Dear Brother/ Sister
HM TREASURY CONSULTATION RESPONSE: AGE DISCRIMINATION 1992 FPS AND 2006 NFPS
The government has just published its consultation response on how it intends to remove the age discrimination in the 1992 FPS and the 2006 NFPS, identified in legal proceedings initiated by the FBU and a number of judges who made claims of their own.
Several documents have been released and if you want to see them in full they can be found at https://www.gov.uk/government/consultations/public-service-pension-schemes-consultation-changes-to-the-transitional-arrangements-to-the-2015-schemes. The Chief Secretary to the Treasury made an accompanying written statement to Parliament which you can find at https://questions-statements.parliament.uk/written-statements/detail/2021-02-04/hcws757.
The position for control members who are in the LGPS is not yet known. Proposals will be produced by the Ministry of Housing, Communities and Local Government, but they have not yet been published.
This circular summarises the 1992 FPS and 2006 NFPS proposals. The detail is being considered by the FBU and our lawyers, and I outline the issues that are still going to be contentious below.
Who is affected?
- Who is affected?
The proposals only apply to the cohort of members who have been discriminated against. Members who joined the service on or after 1 April 2012 were placed in the 2006 NFPS when they joined. These members were all transferred to the 2015 Scheme on 1 April 2015, regardless of their age. They were all treated in the same way.
According to the government, this means that only members who joined before 1 April 2012 are affected. Their view is that members who joined on or after 1 April 2012 have not been discriminated against. Its proposals therefore only apply to members who joined before that date (and who had not already left the service by 1 April 2015).
We are aware that members who joined between 1 April 2012 and 31 March 2015 feel that they should be treated in the same way as members who joined before April 2012. We will continue to discuss their position with our lawyers. You should note, however, that in many cases the 2015 Scheme is actually better than the 2006 NFPS, as outlined below.
- What has to change?
It is important to recognise from the outset that the Court of Appeal said that the transitional arrangements were unlawful – it did not say that the new schemes were unlawful in their entirety.
The effect of a finding of discrimination is that the disadvantaged class must be treated as favourably as the advantaged class. In this case:
- Younger members who had to transfer to the 2015 Scheme must be permitted to transfer back to their old scheme if that provides them with better benefits. For 1992 FPS members that is likely to be so in most cases because the 1992 scheme retirement age is lower, the commutation rate is better, and the rate at which pension entitlement builds up each year is usually better.
You should note, however, that the 2015 Scheme provides a pension for the unmarried partner of a member after they die, but the 1992 FPS does not. It only pays a pension to a legally married spouse, or a legally registered civil partner.
- Older members who were not permitted to join the 2015 Scheme must be given the opportunity to do so.
In some cases the 2015 Scheme is better, particularly for 2006 NFPS members. The 2015 Scheme provides a better rate of annual pension build-up than the 2006 NFPS in many cases, in many cases the early retirement reductions are better in the 2015 Scheme than the 2006 NFPS, and the 2015 Scheme allows for partial retirement. But the contribution rate in the 2015 Scheme is higher than the 2006 Scheme rate.
The result is that members must be given a choice. Younger members who were excluded from the old schemes must be given the option of going back, and older members who were not given the option of joining the 2015 Scheme must be given the chance to do so.
- How will the choice be made?
This was the main subject matter of the consultation. Everyone recognises that this will be a very difficult choice for members to make.
- Two options were considered. The first was to give everyone affected the opportunity to make a once-and-for-all-time decision, probably in 2023. The second was to give them the opportunity when they retire or leave the scheme.
The first option (“immediate choice”) would make the position or members who are still in service very difficult indeed. They would have to predict how their career will develop over the remainder of their career. For younger members, in particular, that would be impossible.
- We pressed the case for the second option (“deferred choice underpin”) and happily that is what the government has gone for. This means that when a member leaves the scheme, either by retiring or by leaving the service, they will be presented with two clear packages and invited to choose one or the other.
