In 2015, the Government decided to enforce public sector pension changes due to the overbearing costs and change to average lifetime earnings. By moving away from final salary pension schemes, a ‘transitional protection’ scheme was introduced instead.
This new scheme kept public sector workers closer to retirement age on a more generous pension. It also meant that workers who were 10 years or less away from retirement age were protected from the reforms and able to retain a more generous final salary pension. All other public sector workers who did not qualify for the ‘transitional protection’ scheme, were forced to move over to new terms that were deemed ‘less beneficial’ than the original terms.
As a result, the Government confirmed that any remedies for discrimination brought about by the public sector pension changes should be applied across all public sector pension schemes that had enforced transitional protection arrangements. Ultimately, several pension schemes in the public sector were affected including: NHS, civil service, teaching, policing, the armed forces and local government.
Implications of the Public Sector pension changes ruling
The Government has claimed that this could add an estimated £4bn annually to public sector pension liabilities from 2015.
It is uncertain if the Employment Tribunal will backdate compensation claims to April 2015, or whether the £4bn annual cost will be met by providing longer term adjustments to the benefits or contributions of the whole membership. The Government have yet to comment on whether they will compensate public sector workers unless they bring legal action.
If individuals do seek legal action then this, in all likelihood, will result in increases in age discrimination claims in the employment tribunal for public sector employers.
However, what is clear is that there is likely to be a significant funding gap in public sector pensions to try and rectify this position across those public sector pensions schemes that operated ‘transitional protection’ arrangements.
This will undoubtedly come at a cost, and we shall have to wait and see how this funding gap will be addressed in the future.