Pension schemes: Changes to public sector pensions announced – what it means for you

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Pension schemes for public service workers made the news in recent months as the Court of Appeal ruled that part of the Government’s efforts to reduce courts were deemed unlawful. The state attempted to reduce the cost of public service pensions to the taxpayer, with reforms proposed to replace existing schemes with new (less generous) ones.

The new schemes, introduced in 2015, ended up being based on career average earnings, rather than final salaries linked to state pension ages.

In an attempt to ensure a smooth transition, the Government introduced transitional protection arrangements, which attempted to enable those who were close to retirement to remain in their existing schemes until their retirement or for a set amount of time.

The rules on this were based on people’s date of birth and eventually, two employment tribunal cases were levied against the Government over age discrimination in relation to the transitional protection rules.

While both cases were appealed, the Court of Appeal eventually ruled that the transitional protections gave rise to unlawful discrimination.

As a result of this, the Government launched a consultation in July 2020 on:

  • Options for removing the discrimination between scheme members arising from transitional protection arrangements
  • Future pension provision

Yesterday, the Government published its response to that consultation.

They set out their proposed changes in a ministerial statement along with associated publications.

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Their proposed changes mean that:

  • Eligible members will receive a ‘deferred choice underpin’ (DCU) (one of two options consulted on) in order to remedy the discrimination arising from transitional protection arrangements
  • This will allow a choice at the point benefits become payable, as to which benefits (legacy or reformed scheme) they wish to take for the period between April 1 2015 and March 31 2022, known as the “remedy period”
  • All members will be in their respective reformed schemes from April 1 2022
  • No reduction in benefit levels will be implemented as part of the cost control element of the 2016 valuation process, which will take into account the increased value of the schemes due to the remedy and any increases in benefits resulting from the valuations will be honoured
  • Changes to employer contribution rates arising from the 2020 valuation process, will be implemented in April 2024, instead of April 2023

HM Treasury confirmed they had been working closely with the Government Actuary’s Department (GAD) to understand the implications of the proposed changes and the design of the DCU.

Additionally, the Government Actuary is currently conducting a review of the cost control mechanism.

Matt Wood, the GAD’s Head of Specialist Actuarial, who led the team advising HM Treasury, commented on the announcement: “This announcement signifies an important moment for the millions of public service workers who are in scope of the changes to correct the discrimination.

“It also represents a culmination of several years of work and excellent collaboration between many different government departments.”

Going forward, the Public Service Pensions team in GAD will continue to work with the sponsoring departments on how to best implement the DCU.

This will include the administrative updates required and how to communicate the changes to members.

Currently, the team involved is working on producing the results for the cost control element of the 2016 valuation.

They have also begun to validate and analyse membership data for the 2020 valuations.

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