• The Treasury has today set out plans to revisit radical public sector pension reforms made in 2015 after the Court of Appeal ruled transitional protections provided to those within 10 years of retirement were discriminatory (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/900766/Public_Service_Pensions_Consultation.pdf)
• For any pension rights built up between April 2015 and April 2022, public sector pension members will be offered the choice between:
o The old scheme, where pensions were based years of service and final salary
o The reformed scheme, where pensions were based on years of service and career average salary
• Around 3 million people could be affected, with the changes expected to cost the taxpayer £17 billion in total – or almost £6,000 per member
Tom Selby, senior analyst at AJ Bell, comments: “In the middle of a pandemic and with the Brexit transition period fast coming to a close, a £17 billion public sector pensions bill is probably among the last things the Government needed.
“However, it was left with little choice after a 2018 Court of Appeal ruling determined transitional protections given to members within 10 years of receiving their pension - negotiated as part of radical reforms to public sector pensions introduced in 2015 - constituted age discrimination.
“This is a colossal and entirely avoidable own goal borne of the Government’s desire to appease trade unions when the reforms were introduced.
“In fact, Lord Hutton’s final report on the changes specifically warned age discrimination legislation meant it ‘would not be possible in practice to provide protection from change for members who are already above a certain age’. The decision to ignore this advice has proven extremely costly indeed.
“For those affected by the new settlement, today’s announcement is clearly good news, with the average member due to benefit by almost £6,000. However, for public sector employers and in turn taxpayers, it represents a huge cost which can only be borne either by cuts to services or higher taxes.”
Background
Reforms to public service pension schemes were introduced in 2015 with the central aim of putting the schemes on a more sustainable footing for the long-term. The main changes involved moving from final salary to career average pensions, adjusting accrual rates and aligning the age at which members would start receiving benefits with the state pension age.
As part of this settlement, transitional protection was offered to those within 10 years of their normal pension age – meaning those who were more than 10 years away from retirement could not access the old scheme.
The legal cases that ruled transitional protection was unlawful are known as the McCloud and Sargeant cases. Through these cases, the Courts identified unjustified age discrimination, in that entitlement to transitional protection was dependent on age. The Courts also identified indirect race and sex discrimination arising on the particular facts of those cases.
In order to remove this discrimination, the Government therefore needed to ensure equal treatment retrospectively back to 1 April 2015 and prospectively for the period until a fully equalised system takes effect.
While the Government noted that the simplest way to achieve this would be to extend transitional protection to all members who were in service on or before 31 March 2012 and on or after 1 April 2015, it said this would be detrimental for “a significant number of members” who are likely to be better off in the reformed schemes.
The Government has therefore decided instead to ensure equal treatment by offering the relevant members a choice of which scheme benefits they want to have in respect of their service between 2015 and 2022.
