Govt launches consultation on implementation of McCloud ruling

The Treasury has launched a consultation seeking views on its proposed method of implementing changes to remedy the age discrimination identified in the McCloud court case.

It has proposed offering affected members the choice of accruing benefits in either the new career average pension schemes or in the final salary legacy arrangements that they were moved from for the period between 1 April 2015 and 31 March 2022 (the remedy period).

It is also seeking views on how to offer members this choice. The government has proposed either offering affected members an ‘immediate choice’ or a ‘deferred choice underpin’ (DCU).

The immediate choice would require affected individuals to make their decision “in the year or two” after the point of implementation in 2022.

Alternatively, the DCU option would see their decision deferred until the point at which the member retires, or when they take their pension.

Under the DCU option, all members would be deemed to have accrued benefits in the legacy scheme, rather than the reform scheme, for the remedy period, until they make their decision.

The government is also seeking views on its proposal to move all public sector workers in the scope of the consultation to the reformed career average schemes they had initially been moved into in April 2015, from 1 April 2022.

In April 2015, the government reformed the legacy public service schemes from final salary to career average schemes.

As part of these reforms, members that were within 10 years of retirement remained in their legacy pension schemes while other members were moved to the reformed schemes.

However, in December 2018, the Court of Appeal ruled that this was discrimination on the ground of age and the government was ordered to remedy this discrimination.

AJ Bell has estimated that the changes could affect around 3 million people and cost the taxpayer £17bn.

AJ Bell senior analyst, Tom Selby, commented: “In the middle of a pandemic and with the Brexit transition period fast coming to a close, a £17bn public sector pensions bill is probably among the last things the government needed.

“However, it was left with little choice after a 2018 Court of Appeal ruling determined transitional protections given to members within 10 years of receiving their pension - negotiated as part of radical reforms to public sector pensions introduced in 2015 - constituted age discrimination.

“This is a colossal and entirely avoidable own goal borne of the government’s desire to appease trade unions when the reforms were introduced.

“In fact, Lord Hutton’s final report on the changes specifically warned age discrimination legislation meant it ‘would not be possible in practice to provide protection from change for members who are already above a certain age’. The decision to ignore this advice has proven extremely costly indeed.

“For those affected by the new settlement, today’s announcement is clearly good news, with the average member due to benefit by almost £6,000. However, for public sector employers and in turn taxpayers, it represents a huge cost which can only be borne either by cuts to services or higher taxes.”

Alongside the consultation on how to address the ruling, the government has announced that the pause of the cost control mechanism will be lifted, and the cost control element of the 2016 valuation process will be completed.

The government had paused the mechanism after the McCloud and Sargeant cases as “the uncertainty around member benefits arising from the court judgments made it impossible to assess the value of the schemes to members with any certainty”.

It noted that the costs of addressing the McCloud ruling will be included in the 2016 public sector scheme valuation process.

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