Treasury outlines McCloud pension remedy proposals

16 Jul 20

The government has unveiled long-awaited proposals to end age discrimination in public sector pension schemes, although changes to the Local Government Pension Scheme will have to wait for a separate consultation.

The Treasury today released a document seeking views on a proposed remedy to discrimination introduced in 2015 reforms identified by the 2019 Supreme Court verdict in the well-publicised McCloud case.

The 2015 reforms moved public sector pensions from a final salary to career average calculation of pension benefits and the consultation would allow members of most public sector pension schemes to choose between receiving legacy or reformed scheme benefits.

It outlines two options for the point at which this decision is made – within the year or two after implementation in 2022, or at the point of retirement.

Writing in the foreword of the consultation, chief secretary to the Treasury Steve Barclay said: “Rather than just returning all members to the legacy schemes, I want to ensure that people who are better off in the reformed schemes can choose to keep those benefits.

“I also want to ensure that those who were closest to retirement age, and so were prevented from moving to the reformed schemes, will now have that choice.”

Under the proposed new approach, the government would offer a choice on whether members receive benefits from the legacy or reformed pension schemes relating to their service during the period between 1 April 2015 and 31 March 2022.

The document’s choice between the point at which this decision is made could open up a split between members and pension administrators, according to experts.

LGPS discrimination remedy cost estimated at £2.5bn

Richard Warden, partner and actuary at pension adviser Hymans Robertson, told PF: “If I was a member I would want to wait as long as possible before making the decision.

“However, for administrators, it would be much preferable to get it done early so you know where you stand so you can crystalise the costs.”

The consultation relates to pensions for professions including teachers, NHS staff, members of the armed forces, firefighters and police.

The Local Government Pension Scheme in England and Wales is not in the scope of this consultation document due to a difference in the way benefits are calculated.

A separate consultation on the LGPS is expected within days.

When the public sector pension reforms were introduced in 2015 the government excluded members who were within 10 years of their retirement age from the new arrangements.

However, following challenges from judges and firefighters, the move was ruled discriminatory towards older members by the courts.

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