This is not the practice in other fields in which the Government Actuary undertakes work and clearly has implications far wider than the FPS. The Government Actuary has indicated a general willingness to discuss his methods and assumptions with other actuaries, while retaining the final right to reach decisions on the basis of his own professional judgement. In this context members will wish to be aware that the Government Actuary has recently undertaken to give notice in future of any intention to revise commutation tables for the fire and police schemes. JPC members will be invited to comment on the proposed revision of the tables before new tables are constructed, on the understanding that at the end of the day the principles on which they are based are a matter for the Government Actuary's professional judgement. Commutation tables would normally be considered for revision every 5 years, unless matters were meanwhile brought to the Government Actuary's attention which he considered would justify an earlier change."
- Three years later the Home Office wrote to GAD on 3 July 1986 in connection with the Firemen's Scheme as follows:
"Revised tables were last provided by the Government Actuary on 1 December 1982 and our understanding is that in general the tables are reviewed at approximately  yearly intervals. However, arising from discussion about the decision to increase the rate of pension contributions in 1983 certain undertakings were given regarding consultation about proposals to provide revised tables. Particular reference to this was made in JPC papers FBC/PENS/264 dated 10 October 1983 and FBC/PENS/268 dated 20 February 1984 (copies enclosed) in which advice was given of the Government Actuary's intention to give notice of any intention to revise the commutation tables. Mention was also made in the papers of the opportunity to be given to JPC members to comment on the proposed revision before new tables were constructed, on the understanding, however, that at the end of the day, the principles on which they are based are a matter for the Government Actuary's professional judgement.
In order therefore that we may fulfil the undertakings given and carry out the necessary consultation in good time, we would be grateful if you could say whether the current commutation tables should now be reviewed and what the likely timetable for this might be."
In their response GAD referred to the change in relation to the yield in index-linked stocks, but stated:
"The change in financial conditions has not however been large enough for us to feel that the current tables are unreasonable. Although the tables may be slightly generous to the retiring officer we do not believe that they yet need to be revised."
- A GAD memo dated 28 August 1986 refers to GAD informing Northumberland Police that this applied equally to the police tables.
- There appears to have been a significant change in the relationship between GAD and the Home Office in 1989. Since that time, as Stephen Humphrey states, GAD's funding has been derived from the fees that it charges to its clients for specific pieces of work, which it is commissioned by its clients to carry out. Due to these funding arrangements and to the nature of client-advisor relationships GAD is not generally able to carry out any work without receiving instructions from a client that it should do so.
- Stephen Humphrey continues at paragraph 8 of his statement:
"The GAD does not operate independently of the Home Office, but acts as its actuarial adviser to carry out specific tasks when they are commissioned by the Home Office. This is the context for GAD's relationship with the Home Office and its role in preparing commutation tables for the PPS under Regulation B7(7) of the 1987 Regulations. The GAD's role in the practical implementation of new commutation factors to the PPS is mainly concerned with undertaking the necessary research into appropriate commutation factors, making recommendations as to those factors, and responding to specific actuarial questions posed by the Home Office. The Home Office is the administrator of the PPS not the GAD."
- Mr Millar submits that this represents a fundamental misunderstanding of the nature of the Government Actuary's role and of the statutory requirements in the PPR, in particular at Regulation B7(7). The Home Secretary is not the administrator of the scheme. Further, whilst GAD may carry out other consultancy work for the Home Office, for payment of a fee, the duty to prepare tables under Regulation B7(7) is a specific statutory responsibility, which cannot be avoided by internal changes to the nature of their relationship with the Home Office.
- I shall return to the parties' submissions later on, but the question at this point is how, on the evidence, the Government Actuary carried out his function of preparing tables after this change in the relationship. Certainly, as at August 1994, it appears from GAD's letter to the Home Office of 10 August 1994, that the understanding was still that it was for GAD to decide if and when the commutation factors were to be reviewed. Having initiated and carried out the necessary actuarial investigation GAD wrote;
"The resulting figures are set out in the attached schedule and you will see that the factors differ very little from the existing factors. On this basis, it would seem reasonable to conclude that new tables need not be introduced at the present time."
- By April 1997 the Home Office is raising the question of the cost of any review of the factors to be carried out by GAD. The letter from the Home Office to GAD of 15 April 1997 states:
"No detailed work on police pensions commutation tables has been carried out since 1994. In response to a request made by the Police Superintendents Association, Ministers are therefore content for the factors to be reviewed again this year by the GAD.
My purpose in writing to you is to ask GAD to put this in hand now, subject to our being given in advance an idea of the costs involved."
- A review was then carried out by GAD and the result communicated in the letter to the Home Office dated 30 January 1998, which contained the following relevant passages:
"We have finished the review of the police pension commutation factors, and the results are listed in the attached annex.
At this review, we do not have information to undertake a full analysis of mortality experience amongst former police officers; the last data was collected in the mid 1980s and used for the 1989 review of the New Entrant Contribution Rate. However, analysis of mortality for both the general population, those receiving a pension from life offices and large public service pension schemes show that lighter mortality rates have been experienced since the mid 1980s. We have therefore adjusted the mortality experience for police officers in the 1980s in line with mortality improvements elsewhere. This change has the effect of increasing the commutation rates.
The resulting factors are set out in the appendix. Although there is little change at the younger ages, there is an increase at older ages. The female factors have increased less than the factors for men mainly because improvements in mortality are less for women then for men. The change in interest rate assumptions largely offsets the effect of mortality improvement for females at younger ages.
The factors are actuarially cost neutral compared to the pension that would otherwise have been paid if the officers chose not to commute. Given that virtually all police officers choose to commute the maximum amount of pension, if the revised commutation factors are introduced, there will be some increase in the expenditure of police authorities on pensions.
We recommend that the factors are reviewed again in three years time. A clearer picture of the trends in the financial background should have emerged by then. It is hoped that more data will be available for a thorough analysis of mortality experienced by police officers."
