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On 24 April 2020, the Fire Brigade Union (FBU), supported by the prison staff union (POA), public services union (PCS) and the (GMB), filed court proceedings against the Government. Success for the unions will mean improved benefits or lower costs for members, a bloody nose for the Government and, perhaps, further reform of public sector pensions.
The claim is in response to the Government’s announcement of January 2019 that the employer cost cap/floor mechanism for the valuation of public service pensions would be paused. The effect of this, the Unions argue, is to rob members of their pension benefits.
Employer cost cap and floor mechanism
In April 2015, new public service pension schemes were introduced and with them regulations which introduced an employer cost cap and floor mechanism. These regulations stated that if a valuation of the schemes demonstrated that the costs of the schemes attributable to changes in member-related factors had risen or fallen, then the members’ benefits would either fall or be enhanced respectively (see here). The valuation of the public pension schemes in 2016 showed that the cost of the scheme to the Government had dropped and the cost floor had been breached. In accordance with the regulations, members should have received increased benefits from April 2019 onwards (see here).
The McCloud case
In 2018, the Government lost the age discrimination case brought against them in the Court of Appeal. The Court held that the transitional arrangements for the introduction of the 2015 public pension schemes were discriminatory on the grounds of age, race and equal pay. The Government was refused permission to appeal the judgement to the Supreme Court (see here) and it is estimated that the cost of the decision will be approximately £4 billion per year.
This then prompted the Government to announce in January 2019 that, in order to digest fully the impact of this case and its huge financial implications and because this might well impact whether there had in fact been a breach of the cost floor, the employer cost cap/floor mechanism would be paused. Politically, it was also convenient for the Government because other costs not assessed within the cost cap/cost floor mechanism had risen, which in turn meant that the employer contribution rates had risen sharply. Without this pause, the Government would have seen member benefits improve but employer contributions rise; although technically the reasons for this would have been unrelated, it’s unlikely that this nuance would have seen the light of day.
The FBU claims that this decision by the Government is in breach of the April 2015 regulations and that it should not transfer the cost of the McCloud case onto its members by reducing their agreed benefits. The outcome of this case would affect a huge range of public service employees; anyone who joined the pension schemes on or after 1 April 2012 and works in local government, civil service, NHS, teachers, armed forces, Police or firefighters. If the unions are successful, these employees would be eligible for a choice between contribution reductions, benefit improvement, or a mixture of the two. Success could also mean a political headache for the Government and perhaps further reform of public sector pensions.
We await to see how this case unfolds; who would be in Government in 2020? There is clearly no rest for anyone!
For more information
Please contact Doug Mullen.
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