In some respects, it is reassuring when we have news of issues that were present before the Covid-19 pandemic and will, undoubtedly be present when it is over!  The Government’s written statement on steps to take in wake of the Court of Appeal’s judgment in McCloud is one such issue.  These are strange times when a statement on public service pension schemes provides reassurance!

Background

Following a report in 2011, the Government announced that it would implement a wholescale reform of the public service pension schemes.  The schemes would move from defined benefits to career average.  In recognition of the disproportionate impact this would have on members who were nearing retirement, transitional measures were put in place ensure this group were not disadvantaged by having less time to make alternative provision. 

In response, a group of firefighters and high court judges brought claims arguing that these transitional arrangements constituted indirect discrimination on the grounds of age, sex and race. On the latter point, it argued that there were fewer women and ethnic minority members in the protected older group.

The Court of Appeal heard these claims and ruled in December 2018 that these transitional arrangements were indeed discriminatory.  It ruled that the Government would need to honour the transitional arrangements for all members of the schemes.  The impact of this is huge; it could add £4billion to the public pension schemes’ liabilities, which most certainly will lead to an increase in contribution rates.  The Government has been refused permission to appeal the Court of Appeal judgment, which means the decision of the Court of Appeal is binding law.

Government’s statement

The Government has now given some indication of how they propose that this compensation will be paid.  The salient points are:

  • The changes will apply automatically – members will not have to make a claim for compensation
  • Members will be given a choice as to whether they accrued periods of relevant service in the legacy final salary schemes or in the reformed career average schemes’ – they can pick according to which is more beneficial
  • If, as a result of these changes, a member’s pension circumstances change, the Government may need to consider whether previous tax years back to 2015/16 need to be reopened in relation to their pension.

Next steps

The Government has concluded its discussions with all the stakeholders and hopes to release proposals later in the year.  These proposals will be subject to consultation before any steps being agreed and implemented. 

In the current climate, there is little way of knowing any more accurate time frame. However, it is clear from the Government’s statement that the time and cost of implementing the required changes will be very much borne by employers and is, therefore, something to bear in mind when budgeting for the future.

A copy of the statement can be found here https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Lords/2020-03-25/HLWS182/.

Further information

Please contact Alice Kinder for further information.