- The tables were circulated on 8 April 1998 in a Circular, 16/1998, which also updated police authorities as to annuity equivalents; the handling of cases involving GMP underpayments; and the mis-selling of pensions involving contracted-in personal pensions. They commenced on 4 May 1998. The information provided in the Circular included the fact that:
"2. The current age-related factors by which police officers who retire can commute part of their pension for a lump sum, were drawn up by the Government Actuary in 1982, with effect from the start of 1983. The factors have been reviewed from time to time since 1982. No change has been made by the Government Actuary until now.
3. Following the latest review the Government Actuary has decided to change the commutation factors affecting men whose age next birthday at retirement is 52 and above and women whose age next birthday at retirement is 56 and above. After notifying the Police Negotiating Board of the intended changes and allowing time for their comments we can now confirm that the new factors should be applied to officers whose notice of commutation becomes effective in accordance with Regulation B7, and whose last day of service is on 3 May or thereafter."
The notes accompanying the table stated at paragraph 1:
"The table is prepared by the Government Actuary's department and is subject to periodic review. It takes account of the fact that, in general, women live longer than men."
- Notwithstanding the recommendation contained in the final paragraph of the letter of 30 January 1998, this was, in fact, the last review undertaken before the one with which this case is concerned.
- By 2005 a new pension scheme for police officers joining the force after April 2006 was being considered, and there were consultations proceeding on the draft regulations. In examining factors generally, in both the current (PPS) and proposed new (NPPS) schemes, i.e not just the commutation factors, David Johnston of GAD commented to the Home Office on the issues as follows, in a note dated 24 November 2005 and emailed to Adrian Brook at the Home Office:
"There is a strong read-across between many of the PPS factors and the NPPS factors that will be needed. The most straightforward approach at outset would be to introduce NPPS factors that were consistent with the PPS counterparts. However, many of the PPS factors are now out of date so we may find it difficult to recommend fully consistent factors as being appropriate for use in NPPS. It would be preferable if all the actuarial factors used in PPS and NPPS (except transfer factors, which are governed by the Club) could be reviewed before next April. However, some of the factors such as the PPS commutation factors, are an important element of the scheme design and you may not wish to enter into a review lightly. I would welcome your comments on how the initial actuarial factors for NPPS should be set."
- There is no witness statement from David Johnston and no other evidence explaining what was meant by the statement "some of the factors … are an important element of the scheme design and you may not wish to enter into a review lightly." However, this passage indicates, in my view, both that GAD took the view that the Home Office would have to commission them to undertake a review before they could do so; and that there might be costs implications if such a review was commissioned.
- Mr Johnston emailed again on 22 December 2005, saying as follows:
"We note your advice that the actuarial factors used in PPS and hence to be used in NPPS should be reviewed before next April, although this would represent a considerable amount of work which we are not sure could be done in the time available. We assume that, apart from the factors in Schedule 2, you would not see a need for any of the factors to which you refer to be included in the Regulations themselves. We think we need to prioritise the areas where factors are required as follows …
[Re commutation] The PPS regs specify that the commutation lump sum should be 'the actuarial equivalent of the surrendered portion of the pension at the date of his retirement, calculated from tables prepared by the Government Actuary'. The current PPS commutation factors were introduced in 1998. We recommend that they now be reviewed."
- There is then a gap in the documentation. Stephen Humphrey states at paragraph 24 of his statement that on 23 December 2005 the Office of the Deputy Prime Minister (subsequently the Department for Communities and Local Government) did commission GAD to undertake a review of the commutation factors for the Firefighters' Pension Scheme, in which most of the benefit provisions are the same as those in the police scheme, and in relation to which the Government Actuary has the same role.
- David Johnston emailed John Gilbert on 11 May 2006 stating:
"We have received a letter from [ X ] complaining about the higher PPS commutation factors used for female officers. I attach a copy of our draft reply. Please let me know if you have any comments.
You are probably slightly exposed in this area because the commutation factors are now out of date and we have recommended that they be reviewed, but you have not commissioned a review. I would not be surprised if we recommended unisex commutation factors when they are next reviewed, because the differential between men and women may no longer be large enough to justify a different set of factors."
- Mr Gilbert replied on 12 May saying:
"We have not commissioned a review of commutation factors so far since you have had enough to do with other issues. We are still awaiting some factors for the new scheme.
Once we have cleared all this I would want you to review the commutation factors."
- Stephen Humphrey states that "GAD treated this email as one which authorised a review in due course once other actuarial factors for the NPPS had been calculated."
- On 22 August 2006 GAD wrote to the DCLG, following their review of the commutation factors in the Firefighters' Pension Scheme, pointing out, where relevant:
"12. The Annex shows illustrative commutation factors resulting from this review, alongside the existing factors. The illustrative factors are greater than the existing factors at all ages because the new assumptions (longer life expectancy and lower real discount rate) both increase the value placed on a stream of future pension payments. For men, the illustrative factors are some 23% to 27% higher. For women, the illustrative factors are some 6% to 11% higher.
16. The Police Pension Scheme 1987 currently has the same commutation factors as the Firefighters' Pension Scheme 1992. We see advantages in coordinating any changes to the commutation factors for these schemes. You may wish to alert Home Office to your plans."
- Meanwhile GAD were also apparently carrying out the Police Pension Scheme review which they considered had been authorised earlier by the Home Office. Mr Johnston emailed John Gilbert with the results on 1 December 2006, in a lengthy communication which included the following relevant passages:
"In this message I set out our recommendations for changes to the PPS commutation factors and other related police actuarial factors.
PPS Commutation Factors
I have mentioned to you informally that we have reviewed the commutation factors used in the Police Pension Scheme 1987. This facility allows officers to give up part of their index-linked pension at retirement in return for a lump sum. The level of survivor's pension is not affected by the exercise of a commutation option.
