The government faces increased public pension costs of around £4bn per year following the defeat of its appeal in the courts.
The court decision of unlawful discrimination against a group of judges and firefighters was handed down in December 2018, relating to changes to their pensions as part of the 2015 pension reforms.
The Court of Appeal ruled that the ‘transitional protection’ offered to some members as part of the reforms amounted to discrimination on the grounds of age, race and equal pay.
Following the ruling, the government plan to put a pause on the 'cost control mechanism', which assesses the value of public pension services, "until there is certainty about the value of pensions to employees from April 2015 onwards".
Both the judges and firefighters were part of DB pension schemes prior to 1 April 2015, when they were transferred into replacement schemes.
The judges were moved from the Judicial Pension Scheme (JPS) to the New Judicial Pension Scheme, and the government put provisions in place which ensured that older scheme members were allowed to remain members of the JPS.
The court ruling found that the transitional protections put in place were discriminatory against the judges who could not remain as members of the JPS.
However, the Chief Secretary to the Treasury, Elizabeth Truss, said that the government is “seeking permission to appeal this decision”.
She added: “If this is unsuccessful, the court will require steps to be taken to compensate employees who were transferred to the new schemes.”
This could cost the equivalent of around £4bn per year in compensation to members who were not granted transitional protection.
The judgment is expected to have an impact on other public sector groups who have seen similar changes to their pension schemes and will extend to other public sector workers.
Commenting, Hargreaves Lansdown senior analyst, Nathan Long said: “The government’s attempts to reduce the cost of public sector pensions, ensuring they remain sustainable for future generations in the face of people living and working longer is facing a serious challenge.
“Pennies are tight in the Treasury, so finding a rather chunky £4bn every year will cause much head scratching.
“There may be a temptation to dismantle the incentives for saving for retirement, which currently means tax relief on pensions cost £38.6bn a year, but this would be short sighted against a backdrop of people not saving enough for their life after work.
“It could also pitch the public and private sector workers against one another, just as the current case highlights inequalities across age groups.”
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