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Public sector pensions are in need of a health check

Public sector pensions are in need of a health check
Photo by Christopher Furlong/Getty Images

If you have been following public sector pensions news of late, you would be forgiven for thinking that this very benefit, intended as a reward for years in public service, has actually become a disincentive to continuing employment for many.

I am of course talking about the latest salvo in the ongoing battle between government and NHS clinicians over the application of pension tax charges.

It seems that in April this year there was a 28 per cent year-on-year increase in the number of NHS staff claiming benefits, which, it is argued, points to an increase in retirements resulting, at least in part, from the pension tax system.

I have no doubt that real or perceived ’unfairness’ of the pension tax system has driven some to retire. And I have no doubt that these complaints have been exacerbated by the demands put on our NHS staff as they struggle to cope with the pandemic and its fallout.

But our great NHS army consists of more than just its clinicians and senior staff. It also consists of nurses, pharmacists, physiotherapists and countless others who are unlikely to be troubled by pension tax charges other than in the most exceptional circumstances.

And it seems unlikely that a 28 per cent year-on-year uptick in benefit claims will stem from clinicians alone. So what other factors are at play here?

The McCloud remedy

I for one do not believe it is pure chance that this apparent increase in retirements has coincided with implementation of the first phase of the McCloud remedy.  

Under this remedy, to end the unlawful age discrimination that occurred at the time of public sector pension reform in 2015, all ‘protected’ individuals who would previously have been allowed to stay in their legacy final salary scheme indefinitely, were instead moved across to their scheme’s reformed career average alternative effective April 1 2022.

Since that date, this group of older members has not been building up benefits on the basis they were previously expecting. And there is a good deal of anecdotal evidence to suggest many of them have retired or are considering retirement in order to avoid joining the reformed scheme altogether, or at the very least to minimise membership of it.

And for some, that stems from confusion around how their different portions of benefits work in combination and what it all means for their retirement plans.  

And this problem is not limited to the NHS. Many of the same issues and outcomes exist in other public service pension schemes too. One adviser I spoke to recently reported that his client, a teacher, was convinced that if she joined the reformed teachers’ Care scheme in April this year, she would no longer be able to retire at age 60, and intended taking early retirement as a result.

In another case, a police officer was considering exiting his scheme and investing in crypto currency rather than enter the reformed Care scheme, so poor did he believe benefits under the latter to be.