Reg B7 of the PPS regulations requires the commutation lump sum to be 'the actuarial equivalent of the surrendered portion of the pension at the date of his retirement, calculated from tables prepared by the Government Actuary'. This requirement for actuarial equivalence means that the factors must be reviewed from time to time. The current factors were produced in 1998. Advancements in life expectancy since the current factors were introduced mean that those factors are now difficult to defend as being the actuarial equivalent of the surrendered portion of the pension.
To calculate commutation factors requires us to place a present value on the expected stream of pension payments that the officer is giving up. We need to estimate how long on average the pension will be payable and we need to use appropriate rates of interest to discount the future payments. Two main sets of assumptions are therefore needed: mortality rates of retiring officers; and discount rates.
No recent information is available to us about the rates of mortality of former police officers. We have therefore used standard mortality tables that are produced by the Actuarial Profession, based on the recorded mortality experience of life insurance company pensioners, with some allowance for further improvements of the mortality rates in future. The assumptions we now propose to use represent a significant increase in the assumed longevity from the assumptions that underlie the existing factors."
- After referring to discount rates the message continued:
Our recommendation is that you adopt a scale of unisex factors. At the main ages for retirements from PPS the difference in the longevity between males and females is roughly comparable to the difference we would expect to apply between normal and ill health pensioners. It therefore seems an appropriate time to move to a unisex scale. Although female members might be unhappy at the move to unisex – they would have higher rates if we retained sex-specific factors – the proposed rates are still an improvement at all ages for female members.
In fact the unisex rates are similar to male-only rates because we have weighted the factors according to the sex of officers who will reach retiring age over the next few years, and only between 5% and 10% of the officers expected to retire during the next few years are female.
The scale of unisex commutation factors that we recommend for adoption as soon as possible is as follows."
- The tables containing the new commutation factors were then set out in full. Further explanation as to those factors followed. However, Mr Johnston then refers to a further development, stating:
"I understand it is possible that thought might be given to changing the PPS regulations so as to remove the requirements for actuarially neutral factors, for example to hard code the existing factors or to introduce a single fixed factor. My initial thoughts are that, quite apart from resistance from the staff side, this will be difficult for two reasons. Firstly, I understand that sex and age anti-discrimination laws generally only exempt sex and age specific scheme calculation factors where they are actuarially determined. Secondly, a change might in effect be a worsening of accrued benefits, even if the current factors were to be hard coded, in contravention of the no-worsening provision at section 2(3) of the Police Pensions Act 1976."
- Approximately two months later Mr Gilbert's response, dated 29 January 2007 included the following:
"Your e-mail raises a lot of issues:
- The rise in the male factors is so significant that it must be likely to make the Treasury insist on linking the change with full value from employee contribution rates.
- We seriously need to think about the legal implications of changing the PPS regs to stop 'neutral' factors in favour of a more affordable scheme for officers.
- The rise will clearly skew retirement patterns once announced, if there is a lead-in.
- We would certainly not have wanted to introduce changes while in the middle of the options exercise.
Mr Gilbert does not refer to or explain what he meant by the last bullet point set out above, but it seems clear in the context of the document that it relates to cost and likely Treasury concerns.
- The timing and handling of introduction will be tricky …"
Mr Johnston's reply later the same day, said as follows:
"Treasury could well seek to claw back some of the costs of this but there are arguments for not doing so. This is not a benefit improvement; it is just part of the existing scheme design. To the extent that the existing factors remain in place there is a saving to the public purse. All the scheme costings in recent years comparing against new scheme designs were on the basis of actuarially neutral commutation factors such as those proposed below. Police employers are now paying contribution rates that reflect the full actuarially neutral cost of commutation. That is not to say that a 12% officer contribution rate would be inappropriate, just that it should be seen as a separate argument.
Immediate effect. Yes, I did not envisage you would actually introduce the proposed new factors straight away. I meant that when you did decide to implement them it could be with immediate effect, ie with no prior announcement."
In his witness statement Stephen Humphrey defers at this point to Mr Gilbert's "more detailed analysis of the correspondence" and there is no explanation as to what was meant by that second paragraph. The obvious inference is that GAD regarded the table they had prepared as containing only "proposed" factors and that it was for the Home Office to determine if and when to implement them.
Mr Gilbert states that "upon receipt of the new factors … it was recognised that (if implemented) they would result in a significant immediate cash expenditure by Government when officers commuted part of their annual pension entitlements." After setting out examples he says this at paragraph 35:
"The impact of the new factors upon the retention of officers and their immediate cash cost were therefore significant, and in view of that significance it was perceived that the commutation provisions of the 1987 Regulation and the Government's treatment of them would (legitimately) come under scrutiny, both by ministers and by the tax payer. During the period after 29 January 2007 the Home Office therefore made enquiries with regard to its options for the implementation of the new factors. In particular the Home Office wished to explore whether or not a single static factor could have been applied to commutations of pensions under PPS instead of the then current actuarial factors, or the factors that had been the subject of the GAD's recommendation in December 2006. It was envisaged that such a single static factor would be actuarially neutral, in that the total amounts paid out over the long term as periodical pension payments plus lump sums, using the single factor, would be the same as total amounts paid out as periodical payments without commutation. Officers entitled to commute part of their pension entitlement as at the date of the introduction of the factor, treated collectively, would not therefore be disadvantaged."
Following a meeting with John Gilbert, David Johnston emailed him on 29 May 2007 in these terms, as regards GAD's recommendations:
I take this opportunity to note for the record that GAD's recommendations for replacing the current police and fire pension commutation factors (as put to DCLG in August 2006 and to Home Office in December 2006) are still being actively considered by Home Office and DCLG in their roles as managers of the pension schemes. GAD's view is that it is important that a conclusion is reached as quickly as possible because the commutation factors currently in use could be challenged and are now difficult to defend as being the actuarial equivalent of the pension given up."
A subsequent email from David Johnston following further discussions, dated 20 June 2007, said as follows:
"As we discussed there are also risks of claims that the factors used at present are not high enough under the current PPS rules and that there is sex discrimination. We should be careful when addressing any suggestion of gender bias that we do not concede that the factors are not generally high enough or should have been reviewed earlier. Our position is that the existing factors are difficult (though not impossible) to defend and should now be changed."
