Government Consults to Remedy Age Discrimination in Public Sector Pension Schemes
On 16 July 2020, the Government published a consultation paper setting out its proposals for remedying the age discrimination identified by the Court of Appeal in the 2018 case of McCloud.
The Move to Career Average Pension Schemes
In 2011, the Independent Public Services Pension Commission published a report recommending wholescale public sector pension reform (Hutton Report). Amongst the recommendations contained in the report was the proposed move from final salary pension schemes to career average pension schemes for public sector workers. The report proposed that benefits already accrued on a final salary basis should be maintained, meaning members close to retirement age would not need transitional protection.
Notwithstanding the Hutton Report recommendations, in 2015 the Government implemented transitional protections for public sector workers who were within 10 years of retirement, whereby they were allowed to remain in their final salary schemes. In addition, some members who were more than 10 years away from retirement benefited from tapered protection, allowing them to remain in their original final salary pension schemes for extended periods of time. The Government's rationale for offering this protection was that older workers would have less time remaining before retirement in which to re-organise their finances to account for the move to career average benefits. Younger workers benefited from no such protection.
McCloud Judgement
In the 2018 case of McCloud, the Court of Appeal found the transitional protections to be unfairly age discriminatory against younger pension scheme members. Whilst direct age discrimination can theoretically be justified, the defence in the McCloud case failed because the members protected by the transitional protections were in fact the least financially affected by the Hutton Report recommendations and ensuing pension scheme changes, having spent most of their careers accruing final salary benefits which were protected.
Whilst the case related to firefighter and judicial pension schemes, the Government confirmed it would remove transitional arrangements from all public sector pension schemes in response to the Court of Appeal judgement.
Consultation
The current consultation sets out the Government's proposed mechanism for removing the discriminatory transitional pension scheme protections. It is proposed members will have the choice between receiving final salary or career average benefits in respect of their service between 1 April 2015 and 31 March 2022. The Government states the rationale for offering the choice between final salary and career average benefits for this period is that some scheme members are better off in the new career average schemes and would not want to switch.
The consultation also sets out the Government's proposals for moving all active pension scheme members into career average schemes after 31 March 2022.
The consultation is open until 11 October 2020.
We are currently working with many independent schools who are reviewing the pension provision offered to staff and whether the TPS is financially viable. The impact of the changes proposed in the consultation is that concerns about the Scheme being unaffordable are going to be heightened.