It is a sad fact that some members leave the scheme because they die. In those cases the choice will be made by their family members.
- Does this apply for the future?
Remember, the court did not say that the new schemes are themselves unlawful. It is the way they were introduced which was discriminatory.
The government takes the view that the new schemes are still the way forward, and it intends to apply them to everyone at the earliest opportunity. It says that for practical reasons that could not take place before 1 April 2022.
There will not be any transitional protection for older or younger members. No-one will be able to continue on 1992 FPS or 2006 NFPS terms after 1 April 2022.
We are considering with our lawyers if there are grounds for challenging the design of the proposed scheme, particularly in respect of the new scheme pension age which we do not believe is realistic. We will continue to fight that issue.
As matters stand, the government’s intention is that:
- Everyone who is still in service on 1 April 2022 will transfer to the new scheme on that date.
- Anyone who was in service on 31 March 2012 and who was still in service on 1 April 2015 will have to be given a choice, but the choice will apply only to the portion of their pension that they earned between 1 April 2015 and 31 March 2022.
- That will also apply to members who have already retired. They will NOT be required to change their current pension but, if it is a better outcome for them, they will be able to have their pension recalculated on the basis of the scheme which did not apply to them when they retired.
- What this means
The affected members’ pensions will be calculated in three slices: the pension that they built up until 31 March 2015, the pension that they built up between 1 April 2015 and 31 March 2022, and the pension they build up on and after 1 April 2022. The choice they will be offered will apply to the middle slice.
The choice should be presented in terms of simple numbers: a pension of £X or a pension of £Y, in both cases with an opportunity to take part of the pension as a tax-free lump sum. The choice will not be quite as easy as that however. Members will still have to consider the death benefits and partner’s pensions that apply in both packages. That is particularly the case for members who were in the 1992 FPS: their pension might be higher if they elect for the 1992 Scheme option, but if they do the pension payable to an unmarried partner, if they have one, would be lower.
You will be able to see how your position develops over the coming years. Each year you will be given a benefit statement showing the alternatives if you choose one way or the other. You will not have to make any decision until you leave, but the information will help you to decide whether or not to make a decision about, for instance, retiring early.
The main point is that you will not have to make a choice now.
- What happens in the meanwhile?
As soon as the administrative processes are in place, all affected members will be returned to their former scheme (that is, the 1992 FPS or the 2006 NFPS). After the “deferred choice underpin” is introduced, they will be able to choose whether their 2015-2022 pension should be calculated under the rules of their old scheme or under the rules of the 2015 Scheme when they retire (or leave).
The deferred choice underpin must be introduced by 1 October 2023, although FRAs will be permitted to introduce it earlier if they are able to do so.
That causes a particular problem for members who have already retired or who will do so before 1 October 2023. Their position is outlined below.
Everyone else will revert to their old scheme. That will cause problems in some cases:
- Members who were fully-protected will remain in their old scheme until the deferred choice underpin comes into operation in 2023. By that stage most of them will have retired: full-protection was designed so that full-protection members could have retired by 1 April 2022 at the latest. According to the government, they will still be offered a choice even though they have already retired. They will be treated as a member of their old scheme until 1 October 2023.
For members of the FPS 1992, that will not be a problem in most cases – they are better off in the 1992 Scheme – but it is a problem if they die and leave a partner to whom they are not married or who is not their legally-recognised civil partner. Their partner should be paid a pension. Under the 1992 FPS they will not be, unless they were legally married or had entered into a legally-recognised civil partnership (at least until the 2023 option becomes exercisable). Once the option becomes exercisable their partner will be able to opt for 2015 Scheme benefits but that will not happen until 2023.
- Taper-protected members will return to their old scheme if they have already transferred to the 2015 Scheme. They will then have a choice to make when they leave the scheme or retire. They will have to choose whether to have all of their service between 1 April 2015 and 1 April 2022 treated as membership of their old scheme or the new scheme. They will not be able to split it, some in the old scheme and some in the new.
