There are two very important developments relating to pensions which directly or indirectly affect all active and some recently retired members of the civil service pension schemes.
The issues are:
- The impact of the recent scheme valuation, which showed that the civil service pension scheme was significantly “over-valued”.
- The successful legal challenge, generally referred to by the lead case McCloud, taken by the Fire Brigades Union (FBU) and judges against unlawful age discrimination in the transitional arrangements which formed part of the major changes introduced to public service pension schemes in 2015.
Here are the answers to some of our members' frequently asked questions on the issue.
What does the McCloud judgement mean?
At the end of 2018 the Appeal Court found that the transitional arrangements discriminate on grounds of age and having been refused leave to appeal to the Supreme Court the government announced on 15 July last year that the legal remedy will apply to all the main public service pension schemes where different treatment featured in the transitional arrangements. Shortly afterwards PCS entered discussions with the Cabinet Office and the Treasury about how the remedy can be implemented. In a written parliamentary answer this month the government reported its view of these discussions in the following terms:
“(Our) detailed proposals will be published later in the year and will be subject to public consultation. The government will welcome views on these proposals. For the avoidance of doubt, members of public service pension schemes with relevant service will not need to make a claim in order for the eventual changes to apply to them. I would like to reassure members that their pension entitlements are safe. The proposals the government is considering would allow relevant members to make a choice as to whether they accrued service in the legacy or reformed schemes for periods of relevant service, depending on what is better for them. The government will provide more detail later in the year, but if an individual's pension circumstances change as a result, the government may also need to consider whether previous tax years back to 2015-16 should be re-opened in relation to their pension.”
Who is directly affected by the McCloud case remedy process?
- Members of the scheme who were in legacy schemes as at 31 March 2012 and were placed in Alpha on 1 April 2015 without transitional protection
- Members who were in legacy schemes as at 31 March 2012 but were in the partially protected group and were placed in Alpha after 1 April 2015.
- This will include some members who have:
- Retired on health grounds
- Partially retired
- Left with deferred pension rights
What does the over-valuation of the scheme mean?
When the government introduced the detrimental changes in 2015 their case rested on the proposition that pension costs could run out of control and should be capped so that scheme members would need to pay even higher contributions. PCS consistently opposed this view. In presenting their argument the government acknowledged that if the scheme costs reduced scheme members must benefit through lower contribution rates and/or improved benefits. Under this cost sharing principle the pension valuation out turn in 2018 was 5.4% below target showing that the civil service pension scheme has been significantly overvalued. This triggered not the cap on employer cost but the collar on benefits and employee costs.
Where have we got to in the talks?
PCS is centrally involved with the talks with the government to work through how the discrimination should be remedied. We aim to ensure that:
- Members are able to make informed choices about the future because in some circumstances it is advantageous to be in Alpha;
- All members detrimentally affected have access to remedy including those who have made other pension choices because of factors associated with transitional protection;
- The personal tax consequences of any choices members make are transparent and understood.
What could be the impact of the overvaluation on my pension?
The extent of the overvaluation is such that the cost sharing principle required the scheme advisory board to recommend to the government that scheme members should receive a reduction in pension contributions of around 2% and improved benefits. PCS has met with the Cabinet Office and Treasury and has demanded that the government acts immediately to implement this recommendation.
Why haven’t I benefitted yet from the overvaluation?
The government has suspended the valuation and argued that they must consider the impact of the judgement in the FBU case. This will take many months to resolve. PCS has argued strongly with both the Cabinet Office and the Treasury that the suspension of the Pension Valuation remedies must be lifted now so that scheme members don’t just continue overpaying.
Has the government broken an agreement?
In April 2019 the government could have accepted the recommendation on employee cost but they continued the current scale of employee contributions. They have now tabled regulations to do the same in April 2020. When the changes were made in 2015 the cost sharing principle was part of the government’s justification for change. They announced that their approach would remain the basis of the scheme for 25 years.
Why are we only asking for 2% back to 2019, as our pension increased in 2015 with the new pension changes?
The date of 1 April, 2019 is determined by the pensions regulations, which were imposed by the government in 2013/14 as part of the new pension changes. These rules mean that a pension valuation for 2015 to 2018 will trigger changes from April, 2019, but not before. Of course the failure to implement contribution reductions on time is unacceptable, but even more so because the overpayment of contributions is now due to continue for even longer by the government`s latest decision to “rollover” the current contribution rates beyond 1 April, 2020. PCS is determined to stop this swindle of money due to members, and we have joined with the firefighters and others to pursue a common legal challenge.
What about the claimed £4billion cost of the appeal court ruling
There will be additional cost but the valuations indicate that the government has consistently exaggerated the cost of public service pensions. The £4 billion figure was just plucked out of the air. No evidence has been produced to support it or the immediate change the Treasury made to SCAPE, which is the discount rate used in the valuation, which will influence future valuations.
Will any compensation only go to PCS members?
PCS is leading a strong campaign for pensions justice for all civil servants, and for our members in other public service schemes. As indicated above, the remedy will be by adjusting your pension if this is needed, and all members of the pension schemes must be included, because any changes will be a legal entitlement, once they are achieved.
How I can appeal changes to my classic pension scheme?
PCS is working on the details of the remedy for the unlawful age discrimination now. Full details should be available in coming months, and PCS will be arguing that our members must achieve the best outcome for their pension, and in all cases. This must include those members who have left or taken pension since April 2015 (when the new Alpha scheme was imposed on many members). Also, this must include members employed by private companies, or other bodies, and who are members of the civil service scheme, or other public service schemes.
What is the next step with the legal challenge?
The main legal challenge by the Fire Brigades Union was successful last year and confirmed by the UK Supreme Court when they refused to hear an appeal by the government against the Court of Appeal ruling. Since then the Employment Tribunal has issued instructions about the remedy, and the government have stated that the basis of this remedy will “read across” to all public service pension schemes, where the same circumstances apply. This must be applied to the civil service scheme as the facts are the same, and PCS is working closely with the pensions officials in the Cabinet Office, to ensure that early action is taken.
Separately, PCS is supporting a legal challenge submitted by the Fire Brigades Union, aimed at lifting the government`s suspension of another remedy, which is delaying the reduced contributions and benefit improvements which are due to our members.
The FBU’s case was regarding age discrimination. Surely it is different for us in the civil service?
Actually, the cause of the discrimination is the same for firefighters as for civil servants and many others in public services. The unlawful feature of the pension changes in 2015 was the transitional protection for older workers which meant they continued in their previous scheme, while younger workers were forced into a new scheme which caused detriment for most of these members.
What does this mean for the PCS national campaign?
It means that pension issues are front and centre of our campaign. The suspension of the cost sharing process affects all of our members. It means we continue to overpay so we cannot sit back and let the government continue the current level of employee contribution. Jointly with the FBU we are seeking Judicial Review of the government’s suspension of the cost sharing process.