The UK government’s announcement
Following the public consultation held in 2020, the UK government has now set out its approach to remedying the age discrimination found in the 2015 pension reforms. Having considered the response to the consultation, the UK government has decided to implement a ‘deferred choice underpin’ which was the approach favoured by the majority of respondents.
The UK Government has also announced that from 1 April 2022 all those who continue in service will do so as members of the reformed schemes, regardless of age, meaning all members will be treated equally in future. Benefits earned up to that date in the pre-2015 schemes will be fully protected, and final salary benefits will still be calculated using the salary at the point of retirement.
The UK Government’s announcement can be found here.
Who is affected by these changes?
Broadly, if you were a member of a public service scheme between 31 March 2012 and 31 March 2015, you are likely to be affected by these changes.
If your pensionable service started on or after 1 April 2012 then you will not be affected by these changes.
What is a deferred choice underpin?
Under the deferred choice underpin, members will remain in, or be returned to, their legacy schemes for service between 1 April 2015 and 31 March 2022. This is known as the Remedy Period. Members will be given a choice at the point of retirement (or when benefits become payable) to choose which scheme benefits they wish to receive in respect of service during the remedy period. Members who have retired since 1 April 2015 will also be presented with a choice.
Not all members will be better off in the legacy schemes, so it is important that individual members can choose which scheme benefits they want to receive.
By deferring this choice until retirement, members will be able to make a more informed choice as to which pension scheme benefits are better for them.
What are the next steps?
The plans require the UK Government to pass new legislation, and Scottish Ministers will also need to introduce changes to the schemes for which they have devolved responsibility. This will take time.
There remain many complex issues to consider, including how the new arrangements will interact with aspects of the individual schemes, as well as tax implications for some members. SPPA will be exploring these issues with member and employer representatives on the scheme advisory boards in the coming months.
What do I need to do?
For now there is nothing for members to do, as the process of introducing the necessary legislative changes has yet to begin. A number of aspects remain under consideration and more information will be issued as soon as these become clear. In the meantime, if you have any questions, you can find further information and our FAQ’s section below.
You can also view scheme specific Circulars and FAQ’s by clicking on the following links:
NHS - Pension Remedy Project Consultation Response
Scottish Teachers - Pension Remedy Project Consultation Response
Firefighters - Pension Remedy Project Consultation Response
Police - Pension Remedy Project Consultation Response
Frequently Asked Questions
Why did the governments reforms to the main public service pension schemes lead to discrimination?
Following negotiations with the Trade Unions, the 2015 public service pension schemes reforms included a policy of transitional protection. This meant members closest to retirement stayed in their legacy scheme as they had the least amount of time to prepare for the changes.
The Court of Appeal later found this policy to be discriminatory against younger members in some schemes. Following the ruling the government confirmed that it would take steps to address the discrimination in all affected public service schemes.
Do members need to submit a legal claim to receive any pension changes to address the discrimination identified by the courts?
No, members do not need to submit a legal claim to receive any pension changes. The government has committed to applying these changes across the main public service pension schemes and so eligible claimants and non-claimants will receive the pension changes.
What steps has the government taken so far to address the discrimination?
The government set out two proposals in a public consultation in July 2020 to gather views on which proposal would be better to remove the discrimination.
Since the public consultation closed in October 2020, the government has been working through all the responses and has now published its response setting out its final policy decisions. The government will address the discrimination through a ‘deferred choice underpin’ which will allow eligible members a choice when they retire, of which pension scheme benefits they would prefer to take for the remedy period.
What is a deferred choice and why has the government chosen this approach?
Eligible members who were moved to the reformed career average (CARE) pension scheme in 2015 (or later if they had tapered protection) will be moved back into their legacy (final salary) pension scheme for the remedy period, between 1 April 2015 and 31 March 2022.
When those members, or members who were originally protected, reach retirement, they will then receive a choice of which pension scheme benefits they would prefer to take for the period. This is called a ‘deferred choice’.
The choice will be between the members legacy (final salary) pension scheme and their reformed career average (CARE) pension scheme.
By deferring the choice until retirement, it allows individuals to make a better informed choice as to which pension scheme benefits are better for them. This will be based on facts and known circumstances as opposed to assumptions. The value of both pension schemes will be known at retirement.
