13:56, July 16 63 0 theguardian.com

2020-07-16 13:56:03
Public sector pension discrimination could cost UK taxpayer £17bn

The government has revealed it faces a £17bn bill for tackling “unlawful” age discrimination in public sector pensions, with 3 million people set to benefit by an average of more than £5,600 each.

While the announcement spells good news for many teachers, nurses, police officers, firefighters and civil servants, commentators said the huge bill could not have come at a worse time and would almost certainly have to be financed through cuts in spending or higher taxes.

Taxpayers are effectively now having to pick up the tab for mistakes made almost a decade ago when ministers attempted to reduce the UK’s ballooning public sector pensions bill.

In 2010 the coalition government set up a commission to look at what could be done, and later pushed through a series of changes that meant most public sector workers were moved to new pension schemes in 2015. However, these new schemes typically offered less generous terms, prompting anger among many workers and unions.

As part of the changes, the government put in place transitional arrangements that usually meant older workers could stay in the existing, more generous schemes, while younger workers had to transfer to the new schemes.

A group of judges and a group of firefighters decided to take the row to court, arguing that younger people were being treated less favourably, and in late 2018 the court of appeal ruled that the transitional protection offered to some members amounted to unlawful discrimination.

The government eventually accepted the ruling and confirmed it would tackle the problems identified, and is now consulting on how to do this.

A new Treasury document estimated that putting right the unlawful discrimination would cost £17bn in total, and that about 3 million individuals were affected. This total includes members of the NHS, teachers, armed forces, civil service, police and firefighters’ schemes.

The proposals from the government relates to the period from April 2015 to April 2022. Tom Selby, a senior analyst at investment firm AJ Bell, said that when it came to pension rights built up during this period, scheme members were now being offered a choice by the government. They could opt for the old scheme, where pensions are linked to final salary, or the revised scheme, where it is based on their average salary.

“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,” he added. The typical retirement boost would be a little over £5,600 per person.

But Selby said that, coming in the middle of a pandemic and the Brexit transition period, a £17bn public sector pensions bill “is probably among the last things the government needed”, and represented a huge cost “which can only be borne either by cuts to services or higher taxes”.

The Treasury said that while some members were likely to be better off in their old “legacy” scheme, others – particularly lower-paid employees – were likely to be better off in the newer schemes.

It added: “The government believes it is therefore not fair to simply move everyone back into the legacy schemes, even though this would be sufficient to remove the unlawful discrimination … [and] therefore proposes to provide members with the option to choose between receiving legacy or reformed scheme benefits.”

Everyone affected would be able to receive the benefits they were entitled to, whether or not they had put in a legal claim, and the best decision for each person would depend on their individual circumstances, said the document.

The government plans to bring the changes in via primary legislation which is set to take effect from April 2022.

Topics