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Pensions: our three key areas of focus

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Age discrimination in public sector pensions – the “McCloud judgement”

The government has now responded to the consultation on arrangements to rectify the age discrimination in public sector pension schemes in relation to the Teachers’ Pension Scheme (TPS) England and Wales. You can read further information on this here. 

In 2015, the government introduced reforms to public sector pensions, meaning most public sector workers were moved into new pension schemes (known as ‘career average or CARE’) from older pension schemes (known as ‘final salary’) for future service in 2015 and beyond.

This move to the new scheme happened differently for different individuals, based on age. In the teachers’ pension scheme (TPS) this meant: 

  • members under a certain age were immediately moved out of the final salary scheme or were to ‘transition’ out of the final salary scheme into the career average scheme between 2015 and 2022 (the transition timetable was dependent on age).
  • Members who were 10 years from retirement were protected from these reforms and were able to stay in the final salary scheme.

Those members who received ‘full protection’ or ‘transitioned’ across to the career average pension scheme were said to have been given some form of ‘transitional protection’.

However, in 2018 the Court of Appeal ruled in the cases known as “McCloud” and “Sargeant” that the transitional protection element of the 2015 public service pension reforms constituted unlawful age discrimination.

Following the judgement, the government announced that the ruling would apply to all of the main public service schemes, including the teachers’ pension scheme and local government pension scheme (LGPS). The LGPS was amended in a different way to the teachers’ pension scheme at the time these changes were made, nonetheless, there may still be an element of discrimination here which needs to be addressed, although this is likely to impact far fewer members due to the way these changes were made.

We have been involved in technical discussions with the Department for Education and Treasury on how this discrimination might be rectified in relation to our members, ahead of an official consultation launch from the Treasury. A key part of this has been to press issues of the treatment of ill-health pension applications and to flag some technical issues that could be overlooked by those unfamiliar with some of the practicalities of public sector pension schemes.

We have also been working with a range of partners across the public sector to plan the next steps for this campaign in light of the McCloud judgement.

The government has now closed its consultation (or here for the LGPS) on its proposals to address this discrimination. NAHT has submitted a response to these, which you can access here.

These consultations are for the schemes in England and Wales; there is a separate consultation for the schemes impacted in Northern Ireland, which we are also responding to, with the same principles as we outlined for the Wales and England schemes.

For members in the Isle of Man, your pension schemes are unlikely to be impacted as the schemes did not operate in a way which was age discriminatory. 

Pause on pension benefits

Back in September 2018, HM Treasury confirmed 'central assumptions' that outlined how the valuation of all public sector schemes in England, Wales and Northern Ireland should be undertaken. The valuation resulted in the need for members of the TPS career average scheme to receive improved pension benefits for employment from April 2019 until at least April 2023. 

However, the government announced a pause to this element of the valuation of public service pensions, following the court ruling on part of the 2015 pension reforms (the ‘McCloud judgement’ outlined above).

Following the decision on the court ruling, it was expected that the pause to pension benefits would be lifted and implemented immediately. This hasn’t been the case and, through our connections with the TUC, we have been pressing the government on a resolution to this.

As of July 2020, the government has now announced that the ‘pause’ will be lifted and the cost control element of the 2016 valuations process will be completed. However, they have also confirmed that the costs of addressing the discrimination identified in the McCloud judgement will be included in this process. This might mean the valuation process that originally triggered a suggested improvement to members’ benefits may not create the same outcome now the new information about McCloud (and the costs to remedy the discrimination) is available. This is a fast-moving and highly technical area so it could change over the coming months. We will keep you informed of any material developments.

NAHT’s response to McCloud and pause on pension benefits

NAHT will make robust representations to ensure that:

  • no member suffers a detriment to their accrued pension benefits as a result of the remedy proposed by the government to remove the age discrimination that has been held to have taken place in public sector pension schemes.  
  • the cost of any remedy to remove the discrimination must not fall on scheme members, either through the valuation, cost-cap mechanism or any renewed proposal for increased member contributions.

Independent schools 

It is currently not possible under the legislation governing TPS to permit some members of staff to remain in the TPS while excluding new members of staff.

Following the increased employer pension contributions in September 2019, which were fully-funded by the government for the maintained sector but were not funded in the independent sector, a number of independent school organisations requested that legislation be amended to allow a ‘mixed economy’ approach, which was argued would allow more providers to remain in the scheme. Under this proposal, existing teachers in individual schools could remain in TPS while employed at that school, with schools then offering alternative provision to new starters only. 

At the end of 2019, the Department for Education put this proposal out for official consultation. NAHT provided a response to this, outlining our opposition to this option.

November 2020 update: The government has finally released its response to the consultation, confirming that independent schools in England and Wales will now be allowed to opt-out of the Teachers' Pension Scheme (TPS) for their future staff members. This effectively allows for a 'mixed economy' approach, whereby current staff could remain in the scheme, but future staff can enrol in an alternative scheme. The proposals will now be taken forward along with the amendments to regulations being prepared following the Goodwin case (equalising survivor benefits); the draft regulations will be subject to consultation in the near future. NAHT will continue to oppose this approach.

First published 19 August 2020