By Craig Thomson, Professional Officer, Voice Community
Have you heard of the McCloud Judgement?
In December 2018, a judgment was made by the Court of Appeal in the McCloud and Sargeant cases. The judgment determined that both the judges’ and firefighters’ pension schemes were discriminatory to some of their members. The Government announced on 15 July 2019 that they accepted the judgment, which also applies to all the main public service pension schemes, including the Teachers’ Pension Scheme (England and Wales), Scottish Teachers' Pension Scheme, Northern Ireland Teachers' Pension Scheme and the Local Government Pension Scheme (LGPS).
Why were the schemes discriminatory?
It was on the grounds of age discrimination.
The career average arrangement was introduced in 2015 and the ‘transition protection’ was provided to older scheme members. Older members were able to stay in the final salary arrangement, instead of being moved to the new career average arrangement with higher pension ages; while younger workers were not.
What happened because of the judgment?
Between 16 July and 11 October 2020, the Government consulted on two options (immediate choice or deferred choice underpin) to remedy discrimination that arose when reformed public service pension schemes were introduced in 2015.
When was the response of the consultation published?
The Government’s response to the consultation Public service pension schemes: changes to the transitional arrangements to the 2015 schemes was published on 04 February 2021.
You can find the full response here.
What was the outcome of the consultation?
The key messages are:
- The Deferred Choice Underpin, favoured by the majority of the consultation respondents, will be implemented to remedy the discrimination. Eligible scheme members will receive a choice at the point they take their benefits from the scheme (e.g. at retirement) on whether to take final salary or career average scheme benefits for the service they have accrued between 1 April 2015 - 31 March 2022 (known as the remedy period).
- The final salary scheme will close to future accrual on 31 March 2022. From 1 April 2022, all those who continue in service will do so as members of the career average schemes, regardless of age, meaning all members will be treated equally in terms of which pension scheme they are a member of. Benefits built up in the legacy schemes will be protected.
- The Government will bring forward new primary legislation as soon as parliamentary time allows, to provide the powers to deliver these changes through the public service pension schemes.
- The cost control element of the 2016 valuations was unpaused in July 2020. The CST believes it is inappropriate to reduce member benefits based on a mechanism that may not be working as intended. As such, any ceiling breaches that occur during the completion of the 2016 valuations will not be implemented, and benefit levels will not be reduced. However, any floor breaches that occur will be honoured, and member benefits increased in order to bring costs back to target.
- Future cost control policy for future valuations will be set out once the Government Actuary’s ongoing review of the mechanism has concluded and any recommendations have been fully considered by the Government.
- Changes to the employer contribution rates resulting from the 2020 valuations process will be delayed from April 2023 to April 2024. This is an exceptional but necessary decision taken in light of the wider public service pensions landscape.
What will happen next?
We have now started the process of reviewing and analysing the Government response in more detail. We will be meeting with the Scheme Advisory Board later this month to discuss the outcome and implications in detail.
If you have any worries or concerns, please contact us and we will ensure your voice is heard.
Further pension updates will be shared soon.
Update (8 February 2021):
Who does the outcome affect?
The outcome will affect members who were in service on or before 31 March 2012 and have continuous service until on or after 1 April 2015. It will include those that have had a qualifying break in service of no more than five years.
How will this change affect you?
If you meet the criteria, you will be able to choose between the reformed (career average) or final salary (legacy) scheme, for your service between 1 April 2015 and 31 March 2022.
When will I need to make this decision?
You will make this choice at the point when you take your pension benefits. This is called the deferred choice underpin (DCU).
How do I know which scheme to choose?
At the point of retirement, you will receive the necessary information, this aims to support you to make an informed choice about what scheme benefits may be better for you.
I understand that the Government has changed the process to try and remedy the discrimination, but will I suffer a financial detriment?
The change will be backdated. To find out more about your individual pension amount, please contact your pension provider.
What will happen on and after 1 April 2022?
All active members will start to accrue benefits in the career average (reformed) scheme.
What do members have to do next?
Members should keep looking out for updates on their pension supplier’s website. The Teachers’ Pension Scheme has advised that members do not need to do anything at this moment in time. They are currently considering who is affected and will be contacting members in due course.
We want to hear your views on the Government’s attempts to remedy the McCloud discrimination.
To share your opinion, email us.