Pensions: Consultation on changes to the transitional arrangements to the 2015 scheme
HM Treasury has recently published its consultation on the options for McCloud remedies and future pension provision. This can be accessed here.
Alongside this was an announcement that the pause on the cost cap mechanism will be lifted and that the cost of the remedy will be included within that mechanism.
The consultation on changes to the transitional arrangements to the 2015 scheme will close on 11 October 2020 and has a specific set of questions on each of the key policy decisions.
What is the consultation about?
We have kept members updated on the McCloud judgment, but to recap: in 2015, the government introduced reforms to public service pensions, meaning most civil servants were moved from classic, classic plus, premium and nuvos into the alpha pension scheme. Those within 10 years of their normal pension age remained in their old schemes with ‘transitional protection’.
In December 2018, the Court of Appeal ruled that the ‘transitional protection’ offered to some members of the judges’ and firefighters’ schemes gave rise to unlawful discrimination. This became known as the ‘McCloud Judgment’.
The public service pensions consultation proposes options to remedy the discrimination, and pension scheme changes to remove this discrimination will be applied to all the main public service pensions, including the Civil Service Pension Scheme.
How does it affect me?
The pension scheme changes are complex and will take time to develop. The government states that it is aware that simply putting everyone back into the old schemes would not be in the best interest of some members who may be better off in the new 2015 schemes.
To address the previous discrimination, in-scope members will make a choice of which set of pension scheme benefits to receive for the period from 1 April 2015 to 31 March 2022, those under their old scheme or the new scheme.
From 1 April 2022, everyone in active service will earn pension benefits in alpha irrespective of their age or service start date, equalising treatment for all members.
The final decision on the preferred option will not be made until the consultation process is complete.
Do I need to submit a claim?
Scheme members do not need to submit a claim in order to receive these changes, the government will do this automatically.
Will the FDA be submitting a response?
Absolutely, the FDA Executive Committee met on 5 August to discuss the consultation and will meet on 7 October to finalise its submission to the consultation.
It was agreed that we seek FDA members views on the consultation to inform the response.
How will you consult FDA members?
We will be conducting a survey in September to inform our response. We will also be providing detailed information to members to assist you in responding to the survey.
Future Pension Provision
Whilst the courts found that transitional protection arrangements negotiated as part of their implementation gave rise to unlawful discrimination, the objectives and validity of the reformed schemes themselves have not changed or been affected.
The consultation document proposes to move all protected members across to the reformed scheme (Alpha) by 1 April 2022, and as a result the remedy period is expected to end on 31 March 2022. It proposes bringing forward primary legislation to remove the transitional protection provisions and close legacy schemes completely for future service, for all members, from 1 April 2022.
FDA will be seek member’s views on future pension provision as part of the survey in September to inform our response.
Cost cap and the cost control element of the 2016 valuations
In previous newsletters, we have explained that the government had undertaken valuations of public service pensions including assessing the cost of schemes against the ‘cost cap’, which should have resulted in changes to employee contributions or benefits.
In January 2019, HM Treasury paused the 2016 cost cap process, as it stated that the value of public service pension schemes could not be accurately valued due to the uncertainty caused by the McCloud judgment. The previous cost cap assessment found that the scheme was costing 5.4 percentage points less than intended. This initial valuation triggered a requirement to either improve member pension benefits or reduce member contributions.
The FDA and TUC have maintained throughout the cost cap pause that we did not agree with the pause nor that scheme members should be covering the costs of the remedy process.
Alongside the public consultation on the age discrimination remedy approach, it was announced that the 2016 cost cap pause has been lifted and the process will now resume.
The HM Treasury announcement details that the increase in scheme liabilities arising from the 2015 remedy (being consulted on) is incorporated into the cost cap evaluation. It is therefore expected that when the cost cap breach is recalculated by the Scheme Actuary, it will be lower than the previous 5.4 percentage point breach.
Whilst the lifting of the cost cap pause is welcomed, unions have opposed the loading of the cost of the remedy onto scheme members, which is out of line with the original agreement, which excluded the cost of transitional protection from the cost cap mechanism.
We are currently waiting for HM Treasury to publish directions on the cost cap and we will update members as soon as possible.
The FDA will:
- issue a survey to members on the consultation document in early September
- provide more detailed guidance with the survey
- update members as we receive any new information
- set up a consultation email address and will welcome comments from members