The documentation concerning commutation factors is silent between June and late October 2007, but John Gilbert states that the Home Office was, during this period, continuing to explore the possibility of replacing the actuarial tables in the 1987 Regulations with a single actuarial factor. There were a number of concerns over the lawfulness of such a step and by October 2007 he says that it had become apparent that the use of the single fixed factor for the commutation of lump sum payments in the PPS would be inappropriate and that the tables that had been proposed by GAD in December 2006 should be implemented. He further states that:
"During the course of the Home Office's exploration of the issues that were relevant to the implementation of the new factors, questions had arisen with regard to (i) the frequency with which the tables of factors relevant to commutation payments should be reviewed, (ii) the date from which the sets of factors that were prepared in December 2006 should be implemented, (iii) the Home Office's role in the promulgation of new sets of factors, and (iv) the Home Office's role in the decision as to which date new sets of actuarial factors should be implemented from."
By this time, therefore, the question of back-dating the implementation date of the December 2006 tables seems to have arisen, but there is no further information in the witness statements filed by either Defendant as to how and why this issue had arisen or who initiated it. Mr Gilbert's analysis of the situation appears from his email to Noel Murphy, dated 29 October 2007:
"My own view is that we may well have built up a practice of infrequent reviews because mortality rates did not change very much in the past. However there are also good policy grounds for continuing with this practice – in order to avoid constant speculation about change.
We rely on GAD to advise us when the factors need to be reviewed but would not expect GAD to deliver new tables to us for immediate or backdated implementation. In this instance GAD notified us on 1 December 2006 of the need to change with recommendations for change. The context in which we received their recommendation was that we did not need to make an immediate change but that time was running out. Since we received GAD's recommendation we have considered whether we had alternatives. We now know we do not and we are preparing to implement them as soon as possible consistent with an orderly process – 1 December 2007. GAD are not insisting on any backdating provided we now press on with implementation as proposed.
Looking at the Police Pensions Regulations 1987 it seems to me that the reference to 'prepared by the Government Actuary' is quite vague but note that by convention the regulations have been applied as meaning that the tables have been prepared for the scheme as a whole, not issued directly to each force, and that the HO has control over how and when to promulgate them – eg by HOC. I also consider that, from what happened in 1998, the exact date from which to bring new factors into effect is also a matter for the HO provided GAD are content."
No explanation is provided in the statements as to the position which had been accepted or adopted by GAD before this email.
On 31 October 2007 David Johnston made the following observations in an email to John Gilbert:
"On the frequency of reviews we would have a preference for a regular cycle of reviewing the factors every 3 or 4 years, in line with the actuarial valuation cycle, although not every review would necessarily result in a change to the factors. This preference is because it is otherwise not clear who is responsible for the review. Home Office would need to rely on GAD to alert them when a review was required, which is not problematic so long as we understand that is where the responsibility lies. The problem comes if GAD recommends a review but Home Office does not agree to commission the work – we would have difficulty doing the review without a paying client but could also be exposed by the apparent obligation on us in the regulations to make sure that the prevailing rates are defensible. Nevertheless I can see the strength of your arguments for irregular and preferably infrequent changes to the factors.
We certainly agree that it is impractical to implement any recommendations with immediate effect and that it could reasonably take at least several months to consider the implications and practicalities. I suppose, however, that is a separate issue from the legal question of whether, once accepted, the recommendations should be backdated to the date of recommendation."
With the caveat that he is not offering a legal opinion he observed:
"My reading of the wording in the regs ('tables prepared by the Government Actuary') is that it allows some scope for Home Office to decide how and when the new tables should be implemented. Some other public service schemes have wording such as 'tables issued by the Government Actuary' which gives less room for manoeuvre."
At around this time John Gilbert states that the Home Office was in contact with the Treasury with regard to the implementation of the factors. The reason for this was that the implementation of the new sets of factors would have resulted in an immediate cash cost of a significant sum. That sum, he states, would have needed to have been applied for by the Home Office from the Treasury, with Parliamentary approval sought by means of a Supplementary Estimate. By an email to the Treasury dated 5 November 2007 the Home Office stated that the new factors should be implemented on 1 December 2007, and stated that the implementation should be with "… no more backdating than is necessary."
On 5 November 2007 David Johnston emailed as to GAD's position, stating that:
"On 23 October 2007 the ONS released its latest projections of the UK population in future years. Those projections incorporated revised assumptions about future mortality rates. The revised ONS assumptions are for greater longevity than assumed for their previous projections published in 2005. This change reflects greater than expected falls in mortality over the last two years, which have led to higher assumptions of future mortality improvement, particularly in the short term.
The ONS assumptions are, along with the Actuarial Profession's analysis of life insurance company annuitants, one of the main benchmarks used by UK pensions actuaries. Arguably, from 23 October onwards, there was a step change in the difficulty of defending the actuarial neutrality of the old police commutation factors. From an actuarial point of view, 23 October would be a convenient date for the adoption of the revised police commutation tables. The new tables would then apply to officers whose last day of service was 22 October or later."
There is no explanation by the Second Defendant as to what led to this email and as to the basis for the Government Actuary considering 23 October would be a convenient date. Given the previous email traffic referred to above, in particular GAD's reference to the need for change as a matter of urgency, this is in my view an unsatisfactory omission, notwithstanding that reference is made to information released by the ONS.
Mr Gilbert refers at paragraph 45 to the Home Office emailing the Treasury on 12 November 2007, stating:
"On 1 December 2006 GAD recommended that these factors be adopted as soon as possible. This does not mean immediately but it also rules out undue delay. The context in which I was operating was that I (and I think the Staff Side) expected the factors to be changed ten years after the last review (1998). However, even so, I think that the language used by GAD would make holding over implementation of the new factors until 1 December 2007 or 1 January 2008 too long a period, and that we need to consider back-dating. … the most reasonable approach over back-dating would be to ask GAD whether there is a point to which application of the new factors should be back-dated on actuarial grounds.
