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You can find the current article at its original source at https://www.theguardian.com/society/2019/jul/27/public-sector-pensions-mess-could-lead-to-bigger-payouts-for-some
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| Public sector pensions mess could lead to bigger payments for some | |
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| The pension prospects of more than six million teachers, nurses, civil servants, local government workers and other public servants are in limbo following a court judgment last year and the government’s subsequent response. | The pension prospects of more than six million teachers, nurses, civil servants, local government workers and other public servants are in limbo following a court judgment last year and the government’s subsequent response. |
| Sweeping changes to public sector pensions came into effect in 2015 (or 2014 for local government pensions in England and Wales), and these had a significant impact on the way people’s pension entitlements were calculated. The biggest change was to raise the pension ages in most schemes to match the rising state pension age. The other major change was to pay pensions on the basis of someone’s “career average” earnings rather than their final salary. | Sweeping changes to public sector pensions came into effect in 2015 (or 2014 for local government pensions in England and Wales), and these had a significant impact on the way people’s pension entitlements were calculated. The biggest change was to raise the pension ages in most schemes to match the rising state pension age. The other major change was to pay pensions on the basis of someone’s “career average” earnings rather than their final salary. |
| Other important changes were made to the rate at which pension benefits were built up for each year of service, and to the way in which those benefits were “revalued” up to retirement age to take account of inflation. Each scheme was changed in different ways in response to individual negotiations between the government and trade unions. | Other important changes were made to the rate at which pension benefits were built up for each year of service, and to the way in which those benefits were “revalued” up to retirement age to take account of inflation. Each scheme was changed in different ways in response to individual negotiations between the government and trade unions. |
| Taxpayers face £4bn annual pension bill after court ruling | Taxpayers face £4bn annual pension bill after court ruling |
| One big issue was whether the changes should be applied just to new members of these schemes or to everyone including existing members, or whether there should be “transitional protection” for those closest to pension age. | One big issue was whether the changes should be applied just to new members of these schemes or to everyone including existing members, or whether there should be “transitional protection” for those closest to pension age. |
| Following consultation with trade unions, the government agreed it would be wrong for those closest to pension age to see last-minute changes to the rules. As a result, it applied a principle that those closest to retirement (generally within 10 years) should stay on the old rules. | Following consultation with trade unions, the government agreed it would be wrong for those closest to pension age to see last-minute changes to the rules. As a result, it applied a principle that those closest to retirement (generally within 10 years) should stay on the old rules. |
| It was this age cut-off that was the subject of an employment tribunal case brought by firefighters and judges, which ended up in the court of appeal. The unions argued that an age cut-off was discriminatory because it meant younger workers faced changes in their entitlements while older workers did not. The courts agreed with the unions and, on 27 June this year, they told the government it could not appeal against this decision. | It was this age cut-off that was the subject of an employment tribunal case brought by firefighters and judges, which ended up in the court of appeal. The unions argued that an age cut-off was discriminatory because it meant younger workers faced changes in their entitlements while older workers did not. The courts agreed with the unions and, on 27 June this year, they told the government it could not appeal against this decision. |
| The difficulty is that the changes have created both winners and losers – and putting things right could do the same | The difficulty is that the changes have created both winners and losers – and putting things right could do the same |
| At first it was unclear whether the decision would apply only to these two particular schemes. But earlier this month the Treasury announced that it had concluded the judgment did “read across” to all the other public sector schemes where a similar age cut-off had been used. | At first it was unclear whether the decision would apply only to these two particular schemes. But earlier this month the Treasury announced that it had concluded the judgment did “read across” to all the other public sector schemes where a similar age cut-off had been used. |
| So the big question is: what happens next? We can safely assume that the government will not simply scrap the reforms. The Treasury’s recent statement said that putting things right would cost around £4bn per year. While the government does have to abide by the court judgment, this does not stop it from coming back with revised proposals for the future that will make sure the price of these schemes remains within the same overall cost bracket. | So the big question is: what happens next? We can safely assume that the government will not simply scrap the reforms. The Treasury’s recent statement said that putting things right would cost around £4bn per year. While the government does have to abide by the court judgment, this does not stop it from coming back with revised proposals for the future that will make sure the price of these schemes remains within the same overall cost bracket. |
| In terms of process, the government has said it will engage with the employment tribunal to propose remedies for the firefighters and the judges, and it seems likely this approach will then be applied to other public sector schemes. | In terms of process, the government has said it will engage with the employment tribunal to propose remedies for the firefighters and the judges, and it seems likely this approach will then be applied to other public sector schemes. |
| The difficulty in finding a solution is that the changes have created both winners and losers – and putting things right could do the same. | The difficulty in finding a solution is that the changes have created both winners and losers – and putting things right could do the same. |
| One obvious response would be to scrap the idea of transitional protection and impose the changes on all public sector workers, regardless of age. But it seems inconceivable that these could be imposed retrospectively from 2015. | One obvious response would be to scrap the idea of transitional protection and impose the changes on all public sector workers, regardless of age. But it seems inconceivable that these could be imposed retrospectively from 2015. |
| Alternatively, the government could move forward the effective start date for the changes to, say, 2021. This would mean younger workers might accrue pensions on the “old” terms for an additional six years. But calculations by my colleagues at Royal London have established that some workers have done better out of the new rules than the old ones. It is hard to believe that the government would retrospectively cut the pensions they have built up in the past few years. | Alternatively, the government could move forward the effective start date for the changes to, say, 2021. This would mean younger workers might accrue pensions on the “old” terms for an additional six years. But calculations by my colleagues at Royal London have established that some workers have done better out of the new rules than the old ones. It is hard to believe that the government would retrospectively cut the pensions they have built up in the past few years. |
| So one option that avoids creating new winners and losers would be to pay people the greater of their “old rules” pension and their “new rules” pension for that period – though this would be messy administratively. | So one option that avoids creating new winners and losers would be to pay people the greater of their “old rules” pension and their “new rules” pension for that period – though this would be messy administratively. |
| There are also issues about what would happen with people who retired in the intervening period, or those who started to draw pensions on the basis of ill-health or bereavement, and whether their pensions would need to be adjusted. | There are also issues about what would happen with people who retired in the intervening period, or those who started to draw pensions on the basis of ill-health or bereavement, and whether their pensions would need to be adjusted. |
| Further complications could impact higher earners who are affected by annual or lifetime tax relief limits. | Further complications could impact higher earners who are affected by annual or lifetime tax relief limits. |
| Agreeing a way to untangle this mess is likely to take us well into 2020, and may require new primary legislation, which suggests implementation in 2021 or beyond. Even this assumes that potentially contentious legislation can be got through a House of Commons where the government may not have a working majority. | Agreeing a way to untangle this mess is likely to take us well into 2020, and may require new primary legislation, which suggests implementation in 2021 or beyond. Even this assumes that potentially contentious legislation can be got through a House of Commons where the government may not have a working majority. |
| Ultimately, the court judgment means some public sector workers may enjoy a period of faster pension buildup than they had been expecting. But it would be surprising if the government did not attempt to reinstate the overall spending reduction that was the purpose of the reforms in the first place. | Ultimately, the court judgment means some public sector workers may enjoy a period of faster pension buildup than they had been expecting. But it would be surprising if the government did not attempt to reinstate the overall spending reduction that was the purpose of the reforms in the first place. |
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