That could cause a problem for members of the 1992 FPS. They might be better-off if their pre-transition service is treated as membership of the 1992 scheme (because the accrual rate and commutation rates are better), and their post-transition date service is treated as membership of the 2015 scheme (because an unmarried partner’s pension is payable). This is something we are considering with our lawyers.
- All members of the 2006 NFPS – protected, taper-protected and unprotected – will end up paying contributions at the lower 2006 NFPS rate until 1 April 2022. If they eventually take 2015 Scheme benefits, which is likely, they will have underpaid contributions and they will receive a demand for back-contributions.
We argued that 2006 NFPS members should be treated in the interim period as members of the 2015 Scheme to avoid this problem. Our argument fell on deaf ears because the government is looking for easy answers, not sensible answers. We will continue the argument, but in the meanwhile 2006 NFPS members need to recognise that if they want to access the better 2015 Scheme terms when they retire they might have to pay contribution arrears.
These cases apart, the proposal to sort things out after 1 October 2023 is not a problem. We have to recognise that sorting out the discrimination is a major task. But we will not ignore the problem cases.
The position of members of the 1992 FPS who complete 30 years’ pensionable service before reaching age 50 (and who should benefit from a contribution holiday between that date and their 50th birthday) is still not clear. It seems likely that they will be able to take a contribution holiday if they complete 30 years before 1 April 2022 but not otherwise.
- Members who have already retired
These members will be given the same choice. But the choice process will commence for everyone from 1 October 2023 (unless their FRA is able to act more quickly), including members who have already retired.
That is not acceptable. It means that members who have retired or left would have to wait for more than two years, and survive on a pension that is lower than it should be in the interim. The Employment Tribunal has already made a formal declaration that members should be allowed to make a choice now, not in 2023. Members who are still in service may be prepared to wait until they know what the choice means for them when they eventually retire, but members who have already retired will know which package is better for them and they should be permitted to choose now without waiting.
We are already pursuing further legal action to enforce the declaration that the Employment Tribunal has made. We will keep you informed of developments.
- Members who opted out of the scheme altogether
Some members became so dispirited by the 2015 changes that they opted out of pension’s altogether.
The government has listened to the representations made by the FBU and by others. These members will be able to change their mind and opt back in again, at least in some circumstances. They will have to be able to make out a case that they would not have opted out if the changes had not been made.
These members will have to take action to protect their position. Their cases will not be reviewed automatically – they will have to make an application for a review. There is no need for them to take action at this stage. Further advice will follow for these members.
- Who will have to pay for this?
The 2015 scheme has a mechanism built into it, which measures how far the cost of the scheme has deviated from what was expected. If it turns out to be more expensive, then in some cases benefits are reduced or member contributions are increased. If it turns out to be cheaper, then benefits are increased or contributions are reduced. As it happens, when the cost was measured in 2019 it turned out to be cheaper, and 2015 Scheme benefits should have been improved or contributions should have been reduced.
The government threatened to meet the cost of the age discrimination remedy described above by putting it into this cost control mechanism, meaning that the improvements that should have been introduced last year (with effect from April 2019) would be eliminated. Alongside the GMB, PCS and POA, we challenged this threat in judicial review proceedings. These proceedings are on hold at the moment.
The government’s position is now very unclear, but it appears that they may have backed down, in part or entirely. The judicial review has not been withdrawn and will not be until all of the technical detail is known.
But the good news, in the meanwhile, is that the benefits that 2015 Scheme members have built up since 1 April 2019 should be increased retrospectively.
Conclusion
The FBU and our lawyers are still digesting all of the detail of the government’s proposals. On the main issue – immediate choice or deferred choice – the government has reached the conclusion we were pressing for.
As ever, the devil is going to be in the detail, which will eventually be set out in new legislation. We will continue with our action to protect the position of members who have already retired, and we will continue our action regarding the benefit improvements that should have been made to the 2015 Scheme if we need to. On other issues we will provide further updates as the position develops.
Best wishes.
Yours fraternally,
MARK ROWE
National Officer