GAD have advised us that such a date would be 23 October 2007 since on that day the ONS released its latest projections of the UK population in future years.
An alternative date would be 1 April 2007, selected on administrative grounds as the start of a new financial year.
… we have to make backdating to these two dates (1 April or 23 October 2007) the two leading options for Ministers to consider. Again, subject to comments, I think we should stick to GAD advice and recommend back-dating to 23 October 2007."
The available evidence does not indicate to me that GAD was, in fact, advising that the tables should be back-dated to 23 October 2007, and the position adopted by GAD is inadequately explained.
On the following day Mr Johnston emails as follows:
"The key issue in our view is the actuarial defensibility of the factors, and at any point in time we see a defensible range within which the factors should lie. Our recommendation of 1 December 2006 that the new factors should be implemented as soon as possible was in view of the risks that:
- At any moment a new piece of evidence might emerge that would render the current factors indefensible; and that
- Our view of the defensible range could be challenged in any case, and the sooner new factors were implemented the smaller the risk of a challenge being made.
Apart from the incremental effect of mortality increasing gradually over time in line with existing expectations, we do not see the mere passage of time from the date of our recommendation as being of over-riding significance.
I suppose this depends on the interpretation of 'tables prepared by the Government Actuary'. … We see the 'tables prepared by the Government Actuary' phrase as meaning that the factors used at any point in time must be such that the Government Actuary is prepared to sign off on them being the actuarial equivalent at that time. I have in effect already confirmed to you that we are prepared to sign off on the old factors up to at least 23 October."
The Home Office (Adrian Brook) refers in the email of 26 November 2007 to having received further advice from David Johnston, stating:
"After further advice from David Johnston, we are proposing 1 October as the operative date. David felt that 23 October was too specifically tied to the ONS material and would raise the question of why the factors were not revisited at that stage. The revised date of 1 October has the added advantage of being half way through the financial year."
On 21 January 2008 the Home Secretary wrote to the Chancellor of the Exchequer, copied to the Secretary of State for Communities and Local Government, seeking his agreement to the implementation of the new lump sum commutation factors for the police service with effect from 1 March 2007. She stated so far as relevant:
"GAD first proposed the new factors in December 2006. The delay since then has been caused primarily by detailed discussions with GAD, legal advisers and Counsel on possible alternatives to age-related factors, since they encourage officers to retire earlier than they might otherwise do if the scheme offered a single commutation factor. The conclusion has been that there is no such alternative, short of primary legislation, given the requirement that commutation lump sums must represent the actuarial equivalent of the surrendered pension.
Towards the end of last year, our officials proposed 1 October 2007 as the date to which implementation of the new factors should be backdated. I understand that this was agreed with GAD but I have strong reservations about this date, since it is some ten months after the new factors were originally proposed by GAD and it seems to be highly vulnerable to challenge. The further we move away from December 2006 the more difficult it becomes to justify a particular date, given that there is no strong justification other than practical considerations for the new factors not to have come into effect when GAD first recommended them. There are a number of possibilities, but I favour 1 March 2007. This is much more defensible than 1 October and is the date recommended by Counsel on the ground that it matches the period of three months and five days from proposal of new factors by GAD to implementation which applied last time the factors were revised in 1998.
One can argue that opting for 1 October is the more prudent course in view of the public finances involved, but this assumes that the date is robust. I do not think it is and I would be very concerned to announce a date which then became the subject of a dispute with the Staff Associations which we had strong risk of losing. In such an event we would be no better off in the long run than if we had opted for 1 March in the first place and we would also have undermined our current efforts to build up constructive engagement with the Staff Associations following the decision on pay. We must avoid a situation in which the implementation of the new factors becomes another cause for disaffection in the service or for the Staff Associations to attack the Government's handling of the issue.
The current factors and the new ones proposed by GAD are actuarially neutral, so adopting the new factors will have no effect on the cost of the scheme over the long term. In the short term, however, backdating to 1 March 2007 will involve the need for a supplementary AME estimate in respect of the police in England and Wales of £111 million for the rest of 2007/08. This would cover the extra cost of lump sums for the rest of this financial year and for the back-payments that would have to be made to top up the lump sums already paid out since March 2007. It would also include interest due to late payments amounting to around £2¼ million.
I appreciate that this proposal involves significant public expenditure, but I believe it to be necessary if we are to engage constructively with the police service and minimise the potential for a damaging dispute."
The Secretary of State for Communities and Local Government expressed her views in response on 11 February 2008, stating:
"I am not happy with the suggestion that the new factors should be implemented with effect from 1 March 2007 rather than 1 October 2007, as previously agreed with your officials. This will add substantially to the cost in the current year.
The matter could have been settled at the end of 2006 or early 2007 when the Government Actuary first approached our officials, if the Home Office had not explored the possibility of changing the arrangements and bringing a single factor, unrelated to age. We would have been happier to have increased the factors then and, thereafter, explored the possibility of making any necessary changes to the legislation."
The Treasury response, dated 9 May 2008 was as follows:
"I appreciate your concern to build up constructive engagement with police Staff Associations following last year's decision on pay. However, we are not convinced that backdating only to 1 October 2007 would be successfully challenged and see the choice to backdate beyond October as, therefore essentially discretionary. The original proposal to backdate to 1 October was based on advice given by the Government Actuary's Department and that this should provide good grounds for defending that date as reasonable."
John Gilbert explains that, upon receipt of this letter:
"… the decision was taken that the new factors as suggested by the GAD would be announced at the annual Police Federation conference, on 20 – 22 May, and that the factors would be backdated so as to apply from 1 October 2007 onwards. The GAD was aware of the intended date for the implementation of the new factors and by a letter to the Home Office dated 13 May 2008 it sent formal guidance on the new factors and stated:
… The factors set out in the guidance are the same as we recommended on 1 December 2006. From an actuarial perspective we are content with implementation of the factors with effect from 1 October 2007.
