Cabinet Office opens consultation as McCloud challenges mount

The public service pensions and judicial offices bill, introduced in response to the McCloud judgment, set out the ways in which various public sector pension schemes will have to correct for the age discrimination introduced by the 2015 public sector pension reforms.

In the case of the civil service, all members — including partially retired members in active service — will be moved to the reformed scheme, called ‘alpha’, from April 2022. The legacy scheme, meanwhile, will be closed to future accrual from March 2022. 

“Alongside consulting on the prospective remedy, this consultation addresses the continuation of member contributions for alpha,” the Cabinet Office explained. 

It is utterly shameless of the government to plunder the pension pots of hardworking public sector workers to pay the costs of a case they clearly lost by not carrying out their responsibilities lawfully

George Georgiou, GMB

“Member contributions are usually set every four years as part of the cost-control mechanism process. However, the cost-control element of the 2016 valuations was paused in light of the McCloud and Sargeant judgments, because the uncertainty around member benefits arising from these judgments made it impossible to assess the value of the schemes to members with any certainty.”

The Treasury announced the resumption of the cost-control mechanism in July and published amending directions in October, allowing the 2016 valuations to conclude. 

“We therefore propose to rollover the 2021-22 member contribution rates in these draft regulations and we will consider whether any changes are required once the final results are determined,” the Cabinet Office said.

The remedy details

The consultation document explained that, though it is “normal practice in discrimination cases to remedy unequal treatment by reverting to the most beneficial option”, the reforms that were introduced in 2015 “were progressive reforms and were in part intended to even out the value of pensions between some of the highest and lowest earners, resulting in some — particularly lower and middle earners — being better off in the new schemes”. 

“Simply extending transitional protection to all affected members would address the discrimination identified by the court, but would also mean that some members would be placed in a worse position,” it explained.

To remedy this, the government proposed giving scheme members a choice of which scheme benefits to receive during the transitional period, preferring this approach “as it would provide members with greater certainty about their decision and avoid the need for them to make assumptions about matters such as their future career and retirement age, which would increase the risk of making imperfect decisions, particularly for younger members”.

The Cabinet Office therefore proposes moving all scheme members to the alpha scheme and closing the legacy scheme from March 2022, ensuring “that from April 1 2022, all active members of the alpha (defined benefit) civil service pension scheme will be accruing benefits in the same scheme”.

“While it is not required for the regulations, we are setting out how added years and added pension will be treated for members post-April 1 2022,” the consultation continued. 

“Added years and added pension contracts taken out in the legacy scheme in respect of pensionable service — on or before March 31 2022 — will continue after April 1 2022, though members can choose to cancel these once in alpha and purchase alpha added pension instead.”

In addition, the Cabinet Office is also consulting on the removal of a restriction on members of the alpha scheme being able to purchase added pension by lump sum in their first 12 months of service.

“This is necessary as the remedy will create an oddity where no members being moved to alpha will be able to buy added pension by lump sum as they do not have 12 months of alpha service,” it explained.

It has also proposed changes to ill-health retirement to ensure that members who apply for these benefits under the legacy scheme will not be placed in a less-generous position as a result of the McCloud remedy.

Following the resumption of the cost-control mechanism, the Cabinet Office said that, providing there is no breach of the margins either side of the employer cost cap, a rollover of 2021-22 contribution rates should be applied for the coming year. 

“We therefore propose to rollover the 2021-22 member contribution rates in these draft regulations and we will consider whether any changes are required once the final results are determined,” it said.

It also intends to remove an amendment to make clear that payment of a lump sum death benefit is discretionary, thereby bringing the alpha scheme into line with the legacy scheme, and with public service schemes generally.

The consultation closes on January 17 2022.

GMB launches judicial review

Meanwhile, the GMB union has joined a growing list of those hoping to overturn the government’s decision to impose the costs of the McCloud remedy on scheme members.

As Pensions Expert has reported previously, the Fire Brigades Union and the British Medical Association have each written to the Treasury demanding that the government reverse its decision, threatening to apply for judicial review should the government not accede to their wishes.

The BMA in particular is incensed at the decision to transfer the costs of the McCloud remedy to the 2016 valuation, on the back of which the government had previously agreed to improve pension benefits for BMA members.

“If this were to happen, the improved benefits to members that had been previously agreed to be implemented would now no longer be honoured, as the McCloud remedy costs, if incorporated, would remove the cost floor breach,” the BMA said.  

“The BMA is challenging the government’s actions in both lifting the suspension of the cost-control mechanism and rolling in the costs of the McCloud remedy for the purposes of resuming the cost-control mechanism and reconfiguring the valuation of the scheme.”

Irwin Mitchell partner Penny Cogher told Pensions Expert that these applications for judicial review were unlikely to succeed from a legal standpoint, but might drum up public support for a change in policy.

GMB has now joined this campaign, launching a judicial review against the Treasury “over £2.4bn that they have taken from public sector pension pots”.

George Georgiou, GMB national pensions organiser, said: “We have no course of action other than to challenge the government’s intention via judicial review.

“It is utterly shameless of them to plunder the pension pots of hardworking public sector workers to pay the costs of a case they clearly lost by not carrying out their responsibilities lawfully.

“GMB members were told to pay in more than required, we were told that we would get pay rises and live longer — the opposite has occurred, just as the government’s response is the opposite of what we deserve,” he said.