Who is in scope for these pension changes and will receive the ‘deferred choice underpin’?
Individuals that meet the following criteria are in scope of the changes:
- Were members, or eligible to be members, of a public service pension scheme on the 31 March 2012;
- were members of a public service pension scheme between 1 April 2015 and 31 March 2022; and
- the two periods above were continuous (or treated as continuous under the scheme regulations, including those with a qualifying break in service of less than 5 years).
Why is the government asking members to choose between their legacy and reformed pension scheme? Aren’t all members better off in the legacy schemes?
The differences between the legacy and reformed pension schemes mean the set of benefits that is best for members depends on personal circumstances and preferences. This is why the government is providing members with a choice, to ensure they can choose which scheme benefits are better for them.
We will provide information to members setting out their entitlement under both options, so members will have a clear understanding of the benefits available to them.
Why isn’t the government just returning everyone to their old schemes?
The government cannot simply place all members into their legacy scheme without allowing them access to their reformed scheme benefits, because some members are better off in the reformed schemes.
What are the differences between the legacy and reformed schemes?
All public service pension schemes have different arrangements, however, the main changes between the legacy and reformed schemes for most schemes included a change to career-average pension schemes from final salary and an increase in normal pension age.
The change to career-average means member’s pensions are now calculated on their average salary throughout their career as opposed to their final salary.
The reformed schemes were designed to make public service pensions more affordable and sustainable for the future, while still ensuring public servants received appropriate pension provision at retirement.
The reforms created a fairer system. The move from (mostly) final salary to career average pension means members accrue their pension at a typically higher annual rate based on their average salary. Although some members are better off in legacy schemes, the reformed schemes are more beneficial for others, particularly many lower paid members.
Will members who had ‘tapered protection’ also be asked to choose between legacy and reformed scheme benefits?
Members who received tapered protection in 2015, or would have received such protection but for the provision that unlawfully excluded younger members from transitional protection, will be offered a choice of whether to receive legacy or reformed scheme benefits in relation to any continuous service between 1 April 2015 and 31 March 2022.
This will remove the discrimination that arose between older members who were subject to transitional protection and younger members who were not.
How will people who retire before the introduction of the deferred choice underpin be treated?
Members who have retired before the DCU is implemented and have a period of relevant service between 1 April 2015 and 31 March 2022, will be offered a choice once the legislative changes have been made to implement the DCU. The choice will be retrospective and backdated to the point that payment of pension benefits began.
In some cases, it may be possible for schemes to offer members a choice before the DCU is implemented.
However, the legislation that allows schemes to do this is limited in effect. It allows schemes to return eligible members who retired from the reformed schemes to the legacy schemes in relation to service after 1 April 2015 but does not allow for all consequential matters to be dealt with satisfactorily in all cases. So, for example, in cases where there are interactions with the tax system, perhaps where members have incurred or will incur tax chargers or where contributions differ between the schemes, it might not be possible to address all these issues before new legislation is made to implement the DCU.
Where possible, schemes will seek to offer reformed scheme members who retire before October 2023 a choice of legacy or reformed scheme benefits for the relevant period at retirement.
In due course it may be possible for schemes to revisit cases of reformed scheme members who have already retired ahead of the introduction of the DCU.
However, there are still some complex issues to be resolved before schemes are in a position to process cases - further details will be provided as soon as possible. In all cases where an individual receives a revised pension award, this will be backdated to the date their pension award relating to the remedy period was originally made.
Will the survivors of eligible members who have died since 1 April 2015 also be asked to make a choice between the different pension schemes?
If an eligible member has died since 1 April 2015, we will review these cases as a priority. Where the member retired from the reformed scheme, schemes will seek to revisit cases ahead of the introduction of the DCU where this is possible. We will investigate whether a higher pension or lump sum amount would be due under the alternative scheme.
In the case of any increase, we will inform surviving beneficiaries and the higher amount will be paid with their agreement. If the higher amount is already in payment, the survivors will be notified.
The choice between benefits will fall to the late member’s surviving spouse or partner.
If there are children also in receipt of a survivor pension, and the decision maker lives in a separate household to the child, any decision taken will not affect the child’s pension. Where the child and decision maker live in the same household, the usual rules around total survivor benefits payable will apply.