It would be appropriate to next review the commutation and exchange of lump sum factors following the planned actuarial valuation of the police pension schemes in England and Wales, work on which is due to commence shortly. Data collection for the actuarial valuation should allow us to form a clearer view of the mortality rates experienced by former police officers. When next reviewing the factors we would also consider the latest evidence about UK mortality rates. We would also reconsider the rate for discounting the future cash flows. We would thus form a view on the continuing defensibility of the extant factors as being the actuarial equivalent of a surrendered police pension.
… evidence on mortality trends that has emerged over the last year or so means that a further upwards shift in the factors would not be unexpected when they are next reviewed."
The tables were, therefore, introduced by Home Office Circular O11/2008, dated 30 May 2008. No amendments or revisions were made and the tables introduced were therefore in exactly the same form as prepared by the Government Actuary in December 2006.
On 13 May 2008 GAD sent draft guidance on the new factors, after receiving which the Staff Side of the Police Negotiating Board wrote to the Home Office as follows:
"Before commenting on the detail of the draft Circular, we have a question about the policy approach, in relation to backdating. We note that the changes in relation to PPS are to be backdated until 1 October 2007. We anticipate that those of our members who have retired in the period leading up to that date will be concerned that choosing a slightly later retirement date would have resulted in a higher commuted lump sum (and on the face of it in some cases a significantly higher sum). The choice of date is therefore a matter of some considerable sensitivity. Can you please explain why this date was chosen and not an earlier date?"
The response by the Home Office to this question indicated that the "implementation date of 1 October 2007 was fixed in the light of actuarial advice as a fair and appropriate date." It did not refer to GAD's advice in 2005 that the existing factors were out of date and that it was necessary to review them. Nor did it refer to the delay on the part of the Home Office in deciding to commission such a review, or to the fact that the commutation factors had, in fact, been prepared by GAD on 1 December 2006.
The grounds of challenge
Against that lengthy recital of the facts, the parties' submissions can be stated succinctly. All agree that the case turns on the correct construction of Regulation B7(7) of the PPR.
The context for that construction, in my view, is the absence from the legislative provisions of any centrally managed pension scheme for retiring police officers, or of any single fund of money to be managed by a central body. Regulation 3 of the 2007 Regulations places the duty to establish, maintain and operate police pension funds upon each individual police authority. As Mr. Gilbert explains, any shortfall in the fund is made good by a transfer from the Home Office police fund, which in turn is made good by a grant from the Secretary of State. However, the statutory obligation to maintain the fund is placed on each police authority.
It is therefore incorrect, in my view, to describe the Home Secretary as "the administrator of the scheme", as Mr. Humphrey does. There is no provision in either the 2007 Regulations or the Police Act which gives her such a role, and there is no single scheme identified anywhere in the legislation. There is a clear distinction, as it seems to me, between the power to make Regulations under the 1976 Act, after consultation with the Police Negotiating Board and the Treasury, and the operation of the Regulations themselves. The Home Secretary clearly has functions in relation to the former, where the relevant consultation machinery ensures that the various, competing interests are all considered before any Regulations are made. The Regulations themselves, however, are not concerned with matters of general policy but create rights for individual police officers and obligations to be fulfilled by each police authority in its own area.
Pursuant to the Regulations, the decision as to both entitlement and the pension to be paid in any case is to be made by the relevant police authority. Where a discretion is to be exercised, in respect of any officer or his/her dependants, which bears upon entitlement, that decision-making power is given expressly to the police authority for the force in which that officer serves, and not to the Home Secretary, save for those officers for whom there is no relevant police authority as, for example, in the case of overseas officers.
The prescribed calculations for the various awards which appear in the Regulations are formulaic and complex, but their inclusion in the Regulations ensures both transparency and certainty for retiring officers who, after years of service and payment of contributions, know what their entitlement will be and understand the principles upon which their pensions will be calculated. Police officers are entitled to commute part of their pension as of right by serving the relevant notice. It is in this context that Regulation B7(7) falls to be considered.
Mr. Strachan, on behalf of the Government Actuary, adopts the submissions made by Mr. Giffin QC on behalf of the Home Secretary. Essentially these are as follows. The only obligation which is expressly imposed by Regulation B7(7) is to use tables prepared by the Government Actuary. In reality, tables which are prepared will necessarily start to become out of date from the point of preparation, so that B7(7) cannot require the use at all times of the most accurate, actuarial tables theoretically available. In addition, there are choices to be made about what structure the tables should take; and, further, the tables have to be promulgated to police authorities before they can be effective.
The Regulations do not themselves prescribe intervals at which the tables should be reviewed. It is therefore implicit that B7(7) requires decisions to be taken about the frequency with which tables are to be reviewed and prepared, and about when they should be promulgated. These decisions do not rely solely upon the exercise of an actuarial judgment and are not therefore decisions for the Government Actuary to take. The Claimant's submissions assume, incorrectly, that the decision-making required by B7(7) can be reduced to the Government Actuary identifying the correct commutation factors, coupled with a purely mechanical task for the Home Secretary of promulgating those factors as soon as they have been identified. However, since B7(7) makes no express provision for frequency of review or promulgation, it follows that these decisions are ones to be taken by the Home Secretary.
The Claimants seek to avoid this conclusion by suggesting that the Government Actuary is under an implied statutory duty to update the tables periodically, or from time to time, without explaining the basis upon which the periods between reviews are to be identified, or how this obligation can be made to depend upon a purely actuarial judgment.
Given that the decision as to when to implement the tables is one to be taken by the Home Secretary, then provided that she acts reasonably in the Wednesbury sense, and that what she decides to do remains within the limits of what is actuarially acceptable, there is no relevant restriction on the public policy considerations that she may take into account in the exercise of her discretion. The costs resulting from implementation, and the effect on public expenditure levels generally, are clearly matters for ministerial decision-making and, in the context of the police pension scheme, are matters for the Home Secretary to have regard to. Since she acted in this case on the basis of GAD's advice that the existing tables remained actuarially acceptable up to and beyond the 1 October 2007, her decision to back-date the tables to that date and not to 1 December 2006 was both lawful and rational.
