Public Sector Pension Brief
21/Feb/2020
Age Discrimination
Public sector pensions reforms ‘transitional protection’ against age discrimination
In December 2018, the Court of Appeal ruled that the ‘transitional protection’ offered to some members as part of the 2015 public sector pension reforms amounts to unlawful age discrimination. At the time the Government said it would seek permission to appeal this decision. However on the 27th June 2019 the Government was denied leave to appeal the pension’s age discrimination ruling by the Supreme Court.
Government concedes age discrimination will need to be remedied across all public sector pension schemes
The current position is that interim declarations has been made by the Employment Tribunals in respect of the firefighters and judiciary, who made the original legal challenges. The declaration confirms that the claimants are entitled to be treated as members of their legacy pension scheme. For non-claimants, i.e. members in the NHS, LGPS or Civil Service public sector pension schemes the Chief Secretary to the Treasury set out in July 2019 that the discrimination identified by the Court of Appeal (that transitional protection gave rise to unlawful discrimination) will need to be removed from all public service pension schemes.
Deferred choice or immediate choice Treasury consultation
The government proposes to do this by way of legislation and intends to consult on changes. The intention is for a central consultation covering all public service schemes, except the judiciary and local-government where separate arrangements will be made. The two current lead working proposals by the Treasury to address the retrospective element of the age discrimination identified by the Court of Appeal are either a deferred choice or an immediate choice.
The National Health Service (NHS) and Civil Service pension Scheme Advisory Boards (SAB) which have Unite representation on are beginning to consider these proposals. The Local Government Pensions Scheme (LGPS) is slightly different in that there is an underpin which was written into the rules of the scheme at the time of the ‘transitional protections’, which means members are protected and therefore members don’t have to make a choice. This doesn’t mean that there isn’t anything for the LGPS to do on this, just that the process will be different. Unite also has SAB representation on the LGPS and will be looking to get better member outcomes in exactly same the way we will for the NHS and Civil Service. In addition Unite and other Trade Unions will be meeting with HM Treasury officials to discuss further on the 3rd March 2020.
Cost Cap
Cost cap floor breached
A cost cap mechanism is in place for public sector schemes, designed to ensure public service pension schemes remain affordable and sustainable for 25 years. In theory employers pay no less than a fixed floor and no more than a fixed celling, and if costs exceed the ceiling then action is taken to bring it back in line with target cost. This is measured every four years in line with other public service valuations. For Public Sector schemes there is a 2% buffer either side of the employer future service contribution rates. Perhaps surprisingly given the general trend for increasing pension costs, on 6th September 2018 the Treasury announced the floor had been breached, which meant benefit improvements for members was required.
Scheme Advisory Boards (SAB) recommend member benefit improvements to government
Over a number of months Unite alongside other public sector trade unions and employer representatives on the individual SAB for the NHS, LGPS and Civil Service came up with different member improvements for each scheme to recommend to Government.
Give with one hand and take with another
Whilst SAB’s were busy trying to work out the member benefit improvements to put to Government. The Government brought forward the ‘Valuations and Employer Cost Cap Review’. This review wasn’t due until 2021 and proposed to reduce the discount rate used to set contribution rates for unfunded public service pension schemes at future valuations, which ultimately will make the cost of the schemes more expensive.
Government Pause to Valuations
The Government announced a pause to the valuations of public sector pension schemes, following the firefighters and judiciary age discrimination court ruling on part of the 2015 pension reforms. At the time the Government said:
“…given the potentially significant but uncertain impact of the Court of Appeal judgment, it is not now possible to assess the value of the current public service pension arrangements with any certainty. The provisional estimate is that the potential impact of the judgment could cost the equivalent of around £4 billion per annum. It is therefore prudent to pause this part of the valuations until there is certainty about the value of pensions to employees from April 2015 onwards.”
This didn’t stop the Government from pushing through with the increased employer contributions part of the valuation.
Judicial Review
The FBU and now PCS are proposing to seek permission to launch a judicial review of the government decision to pause the valuations of public sector pension schemes, which is preventing member benefit improvements to their public sector pensions.
Unite attended a meeting on the 10th February called by the FBU at the TUC with other affiliated public sector unions where the potential grounds for the judicial review were discussed. Unite is currently waiting to hear from the FBU on how Unite and other Trade Unions can support as an ‘interested party’.
Exit payments £95k cap
Exit payment cap to start April 2020
The Enterprise Act 2016 gave ministers the power to cap redundancy compensation for public sector workers at £95,000. Latest indications are that the cap itself might take effect from April 2020.
Unite oppose the change
Unite is strongly opposed to this regulatory change to cap public sector exit payments. These proposals are not based on evidence, may have unintended consequences and are part of a continued erosion of public sector terms and conditions. Unite have strongly argued that they should not be implemented.
These changes will not just impact the high paid, but could potentially impact long-serving public service workers earning annual salaries of less than £25,000 per year, when pension lump sums are included.
No equality impact assessment
It is striking that there is no Equalities Impact Assessment provided. These policies are likely to heavily impact on women that make up two thirds of the public sector workforce. Analysis of the intended change shows that many relatively low paid public sector staff (including in the NHS and local authorities) with long service, would be significantly disadvantaged by these changes due to the inclusion of pension’s provisions.
Pay floor and inflationary indexation needed
If the Government ignores Unites and others’ calls to drop the £95k exit payment cap then Unite believes that the Government should implement a pay floor protection for low to middle paid workers, so they are exempt from any exit payment cap. The £95K cap must also be indexed linked to RPI inflation to prevent the cap from shrinking in real terms over time.
Ultimately Unite believes that compensation schemes should be agreed through collective bargaining rather than arbitrary imposition from the Treasury.
