Police slate ‘deeply unfair’ ramifications of McCloud remedy

In a letter from Pension Challenge Administration Team copied to the Pensions Regulator and the Pensions Ombudsman, the officers built on criticisms previously reported by Pensions Expert about the way the McCloud remedy is to be implemented, alleging it undermines protected pension rights and may result in sex discrimination.

The officers warned in their response to the McCloud consultation last August that the remedy for age discrimination arising from the 2011 public sector pension reforms would itself give rise to age discrimination, because it forces a transfer from schemes with a normal pension age based on service to one based on age. 

In their response to the McCloud consultation, the officers cited the “true life” examples of two officers who joined the 1987 scheme in 1996, one aged 19 and the other aged 25.

It is likely we will see further judicial reviews with this being settled in the courts, potentially resulting in more complicated public sector pension arrangements for members

Barry McKay, Barnett Waddingham

If these two officers were to move to the career average revalued earnings scheme in 2022, as proposed by the government’s consultation paper, and they retired after 30 years’ service as per the scheme’s rules, the older officer would be able to draw their 2015 Care pension immediately. However, the younger officer would have to wait another six years until age 55 to draw their benefits.

In addition, the older officer would see their pension actuarially reduced by 22 per cent, while the younger officer’s benefit would be reduced by 50 per cent, the paper claimed.

In the new letter, published in April, the officers add to their list of complaints the suggestion the remedy will result in sex discrimination as well, while removing in practice the protected pension rights that are still, in theory, afforded to members of the two original police pension schemes.

Sex discrimination and ‘the pension trap’

At the heart of the officers’ complaint is the creation of what they call “the pension trap” by the provisions of the McCloud remedy.

Citing the earlier example, they wrote that “unless the 1987 scheme member joined aged 30 or older, or the 2006 scheme member joined aged 25 or older, they will have two pension schemes, the provisions of which are actively working against each other”.

“In the simplest of terms, if officers work longer to avoid the actuarial reductions of the Care scheme, they lose value in their 1987 scheme, mainly by virtue of not claiming it, but also by reducing their commutation factor,” they explained.  

“If officers retire at the normal pension age of the 1987/2006 scheme to realise their accrued protected rights, they lose value in the Care scheme due to the large actuarial reductions. Either way they are worse off than older direct comparators.”

The officers argued that this would never have been allowed to happen with two private pensions “and simply cannot be allowed to happen to police pensions”, not least because no other public sector scheme members — except firefighters — will suffer this fate.

The officers further explained that the negative connotations of the proposed remedy will give rise to sex discrimination, disproportionately impacting women because of the way it interacts with maternity leave and periods of part-time work.

“Currently, female officers who took extended maternity leave, or worked part-time at any point during their service, can retire at the same point as their male comparators, with pro-rata reductions for their lower pension contributions,” the letter stated. 

“However, they also have the option of continuing in service for the equivalent period, to equalise their losses, up to 30 years’ service. 

“Once the proposed changes come into effect, female officers will lose the ability to work the additional months/years on original schemes and will be worse off than their male comparators as they have a greater percentage of their pension on the poorer Care scheme.”

Accrued pension rights not protected

The officers also contend that despite the government’s assurances to the contrary, the existing proposals do not protect accrued pension rights. The government’s reassurances on this point are “entirely unfounded and disingenuous at best”, they wrote.

They pointed out that from April 2022, “the majority of officers who joined before the age of 25 will not be able to afford to retire with 30 years’ service and access their 1987 pension, due to not being able to immediately access their Care pension and the large actuarial reductions thereafter”. 

“Protected accrued pension rights are only truly protected if you can access them at the time they become available to maximise their benefit — hence why most police officers currently retire with 30 years’ pensionable service on the 1987 scheme,” they explained.  

“Officers have the option of working longer to increase their Care pension and limit actuarial reductions. However, in doing so they immediately start losing accrued 1987 benefits.”

They argued that it was “disingenuous” of the government to continue to say the original pension rights had been protected, “while knowingly leaving officers with no realistic financial option but to continue working, paying into a new scheme and unable to access those protected accrued benefits — protected benefits that increasingly erode on a monthly basis after the NPA of original schemes”.

Government ‘may be grateful’ for the letter

Barry McKay, partner at Barnett Waddingham, told Pensions Expert that it was not unusual for schemes to have “several tranches of benefit with different retirement ages”.

He said what sets the police scheme apart “is that there is no increase in pension for the 1987/2006 schemes where a member takes late retirement”.

“As with most pension scheme changes there will be winners and losers, and it’s likely we will see further judicial reviews with this being settled in the courts, potentially resulting in more complicated public sector pension arrangements for members,” he said.

But Irwin Mitchell partner Penny Cogher argued that the government “may actually be grateful for this letter” if they recognise that the proposed McCloud solution is, in its present form, “too blunt an instrument”.

“The Pension Challenge Administration Team has identified a number of serious issues with HM Treasury’s current approach,” she said.

Although the Treasury has for the moment put aside the retirement age point, she said the letter “shows that it is too important and far-reaching a point to park”. 

“HM Treasury cannot just ignore it,” Cogher said, not least because, as it has not been dealt with, independent financial advisers cannot properly advise members of the police schemes who want to retire.

She added that on the sex discrimination point, it seems that the Treasury “has again not really considered the point, so it is useful that this letter identifies it as an issue”.

“However, care will be needed to ensure that any solution does not just perpetuate its own discrimination,” she said.

HM Treasury declined to comment on this matter since the Police Pension Scheme is overseen by the Home Office.

A government spokesperson said: “We are conscious of the impact of the McCloud judgement and recently published the response to the public consultation and set out how the Government intends to remedy discrimination.

“The Home Office, National Police Chiefs’ Council pensions team, local force and pension administrators continue to work through the implications of the announcement. We are also considering in full the contents of the Pension Challenge letter to the scheme advisory boards.

“Public service workers continue to receive some of the best pension scheme benefits available in the UK.”