What was the other proposal set out in the consultation and why didn’t the government choose that approach?
The other proposal set out the consultation was called an ‘immediate choice’ which would allow members to choose which pension scheme benefits they would prefer to take for the period between 2015 and 2022 soon after the point at which schemes implemented the changes.
While this approach would have resolved the issue sooner and provided individuals with more certainty around pension benefits, it would have placed higher risk on the member. This is because they would be basing their choice around assumptions on their future careers, health, retirement and other factors, rather than the facts and known circumstances that will apply at the point of retirement. This would have meant some members may have been much more likely to have chosen the scheme benefits that did not turn out to be best for them.
Why is the period when members will be receiving a choice of which pension scheme benefits they would prefer only between 2015 and 2022?
1 April 2015 was the date the reforms were introduced, and 31 March 2022 will be the point at which the legacy schemes will be permanently closed to future accrual.
What pension scheme will individuals be a member of from 1 April 2022?
From 1 April 2022, all those who continue in service will be eligible to do so as members of their respective reformed pension schemes (i.e. those introduced in 2015, of which many are already members), regardless of age. This includes members who were previously covered by ‘transitional protection’.
This means that any pension benefits after that point will be earned within the reformed pension schemes, but any benefits earned before within the legacy schemes up until that point will be protected.
Why is the government saying all members should be in the reformed pension schemes from 1 April 2022?
The reasons for the 2015 reforms still stand: the government is committed to ensuring generous public service pension provision, but this has to be affordable and sustainable in the long term. . The reforms aimed to achieve this, whilst also being fairer to lower and middle earners.
The 2015 schemes that were introduced following the recommendations of the Independent Public Service Pensions Commission (the reformed schemes) offer generous pension provision, improve affordability and sustainability, and are fairer to lower and middle earners.
The reformed schemes are some of the most generous available in the UK: backed by the taxpayer; index-linked; and offering guaranteed benefits on retirement; comparing very favourably to the typical private sector scheme.
The move from (mostly) final salary to career average pension means members accrue their pension at a typically higher annual rate based on their average salary. Although some members are better off in legacy schemes, the reformed schemes are more beneficial for others, particularly many lower paid members.
The transitional protection policy, which gave rise to discrimination, will have been removed and, from 1 April 2022, all those who remain in service will do as members of the reformed schemes, treating everyone equally in this respect, and ensuring the aims of the 2015 reforms are met.
Will these pension changes result in any tax changes for members?
The majority of members will see no change to their tax position over the remedy period.
For a minority of members, the pension changes will cause their tax position to change, which could result in tax charges for the member, or the member becoming entitled to a reimbursement of tax previously paid.
In some cases, the pension changes may mean that individuals will have to pay new or higher annual allowance charges, but typically only where their projected pension at retirement has increased. Adjustments to lifetime allowance charges may also be required, where retired members’ accrual changes.
Some members may also face changes in their contributions in respect of the remedy period, which may also affect their income tax position.
Where a member has already retired, a member’s total pension income may also change, and tax will be payable on any increase in pension.
I've moved from one public service pension scheme to another - what does that mean for me?
This will depend upon final policy decisions made on the pension scheme changes.
We will update our members as soon as these decisions have been finalised.
When will the pension changes be implemented and introduced?
Legislation is necessary to implement a deferred choice underpin in the schemes but the government is committed to ensuring that all eligible members are treated equally and are able to choose to receive pension scheme benefits from either scheme. Where necessary, payments will be backdated to 2015.
Provisions for the deferred choice will be implemented by 1 October 2023 for all members. Schemes may implement provisions for deferred choice earlier where it is possible to do so.
Where possible, schemes will also seek to offer a choice to members of the reformed scheme who retire before October 2023 before the legislation is implemented.
What are the next steps after the consultation response?
Following the consultation response, the government will introduce new legislation when parliamentary time allows, expected to be in mid-2021.
The government intends that the provisions for the deferred choice underpin will be implemented by 1 October 2023, or earlier where schemes are able to implement legislative change and processes ahead of that date.
How has COVID-19 affected the project?
COVID-19 has not caused any major delays to the project timeline.