Pensions  

NHS and teachers schemes face £7bn added cost

NHS and teachers schemes face £7bn added cost

The NHS and Teachers pension schemes are facing an extra cost of £7bn each as a result of a court ruling which determined pension changes made in 2015 were discriminatory.

The case, which initially considered judges and firefighters pensions, will be applied to all public sector schemes, the government said in July.

The two schemes, which published their annual accounts on Tuesday (August 6), made an assessment of how much it will cost to give all their members the better of the old and new scheme's benefits for service over the four years to March 31, 2019.

The NHS scheme estimated an additional liability of £7.2bn (nearly 1.4 per cent of liabilities) and the teachers’ scheme estimated a £7bn impact (nearly 2 per cent).

Both calculations did not take into account assumptions about pay growth – adding 0.5 per cent per year would increase the impact on the NHS by around £4.3bn and on the teachers scheme by some £4.5bn.

The original court dispute started when in March 2015 the defined benefit pension schemes for judges and firefighters were closed and the members transferred into a replacement scheme. Similar changes occurred in other public sector schemes.

Transitional provisions were put in place, which allowed older judges and firefighters to remain members of the old schemes, either until retirement or until the end of a period of tapered protection, dependent on their age.

But in a ruling handed down in December, the Court of Appeal said the government had discriminated against the two groups on the grounds of age, race and equal pay in relation to changes to their pension.

In June the Supreme Court refused the government’s application to appeal the court case, which marked the end of the legal process.

According to the Fire Brigades Union, the Supreme Court refused the government’s application to appeal because it had not raised an arguable point of law.

According to David Robbins, senior consultant at Willis Towers Watson, it won’t just be younger employees who will gain from this – some older employees with frozen pay may have been better off in the career average schemes, where benefits were revalued by more than inflation, than they were in the final salary scheme.

He said: “It seems likely that these costs will eventually be passed on to active members via the employer cost cap mechanism, in which case this will ultimately involve taking from some public sector employees and giving to others.

“John Hutton’s report, which the Coalition Government used to roll the pitch for its public sector pension changes, argued that transitional protection for older workers was unnecessary and that it would probably be illegal.

“But some unions asked for it, ministers agreed, and parliament did not query it.”

maria.espadinha@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.