Public Sector Pension Schemes - McCloud and Sergeant Court Cases

My Ref: MRP 24/1

11th January 2021

Circular Num: NP/012/21

To All Branches, Regional Councils and Regional Offices

Dear Colleagues,


PUBLIC SECTOR PENSION SCHEMES – MCCLOUD AND SARGEANT COURT CASES

As you will recall in 2015 the Government made fundamental changes to Public Sector pension schemes which resulted in members of these arrangements working longer, contributing more and receiving lower benefits in retirement. These changes were made despite Public Sector workers taking strike action in defence of their pensions. RMT members working for the RFA, Tyne & Wear Metro and Orkney Ferries voted to join this action.

There are a number of pension schemes offered to Public Sector workers such as the Principal Civil Service Pension Scheme (PCSPS) which is offered to our RFA members and the Local Government Pension Scheme (LGPS) which is offered to our members at Tyne and Wear Metro and Orkney Ferries.

However, following two recent court cases, McCloud and Sargeant, it has turned out that some of the changes which were made by the Government were age-discriminatory and as a result the Government will have to take corrective action which I will explain below. As you may be aware the McCloud and Sargeant cases were initiated by the fire brigade union the FBU and a number of individual judges.

The changes which were made to Public Sector pension schemes were simply to make them cheaper for the Government’s at the expense of most members who would receive lower benefits in retirement. Its important to note in some cases the new arrangements were in fact more generous for low to moderate earners who were unlikely to seek or be promoted, however, the major disadvantage was that the normal pension age was increased. This increase mainly impacted on our members in the PCSPS.

In most cases the Government proceeded by closing the old schemes to further accrual (service), such as the PCSPS, and opening brand new replacement schemes. The exception is the LGPS which I will explain below.

The issue of discrimination arises because instead of just moving everyone into the new schemes the Government took the decision to split the membership into three groups depending on their closeness to retirement. These groups are:

1. as at 31 March 2012, anyone less than 10 years away from retirement did not have to transfer at all;
2. anyone within 13½ or 14 years (depending on which Public Sector scheme it was) did have to transfer, but their transfer date was delayed;
3. Anyone further away from retirement than that had to transfer on 1 April 2015.
It is seen that defining someone closeness to retirement is just another way of describing a person’s age. Therefore in most cases the younger the member was the less favourably the member was treated i.e. the bigger the reduction on their future pension benefits.

The Court of Appeal held that the approach taken by the Government was discriminatory and could not be justified and while the Government’s claimed justification was to protect those closest to retirement from the effects of these pension reforms the court said it was those furthest away from retirement who needed protecting not those who had already built up most of their retirement benefits in the old pension arrangements.

What has resulted from the McCloud and Sargeant cases is that younger members have to be treated as favourable as older members and therefore they are entitled to be treated as if they are still members of the old schemes.

However, as mentioned above in some cases the new schemes can be more favourable in some respects so the discrimination claims highlighted in the McCloud and Sargeant run in both directions:

A. older members who were not permitted to join the new schemes are treated less favourably than younger members in some respects,
B. and these older members also have a valid age discrimination claim if in their particular circumstances they would be better off in the new scheme.
As mentioned above, the reforms to the LGPS worked in a slightly different way as everyone had to transfer to a new scheme in 2014, but for some members a dual pension calculation is performed at the point of retirement using the old benefit structure and the new one which results in the member receiving whichever pension package is the better.

The LGPS members who benefit from this calculation or “underpin” are defined in the same way as the PCSPS by their closeness to retirement, however, the same issue arises and all members are entitled to the benefit of the underpin, unless and until it is removed from everyone (non-retrospectively). By the time that happens, everyone who currently benefits from the underpin will have retired.

The Government has accepted the result of McCloud and Sargeant cases and hopes to have solutions by March 2021, with a view to implementation by 2022 or 2023.

For our RFA members in the PCSPS the Government appears to be open-minded as to how to resolve the issue of age-discrimination, but essentially there are two options. Either members’ are asked to make a choice as to which scheme to join i.e. the old arrangement or the new scheme or they are given the choice to defer making a choice until they retire or leave the scheme. We are advised that Public Sector unions involved in the negotiations with the Government prefer the latter option as this gives the members an informed choice instead of guessing what is going to happen in the future.

I can advise that in discrimination claims it is also possible to claim compensation for any out-of-pocket losses such as the fees paid to an independent financial adviser, and it is possible to claim compensation for non-financial losses such as upset, anger, and depression etc, often abbreviated as “injury to feelings”. But to claim it the person concerned must actually file an Employment Tribunal claim.

The legal advice the RMT has received is that RFA members might have a claim but as there is a McCloud hearing in mid-February 2021 which will clarify whether compensation is payable we would be justified to hold off pending that hearing.
The position for our members’ in the LGPS is more straightforward. There was no new scheme to opt into or out of, everyone was already in the same scheme. Also the normal pension age for most members was already age 65 and therefore an increase to age 66/67/68 is not as dramatic as in the increase to the pension age in the PCSPS where the old scheme pension age was age 60.

Its important to note that to benefit from the more favourable treatment, the member had to be in service on 31 March 2012. Anyone who joined on or after 1 April 2012 was treated in the same way by moving them into the new scheme on 1 April 2015. None of these members have been discriminated against and they therefore have no claim to make.

The RMT is currently seeking legal advice and is awaiting further developments. I will report back to you once I have an update.

Yours sincerely,

Mick Cash
General Secretary