I have considered these submissions carefully but I reject them. I do so because, in my judgment, the wording of Regulation B7(7) is clear. Where the requisite conditions are fulfilled and a commutation notice is served, Regulation B7(7) places an obligation upon the relevant police authority to do two things: firstly, to reduce the pension to which the notice served by the police officer relates, in accordance with that notice and as from the time from which it is effective; and secondly, to pay him a lump sum of such amount as is the actuarial equivalent of the surrendered portion of the pension at the date of his retirement, calculated from tables prepared by the Government Actuary.
No tables appear in the Regulations themselves, and it is common ground that the preparation of tables is a task to be undertaken by the Government Actuary, having regard to changing conditions relevant to the exercise of an actuarial judgment. The lump sum to be paid by each police authority, at any given time, must be the actuarial equivalent of the surrendered portion of an officer's pension. The overall costs of the lump sum in any case should reflect in the long term those costs which would have been incurred if part of the pension had not been commuted.
Whilst it is correct that there is an express obligation only on police authorities to use the tables prepared in calculating the lump sum, the Regulation clearly contemplates that there is a duty to prepare tables, to enable that lump sum to be calculated correctly and paid. Since the actuarial equivalent is liable to change over time, a judgment must be exercised periodically as to whether to revise the existing tables, to ensure that the tables to be used in calculating actuarial equivalence do in fact enable equivalence to be achieved in respect of any surrendered portion. That judgment calls for an entirely actuarial expertise and is to be exercised only by the Government Actuary. There is therefore an implied obligation upon the Government Actuary to prepare tables and, if necessary, to review and revise them, because they are needed to enable the police authorities to comply with their express obligation to use them, i.e. to make the provision work (see Padfield v Ministry of Agriculture Fisheries and Food  AC 997.)
There is therefore an implied obligation upon the Government Actuary to identify those factors which will, in his/her judgment, give the actuarial equivalent for each officer who elects to commute and serves the notice. As the evidence shows, it is the changes in actuarial conditions (mortality assumptions and discount rates) which may lead the Government Actuary to review and revise the tables from time to time, in order to comply with this implied obligation. Whilst it is correct that Parliament has not specified the time which is to elapse between reviews, such express provision is in my view unnecessary. The express requirement in B7(7) that the tables must be such as enable a police authority to calculate a lump sum which is the actuarial equivalent of the surrendered portion is sufficient to enable the Government Actuary to determine whether, at any given time, changes are required to existing tables to enable police authorities to fulfil that obligation.
The evidence shows that Government Actuaries had in fact been performing this function, as envisaged by Regulation B7(7) or its predecessors, for many years, and that no question of back-dating the introduction of new tables had arisen before the events which led to this challenge.
Mr. Millar submits, and I agree, that what happened in 2006 marked a clear departure from the past. The change in approach appears to stem from the change in the relationship between the Home Office and the Government Actuary's Department, which began in the 1990s, and as a result of which the Home Office became GAD's "client", commissioning GAD to undertake research or reviews for payment of a fee. Under this arrangement GAD waits for the Home Secretary to commission a particular piece of work from them, for which she must pay an agreed fee, rather than instigate it themselves.
This, Mr. Millar submits, has turned the process on its head. It has led to the Government Actuary, in error, surrendering to the Home Secretary his important statutory function under Regulation B7(7). No change in the relationship between the Home Office and GAD can reduce or remove the statutory obligation placed clearly upon the Government Actuary under Regulation B7(7).
This analysis is, in my judgment, correct. Whilst the understanding of the parties will not resolve what is agreed to be essentially a point of construction, the documentation reveals a distinct change of approach to the preparation of the tables in the period under review.
The witness statements filed by the Defendants have not addressed in detail the documentary evidence relating to these matters in the 1970s and 1980s. Yet that documentation indicates that, during that period, GAD was taking the initiative. The decision as to if and when new tables would be prepared was being made by the Government Actuary, who was then advising the Home Office as to what had been decided and forwarding new tables for dissemination to the police authorities for their use. The Defendants accept, at any rate in relation to the 1982 review, that GAD was itself instigating the review of the commutation tables at this time. This, in my view, indicates that both parties were aware at that time of the statutory obligation placed upon the Government Actuary under B7(7) and that, notwithstanding GAD's courteous reference to "recommending" tables in correspondence with the Home Office, the tables were for the Actuary alone to prepare, for use by all police authorities.
The tables prepared were then circulated by the Home Office within a short time, with a date for their commencement which varied between 1 and 3 months from the date of preparation, as is shown by the information at paragraph 24 of John Gilbert's statement. The available evidence does not suggest that there was considered, at that time, to be any distinction between the date of preparation of new tables and the date upon which they came into force. No question arose at that time as to back-dating, the period of delay apparently being attributable only to the administrative arrangements necessary to achieve consistency by police authorities in future calculations using the new tables. Since the delay was short, and the changes in mortality rates at that time would not have been so significant, no-one at that time questioned the position of those officers who, after new tables had been prepared but before they had been circulated, had received lump sums calculated using the previous tables.
The position seems to have changed however, with the advent of the new funding arrangements for GAD in 1989 and the requirement for "clients" to commission specific pieces of work. Stephen Humphrey states that GAD was not thereafter able to carry out any work without receiving instructions from a client to do so. He heads paragraphs 16 onwards in his statement as addressing "The review of actuarial tables by GAD on behalf of the Home Office".
