Young workers to bear £19bn cost of fixing pension scheme wrongdoing, court told

The British Medical Association (BMA) and the Fire Brigades Union (FBU) are bringing linked legal challenges against the Treasury, with lawyers arguing it had decided to “pass the cost of its wrong-doing on to those who were innocent”, disproportionately affecting younger pension scheme members.

The case centres on the fallout from reforms to the public service pensions system in 2015, parts of which were found to be unlawful by the Court of Appeal in 2018.

Judges ruled transitional protections, that provided for those closest to retirement to remain in their legacy schemes, discriminated against some younger members who had to transfer to new arrangements.

The Government has committed to addressing the issue, announcing plans in February 2021 to give workers the deferred choice of which scheme they want to benefit from on retirement for service between April 2015 and March 2022.

MPs on the Commons Public Accounts Committee previously said some three million members were affected by the ruling, and that the Government’s “mistake” will “take decades to resolve fully”.

The BMA and FBU, also bringing their cases against the Health Secretary and Home Secretary, argue the cost of extending transitional protections to those previously denied it should not be taken into account when calculating the valuation of pension schemes.

Lawyers say this has an “adverse” impact on some scheme members who will lose out on improved pension benefits or reduced contributions from April 2019 to March 2023.

Unions want 2021 regulations affecting the costs declared unlawful and quashed, but the Government argues their claims should be dismissed and that it had made a “legitimate policy choice”.

The court was told the outcome of the case will affect other public sector pension schemes, with the GMB, the Public Commercial Services Union (PCS), the Royal College of Nursing (RCN), Unite and the Prison Officers Association (POA) being interested parties to the legal challenge.

The POA has branded the pension changes as “a scandal”, while the GMB accused the Government of acting “shamelessly”.

A small group of PCS representatives waving flags gathered outside the Royal Courts of Justice in London ahead of a hearing that began on Tuesday.

Fenella Morris KC, representing the more than 160,000-member BMA, said in written submissions that the estimated cost of addressing the Court of Appeal ruling was £19 billion.

She said Government regulations passing on this cost to members of pensions schemes was “not justified” and the Treasury had acted “without legal or actuarial advice or consultation”.

The barrister said this was “a case of abuse of power” and that the Government had “radically and retrospectively changed the approach to valuation to fit its own purpose i.e. to pass the cost of its wrong-doing on to those who were innocent”.

Ms Morris said there was an “inadequate” and “unspecific” assessment of the potential impact on the Government’s public sector equality duty, and that it “did not grapple… with the extent of the impact on protected groups, in particular women, or those who are disabled”.

She said the Treasury had not considered other options and “continuously downplayed” what was allegedly referred to as the “tweak” of having scheme members “bear the costs of remedying the discrimination”.

Andrew Short KC, representing the FBU as well as Joshua Dunn, 32, and Chloe Reid, 34 – two members affected by the pension costs calculation issue – said in written arguments that regulations were “indirectly discriminatory on the grounds of age, race and sex” and “unlawfully frustrate” the aim of pension law.

He said there was a “particular, immediate and disproportionate adverse impact upon younger, Bame (black, Asian and minority ethnic) and female firefighters” who were more likely to be members of the newer 2015 pension scheme.

Nigel Giffin KC, for the Government, said in a written submission that the final cost of responding to the Court of Appeal ruling would not been known for “many years to come”, but that a July 2020 estimate put one of about £2.5 billion per year for a seven-year period.

He said that fairly allocating the “benefits and burdens” of public sector pension provision was “a matter of high economic policy and socio-political judgment”.

The Government’s decisions over costs was the culmination of “a careful policy-making process extending over a considerable period”, Mr Giffin said, adding it was “not a case in which a past promise to take a particular approach was overlooked, or deliberately set aside”.

The lawyer said the impact of the earlier litigation was “of a kind plainly not anticipated”, with officials facing the choice of whether the cost implications fell on public sector employers and taxpayers or it should be met by withholding improved benefits or reduced contributions from pension scheme members.

Mr Giffin said the court should not interfere in the “wholly unsurprising” decision that “it would not represent a fair balance if the public purse should in effect have to bear the cost of improving benefits”.

He said there was “no duty to consult”, that “equalities impacts were fully considered” with and discrimination being “indirect and therefore capable of being justified”.

The hearing before Mr Justice Choudhury continues, with a ruling expected at a later date.