Why did the Government’s reforms to the main public service pension schemes lead to discrimination?
The 2015 Public Service Pension Scheme reforms included a policy of transitional protection. This meant members closest to retirement stayed in their Principal Civil Service Pension Scheme (PCSPS - classic, classic plus, premium and nuvos) as they had the least amount of time to prepare for the changes.
The Court of Appeal (McCloud Judgement) 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.
What steps has the Government taken so far to address the discrimination?
Since the McCloud Judgment the Government has been working on ways to address the discrimination.
The Government consulted between July and October 2020 to gather views on proposals to remove the discrimination. In February 2021, the Government announced the implementation of a Deferred Choice Underpin (DCU) which will allow eligible members to make a choice when they retire, between Principal Civil Service Pension Scheme (PCSPS - classic, classic plus, premium and nuvos) or alpha scheme benefits for the remedy period (1 April 2015 to 31 March 2022).
Why isn’t the Government just returning everyone to their Principal Civil Service Pension Scheme (PCSPS - classic, classic plus, premium and nuvos)?
The Government cannot simply place all members back into the PCSPS scheme without allowing them to access their reformed alpha scheme benefits, because some members are better off in the reformed scheme.
What detail will scheme regulations contain?
The powers in the Act to make scheme regulations can be used for the various purposes listed throughout the Act. These include for example the process by which a member can make a choice or “election” to receive new scheme benefits, for interest to be paid to a member or scheme on any amounts owed to or by the scheme, to make provision for pension credit members, to make provision for members to receive remediable service statements, to provide for members who have made additional voluntary contributions and for members who have already benefited from an immediate detriment remedy.
Where it is particularly important that scheme regulations are consistent, the Act will require them to be made in line with Treasury Directions. The powers to make scheme regulations are explained in the Delegated Powers Memorandum prepared by HM Treasury for the Delegated Powers and Regulatory Reform Committee.
What are the next steps after the legislation has been introduced?
Following the introduction of the Act, 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.
What was the other proposal set out in the consultation and why didn’t the Government choose that approach?
The other proposal set out in the consultation was called an ‘immediate choice’ which would allow members to choose which pension scheme benefits they would prefer to take for the remedy 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 was so much of the retrospective remedy done in Treasury Directions?
The Public Service Pensions (Exercise of Powers, Compensation and Information) Directions 2022 were made on 14th December 2022 and came into force on 19th December 2022.
The Directions set out to schemes how they should exercise the various powers to make regulations in the Public Service Pensions & Judicial Offices Act 2022 (PSP&JOA 2022).
They ensure that, where Treasury ministers (or in relation to Northern Ireland, the Department of Finance) consider that a consistent approach is necessary or desirable, the Treasury (or Department of Finance) may give directions to schemes. Other departments are responsible for preparing and laying scheme regulations.
This allows schemes to make regulations that work best for them, while ensuring that where a particular outcome is desirable, it is achieved.