I accept Mr. Millar's submission that this demonstrates a fundamental misunderstanding of the obligation placed upon the Government Actuary under Regulation B7(7) to prepare tables for use by all police authorities. It has led to a situation where, as the witness evidence shows, GAD considers that it must wait to be commissioned to prepare tables by the Home Secretary, as client and as administrator of the pension scheme; and that, whilst GAD may make recommendations as to when the tables should be reviewed, the decision as to if and when they should be reviewed and, once they have been reviewed, as to when the new tables should be introduced, is one for the Home Secretary.
Whilst there may well be other consultancy work commissioned from GAD by the Home Office from time to time, the preparation of tables under Regulation B7(7) is, however, a specific statutory responsibility placed by Parliament upon the Government Actuary. I agree that it cannot therefore be changed by any internal alterations to GAD's relationship with the Home Office which post-date the 1987 PPR.
I agree with Mr. Millar that the witnesses' references, throughout their statements, to GAD's relationship with its clients, and to GAD's work and methodology, tend to elide the position of the Government Actuary's Department and the Government Actuary, a government officer in his own right. The statutory duties imposed upon the Government Actuary, as office-holder, are separate and distinct from the functions of the Department, as providers of actuarial services, referred to in the witness statements. The duty under Regulation B7(7), in my view, falls clearly within the former category.
The exchange of correspondence relevant to the 2006 tables indicates, at times, some concern on the part of GAD, on the one hand recognising the Government Actuary's status as an independent actuary with statutory responsibilities, and, on the other, ceding responsibility for the preparation and promulgation of tables to the Home Secretary. This in my view explains the tension in some of the correspondence, GAD advising that the tables prepared in December 2006 should be activated urgently, so as to ensure actuarial equivalence under Regulation B7(7); and yet conceding, inconsistently, that it was for the Home Secretary to decide when to implement them.
This approach serves only to frustrate the object of this Regulation, which is to provide a certain, statutory procedure for achieving actuarial equivalence, consistent with the aim of the Regulations generally to provide clearly identifiable pension benefits in return for officers' service and payment of contributions.
The construction contended for by the Defendants leads, in my view, to confusion and uncertainty. Once it is recognised that the aim of Regulation B7(7) is achieved by imposing a duty on the Government Actuary to prepare tables, there is no basis for limiting that duty to one only to be carried out if and when commissioned by the Home Secretary. The Regulation does not in its terms confer any power upon the Home Secretary to commission reviews of commutation factors or to decide when the tables prepared by the Actuary are to come into effect.
The Defendants submit that there is a distinction to be drawn between preparing the tables, which necessitates the exercise of an actuarial judgment, and issuing those tables, the decision as to which is to be made by the Home Secretary. There is however no such distinction to be found in the Regulations, where the Home Secretary has no role to play in deciding upon individual pension entitlement or upon methods of calculation, save in those limited situations where such a role is expressly assigned to her.
In any event I see no meaningful distinction between "preparing" and "issuing" new tables for the purposes of Regulation B7(7), the plain words of which confer upon the Government Actuary, the only person named in the Regulation, an obligation to prepare tables for use, so that the commuted sum may be correctly calculated. In my judgment, absent any express provision to the contrary, once the Government Actuary had prepared the tables for use in December 2006, the statutory obligation under Regulation B7(7) had been discharged and the tables took effect from that date.
The Defendants' submission that, so long as the tables in use remained within the limits of what is "actuarially acceptable", the decision to back-date to 1 October 2007 was lawful and rational, fails to have regard to the obligation imposed under B7(7). That provision is not concerned with a "range" of actuarial equivalence. Whilst there may well be a period of time during which use of existing commutation factors may be said to be defensible, the obligation under B7(7) is not to describe the acceptable range, but to prepare tables for use. The obligation on a police authority is not to pay an actuarial equivalent, or to pay a lump sum that might reasonably be said to represent the actuarial equivalent. Rather, it presumes a statutory, actuarial equivalent sum, namely the one identified by the Government Actuary's tables.
Calculating lump sums to be paid by reference to a range of actuarially acceptable factors would in any event lead to uncertainty and confusion, as factors moved further from the centre of that range over time. Certainty as to actuarial equivalence is obtained once tables have been prepared, based on the best available evidence as at that date, thereby ensuring that any lump sum thereafter to be calculated by a police authority accurately represents the value of the annual pension specified in the relevant notice. In this case that certainty was obtained was on 1 December 2006. From that date onwards the tables have represented the best assessment by the Government Actuary of those factors which would enable police authorities to comply with their obligations under the Regulation, until such time as he/she considered that changes in actuarial conditions necessitated a review.
This construction of Regulation B7(7) is, in my judgment, entirely consistent with the operation of police pension regulations where individual officers' entitlements derive from their service as members of a police force and from payment of their contributions. Changes in the tables represent part of the existing scheme design, as GAD pointed out in the letter of 29 January 2007. A decision to postpone the implementation of tables already prepared by the Government Actuary bears directly upon the private law rights of individual officers with a vested entitlement to receive their pensions, for which, in my view, express authorisation would be required in the Regulations. The Home Secretary's undoubted interest in the expenditure of police authorities does not in my view enable her to alter those rights and liabilities which arise under the Regulations.
There is nothing in Regulation B7(7) which is capable, whether expressly or by necessary implication, of conferring any discretion to delay for policy reasons the implementation of new tables which have been prepared by the Government Actuary. The express statutory requirement is to provide tables which can be used to ensure actuarial equivalence in lump sum calculations. Affordability and public expenditure implications are therefore, in my judgment, irrelevant.
Nor is there anything which implies that it is for the Home Secretary to communicate the new tables to police authorities to use, once they have been prepared. Whilst in the past this has, no doubt for reasons of administrative convenience and consistency, always been done by means of Home Office Circular, the task is not an onerous one and the Defendants' submission that the task of promulgation must be one for the Home Secretary is not founded in the wording of Regulation B7(7). In my judgment the tables come into effect on the date when they are prepared. In this case that date was 1 December 2006.
For all these reasons, this application for judicial review succeeds. My provisional view is that the Claimants are entitled to the relief sought, but I shall invite submissions from counsel as to the appropriate form of relief before making a final order.
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