Up to three million public sector workers affected by a Court of Appeal ruling which found that reforms to their pensions introduced in 2015 were discriminatory will now be able to choose between the old scheme and the reformed scheme, the Treasury has confirmed.

The option for workers to accrue benefits on either their final salary or career average terms will apply between 1 April 2015 and 31 March 2022.

The Treasury had previously estimated the cost of dealing with the issue will hit £17bn.

In 2011, an independent report produced by Lord John Hutton set out how public sector pensions should be reformed, which included proposals to move from a final salary to a career average defined benefit (DB) structure, and aligning the normal pension age with the state pension age.

According to investment platform, AJ Bell, the aim of the reforms was to put generous public sector pensions on a more sustainable footing while avoiding a “race to the bottom” in terms of the quality of retirement provision.

However, as part of negotiations with trade unions, the government agreed scheme members within 10 years of retirement could keep accruing benefits under the old scheme – despite Hutton warning this would breach age discrimination legislation in his final report – and the decision was later challenged in court.

AJ Bell senior analyst, Tom Selby, suggested the government’s defeat at the Court of Appeal in 2018 left it “little choice but to remedy the situation”.

“The government has finally unveiled the solution to a colossal pensions debacle that will reportedly cost an eye-watering £17bn to put right,” Selby commented.

“The Treasury says those costs will ‘feed into employer contribution rates’, meaning pension costs for public sector employers are almost certainly going to go up, placing a drain on resources at the worst possible time.

“The decision announced today means affected members will be able to choose whether they build up benefits under the legacy scheme or the reformed scheme between 1 April 2015 and 31 March 2022. They will not have to make the decision until they reach retirement, however.

“This effectively unravels the preferential treatment given to older workers as part of reforms first announced a decade ago, bringing to an end a sorry, expensive and entirely avoidable saga.”

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