This notes looks at the reforms to public service pensions introduced in 2015 under the Public Service Pensions Act 2013 and the implications of the Court of Appeal's decision that the transitional arrangements were discriminatory on grounds of age

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Reforms to public service pensions introduced under the Labour Government had the aim of improving financial sustainability and reflecting changes in life expectancy, working practices and the private sector, including increases in the pension age for new entrants only.

In June 2010, the Coalition Government established an Independent Public Service Pensions Commission, chaired by former Labour Secretary of State for Work and Pensions, Lord Hutton of Furness, to look at “the long-term affordability of public sector pensions, while protecting accrued rights.” In its final report, published in March 2011, the Commission recommended replacing the existing schemes with new ones, with pension entitlement based on career average earnings rather than final salary, and increases in the pension age: i.e. linking the normal pension age to the State Pension age in all schemes except those for the ‘uniformed services’ (armed forces, police and firefighters), which would have a pension age of 60.

The Government accepted the Commission’s recommendations as the basis for negotiation with the trade unions. It announced final proposed agreements for reform of most public service schemes over the period March to October 2012. It then legislated in the Public Service Pensions Act 2013 for a framework for the new schemes to be introduced for future service from 2015 (2014 for local government). Section 10 provided for normal pension age linked to the State Pension age, except for the schemes for firefighters, police and armed forces, which are to have a normal pension age of 60. For more detail, see Library Briefing Paper CBP-6581 Public service pension age – 2015 onwards (November 2018).

Legal challenges

There was protection for accrued rights and transitional protection arrangements to enable those ‘closest to retirement’ to remain in their existing schemes either until retirement, or for a limited period, depending on their date of birth. In December 2018, the Court of Appeal ruled in McCloud v Ministry of Justice that the ‘transitional protection’ offered to some members as part of the reforms amounted to unlawful discrimination. Having been denied permission to appeal, the Government said the matter would be remitted to the Employment Tribunal, which would determine the remedy for judges and firefighters. However, the issues would need to be addressed across public service schemes:

The court has found that those too far away from retirement age to qualify for ‘transitional protection’ have been unfairly discriminated against. As ‘transitional protection’ was offered to members of all the main public service pension schemes, the government believes that the difference in treatment will need to be remedied across all those schemes. This includes schemes for the NHS, civil service, local government, teachers, police, armed forces, judiciary and fire and rescue workers. Continuing to resist the full implications of the judgment in Court would only add to the uncertainty experienced by members.

The matter will be remitted to the Employment Tribunal in respect of the litigants in the firefighters and judicial pension schemes. It will be for the Tribunal to determine a remedy. Alongside this process, government will be engaging with employer and member representatives, as well as the devolved administrations, to help inform our proposals to the Tribunal and in respect of the other public service pension schemes.(HCWS 1275 15 July 2019).

The Government said it intended to extend the same treatment to all members of the public service pension schemes who were in the same legal and factual position as the claimants. It was aware that many non-protected members might be better-off in the 2015 schemes and would suffer a detriment if simply moved back to the old schemes. Its intention was to ensure that such persons could keep the benefits they had accrued. (Home Office, Sargeant Factsheet, December 2019).

On 18 December 2019, the Employment Tribunal issued an interim Order pending final determination of all the remedy issues relating to membership of the 1992 Firefighters Pension Scheme (FPS), expected in July 2020. The interim Order provides that “those that brought claims in England and Wales (the claimants) are entitled to be treated as if they remained in the in 1992 FPS. (Fire and Rescue Services National Employers Circular EMP/8/19)

The Fire Brigades Union described this as a “landmark victory with implications across the public sector.” It said that “the claimants, members of the 1992 and 2006 firefighters’ pension schemes, are now entitled to be treated as if they have remained members of their original pension scheme, with benefits including a retirement age of between 50 and 55.” (FBU press release, 18 December 2019).

In March 2020, the Government said it was considering proposals to allow relevant members to make a choice as to “whether they accrued service in the legacy or reformed schemes for periods of relevant service.” It would set out its proposal to remove the discrimination for future service, and provide an update on the cost control mechanism, in a forthcoming consultation (HCWS187, 25 March 2020).

Cost control mechanism

The 2013 Act included a ‘cost control mechanism’, so that if valuations showed the costs of a scheme had risen or fallen outside of a target rate, steps would have to be taken to bring them back to target.

In September 2018, the Government said that initial results of the first post-reform valuations, indicated that members should get “improved pension benefits for employment over the period April 2019 to March 2023.” There would be consultation on what this would mean for each scheme and changes would be implemented from April 2019 (HC Deb 6 September 2018 c13WS). However, it paused these discussions in January 2019 on the basis that the costs of the schemes were uncertain until McCloud/Sargeant remedies had been agreed.

On 25 April 2020, a group of four trade unions representing public servants – the Fire Brigades Union, Prison Officers Association, Public and Commercial Services Union and the GMB – announced that they had launched a legal challenge to the pause of the cost control mechanism. For more detail, see CBP-6971 Public service pensions – the employer cost cap (April 2020).

This note aims to provide an overview of the reform process. The funding arrangements are discussed in CBP-8478 Public service pensions -facts and figures.

  • Commons Research Briefing SN05768
  • Author: Djuna Thurley
  • Topics: Pensions

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