Public sector pensions reforms ‘transitional protection’ against age discrimination
In December 2018, the Court of Appeal ruled that the ‘transitional protection’ offered to some members as part of the 2015 public sector pension reforms amounts to unlawful age discrimination. At the time the Government said it would seek permission to appeal this decision. However on the 27th June 2019 the Government was denied leave to appeal the pension’s age discrimination ruling by the Supreme Court.
Government concedes age discrimination will need to be remedied across all public sector pension schemes
The current position is that interim declarations has been made by the Employment Tribunals in respect of the firefighters and judiciary, who made the original legal challenges. The declaration confirms that the claimants are entitled to be treated as members of their legacy pension scheme. For non-claimants, i.e. members in the NHS, LGPS or Civil Service public sector pension schemes the Chief Secretary to the Treasury set out in July 2019 that the discrimination identified by the Court of Appeal (that transitional protection gave rise to unlawful discrimination) will need to be removed from all public service pension schemes.
Deferred choice or immediate choice Treasury consultation
The government proposes to do this by way of legislation and intends to consult on changes. The intention is for a central consultation covering all public service schemes, except the judiciary and local-government where separate arrangements will be made. The two current lead working proposals by the Treasury to address the retrospective element of the age discrimination identified by the Court of Appeal are either a deferred choice or an immediate choice.
The National Health Service (NHS) and Civil Service pension Scheme Advisory Boards (SAB) which have Unite representation on are beginning to consider these proposals. The Local Government Pensions Scheme (LGPS) is slightly different in that there is an underpin which was written into the rules of the scheme at the time of the ‘transitional protections’, which means members are protected and therefore members don’t have to make a choice. This doesn’t mean that there isn’t anything for the LGPS to do on this, just that the process will be different. Unite also has SAB representation on the LGPS and will be looking to get better member outcomes in exactly same the way we will for the NHS and Civil Service. In addition Unite and other Trade Unions will be meeting with HM Treasury officials to discuss further on the 3rd March 2020.
Cost Cap
Cost cap floor breached
A cost cap mechanism is in place for public sector schemes, designed to ensure public service pension schemes remain affordable and sustainable for 25 years. In theory employers pay no less than a fixed floor and no more than a fixed celling, and if costs exceed the ceiling then action is taken to bring it back in line with target cost. This is measured every four years in line with other public service valuations. For Public Sector schemes there is a 2% buffer either side of the employer future service contribution rates. Perhaps surprisingly given the general trend for increasing pension costs, on 6th September 2018 the Treasury announced the floor had been breached, which meant benefit improvements for members was required.
Scheme Advisory Boards (SAB) recommend member benefit improvements to government
Over a number of months Unite alongside other public sector trade unions and employer representatives on the individual SAB for the NHS, LGPS and Civil Service came up with different member improvements for each scheme to recommend to Government.
Give with one hand and take with another
Whilst SAB’s were busy trying to work out the member benefit improvements to put to Government. The Government brought forward the ‘Valuations and Employer Cost Cap Review’. This review wasn’t due until 2021 and proposed to reduce the discount rate used to set contribution rates for unfunded public service pension schemes at future valuations, which ultimately will make the cost of the schemes more expensive.
Government Pause to Valuations
The Government announced a pause to the valuations of public sector pension schemes, following the firefighters and judiciary age discrimination court ruling on part of the 2015 pension reforms. At the time the Government said:
“…given the potentially significant but uncertain impact of the Court of Appeal judgment, it is not now possible to assess the value of the current public service pension arrangements with any certainty. The provisional estimate is that the potential impact of the judgment could cost the equivalent of around £4 billion per annum. It is therefore prudent to pause this part of the valuations until there is certainty about the value of pensions to employees from April 2015 onwards.”
This didn’t stop the Government from pushing through with the increased employer contributions part of the valuation.
Judicial Review
The FBU and now PCS are proposing to seek permission to launch a judicial review of the government decision to pause the valuations of public sector pension schemes, which is preventing member benefit improvements to their public sector pensions.
Unite attended a meeting on the 10th February called by the FBU at the TUC with other affiliated public sector unions where the potential grounds for the judicial review were discussed. Unite is currently waiting to hear from the FBU on how Unite and other Trade Unions can support as an ‘interested party’.
Exit payments £95k cap
Exit payment cap to start April 2020
The Enterprise Act 2016 gave ministers the power to cap redundancy compensation for public sector workers at £95,000. Latest indications are that the cap itself might take effect from April 2020.
Unite oppose the change
Unite is strongly opposed to this regulatory change to cap public sector exit payments. These proposals are not based on evidence, may have unintended consequences and are part of a continued erosion of public sector terms and conditions. Unite have strongly argued that they should not be implemented.
These changes will not just impact the high paid, but could potentially impact long-serving public service workers earning annual salaries of less than £25,000 per year, when pension lump sums are included.
No equality impact assessment
It is striking that there is no Equalities Impact Assessment provided. These policies are likely to heavily impact on women that make up two thirds of the public sector workforce. Analysis of the intended change shows that many relatively low paid public sector staff (including in the NHS and local authorities) with long service, would be significantly disadvantaged by these changes due to the inclusion of pension’s provisions.
Pay floor and inflationary indexation needed
If the Government ignores Unites and others’ calls to drop the £95k exit payment cap then Unite believes that the Government should implement a pay floor protection for low to middle paid workers, so they are exempt from any exit payment cap. The £95K cap must also be indexed linked to RPI inflation to prevent the cap from shrinking in real terms over time.
Ultimately Unite believes that compensation schemes should be agreed through collective bargaining rather than arbitrary imposition from the Treasury.