Pensions  

Govt to consult on pension solution after landmark case

Govt to consult on pension solution after landmark case

The government has warned changes ordered by the courts to rectify a landmark discrimination case could make some members worse off.

A dispute brought by firefighters and judges in March 2015 - known as the McCloud and Sargeant cases - argued that by protecting older members from a downgrade to their defined benefit pension accrual, the government was discriminating against younger ones based on age.

In a ruling handed down in December 2018, the Court of Appeal agreed that discrimination had taken place, and in June the Supreme Court refused the government’s application to appeal the case, which marked the end of its legal process.

To right this wrong, the government will likely have to reinstate workers to the closed 2015 scheme, with an initial estimate that remedying the discrimination will add about £4bn a year in liabilities across the board.

However, the Home Office has now warned that some members may be worse off when moved back to the old scheme, and that it will launch a public consultation following discussions with stakeholders.

Transitional provisions after the scheme was closed had taken different forms, allowing 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.

The difference in treatment will in due course be removed for all members with relevant service across all the main public service pension schemes – not just those who have lodged legal claims, the government noted.

“Any solution will need to ensure that all members can instead keep the pensions they have earned to date,” the Home Office stated.

A Home Office factsheet was also issued after the employment tribunal ruled in December that more than 6,000 firefighters were entitled to return to pre-2015 public sector schemes.

The government said for the firefighters’ pension scheme, some members were likely to have been better off remaining in their old scheme, while others may benefit more from the new scheme – that will depend on the individual circumstances of affected members.

Daragh McGinty, legal director at Osborne Clarke, explained the original DB schemes, which were closed as recommended by Lord Hutton’s Independent Public Service Pensions Commission, “tend to favour long-serving high earners because benefits are referable to salary just before retirement."

The new career average revalued earnings schemes, introduced in 2015, “are calculated by reference to average salary over an individual's career which tends to favour low to modest earners,” he explained.

Catherine McFadyen, head of public sector actuarial, benefits and governance at Hymans Robertson, gave the example of the LGPS Care scheme, where a member accrues 1/49th of salary for each year of service, which compares with 1/60th of salary for each year of service in the old final salary scheme.