Landmark pensions ruling could extend to millions of public sector workers

Government confirms the remedy for a ruling that found firefighters’ pensions were discriminatory will apply across all public sector schemes

The government has admitted a Supreme Court decision which ruled that changes made to firefighters' pensions were discriminatory will have repercussions across the public sector.

On Monday, the Supreme Court ruled the government’s ‘transitional protection’ scheme – which kept workers closest to retirement on a more generous pension following the introduction of public sector pension reforms in 2015 – was discriminatory to those too young to benefit, after a group of London firefighters brought a case to an employment tribunal in February 2017.

In a statement responding to the ruling, the government has confirmed that any remedy for discrimination would need to be applied to all public sector schemes that used transitional protection arrangements – meaning all of the major public service pensions schemes.

This includes schemes for the NHS, civil service, local government, teaching, policing, the armed forces, and the judiciary, as well as fire and rescue services, and could add an estimated £4 billion per year to pension liabilities from 2015, the government said.

In 2015, on the recommendation of the Hutton Report – a national review of public sector pensions – the government took the decision to move away from final salary pensions to ones based on average lifetime earnings in a bid to make pension costs more sustainable. This was the case for the New Firefighter Pension Scheme (NFPS), which was introduced in 2015.

The NFPS also included a transitional protection arrangement in which workers 10 years or fewer away from retirement were protected from the reforms and retained their more generous final salary pensions.

This was challenged in court, and in 2018 the Employment Appeal Tribunal found that those excluded from transitional protections on account of their age were unfairly discriminated against.

Last month, the Supreme Court refused the government permission to appeal. 

The government has said it will “engage fully” with the Employment Tribunal to come to an agreement on how the discrimination will be remedied, but advises that the reasons for the 2015 reforms remain.

Elizabeth Truss, chief secretary to the Treasury said: “Public service pensions are a significant cost for the taxpayer, now and in the future. The judgment does not alter the government’s commitment to ensuring that the cost of public service pensions are affordable for taxpayers and sustainable for the long term.”

While it will be for the Tribunal to determine a remedy, the government will be engaging with employer and member representatives, alongside devolved administrations to help inform its proposals. 

Nathan Long, senior analyst at Hargreaves Lansdown, said that the Treasury needs more than just “spare change and a raid on the piggy bank to plug the funding hole”, and predicted more uncertainty around whatever reforms were eventually decided. 

He said: “Rolling this up as an overall review of pension tax relief looks increasingly likely, meaning those receiving higher rate tax relief on their payments could be on borrowed time.” 

Moira Warner, senior business development manager at Royal London advised: “Not all unprotected members will have lost out financially under the reformed schemes, so impacted members should not expect that compensation will automatically be due.”