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UK government outlines plans to remove age discrimination from public sector pensions

Out-Law News | 20 Jul 2020 | 4:02 pm | 3 min. read

The UK government has launched two consultations aimed at removing age discrimination from transitional provisions to public sector pension schemes, in the wake of a court judgment from 2018.

HM Treasury and the Ministry of Housing, Communities and Local Government (MHLCG) have opened separate consultations on amending transitional protection rules for unfunded public service pension schemes and the local government pension scheme respectively.

The proposals follow court cases brought by judges and firefighters in the wake of changes in 2015, when members of the UK's public sector pension schemes were compulsorily transferred to less generous new schemes in 2015. However, scheme members within 10 years of retirement age were permitted to remain on the previous schemes.

In December 2018 the Court of Appeal (CoA) ruled that the Ministry of Justice had discriminated against younger judges on the grounds of age, and found in favour of a group of firefighters on the same issue. The court said the discrimination must be remedied by the government.

The Treasury proposals would see the transitional provisions extended to all unfunded scheme members who were in an active pension scheme on or before 31 March 2012 and have membership in the reformed schemes, whether or not they have made a tribunal claim. The affected members would be given the right to choose whether they remain in the relevant reformed scheme or move back into the legacy, pre-2015 scheme in respect of their service during the ‘remedy period’ between 1 April 2015 and 31 March 2022.

The government is consulting on this proposal (74 page / 851KB PDF). It also wants views on which of two approaches to use for members to make that choice – either an immediate choice, to be made soon after 2022 when the reformed scheme is fully implemented; or a ‘deferred choice underpin’, to be made when the member retires or takes pension benefits.

Under the underpin, all members would be deemed to have accrued benefits in the legacy scheme, rather than the reformed scheme, for the remedy period.

The MHLCG consultation takes note of the fact that, under the 2015 reforms, older members of the local government pension scheme were given transitional protection through a statutory underpin, which is designed to guarantee that members either retiring or reaching pension age will receive the better of the benefits under either the legacy or reformed local government scheme.

The MHLCG is now proposing (69 page / 660KB PDF) that all scheme members who were active as of 31 March 2012 should also benefit from the underpin.

Pensions law expert Nick Stones of Pinsent Masons, the law firm behind Out-Law, said the 2015 reforms were supposed to have been “the last word” for at least 25 years.

“The unions and the government had agreed the measures but the agreed transitional protections were disregarded in a Court of Appeal case that essentially undid all that was done in 2015. It is as if the reforms of 2015 never happened. In one respect we will move to a ‘fairer’ more affordable scheme in 2022 instead of 2015, and the reforms in 2022 will apply to all public sector workers regardless of where they are in their working life. Implementation is delayed by seven years,” Stones said.

Stones said members would opt for the regime that would give them the better benefit.

“It is embarrassing for the government and an unfortunate additional cost on the taxpayer,” Stones said.

“But the cost of public sector pensions is not just borne by the government. Since the new fair deal reforms of 2013 private sector employers have been able to participate in the public sector schemes. It is yet to be seen if or how any of the costs from this exercise will be carried by such employers and whether they have full or partial protection. That may come down to the terms of their service contracts with the public sector contracting body,” Stones said.

The cost of the reformed public sector pension schemes was expected to be calculated for the first time in the 2016 actuarial valuations of the scheme. Following the CoA judgments in 2018, the government paused the cost control element of the valuations.

The Treasury has now announced that it is lifting the pause (2 page / 139KB PDF) and will complete the cost control element of the 2016 valuations. In the process, it will also evaluate the costs of addressing the age discrimination identified by the courts. However, any costs associated with increasing the value of member benefits will be a ‘member cost’ and therefore fall in the scope of the cost control mechanism.

Stones said this was a “sting in the tail” for members.

“It may be that the proposed resolution of the discrimination ultimately results in employee contributions rising or future benefits being reduced under the costs cap mechanism,” Stones said.

The Treasury consultation is open until 11 October. The MHLCG consultation is open until 8 October