Dear Brother/Sister,
Pensions Update
This update is provided to reassure members of the continued progress on a number of pension related matters. All of the matters detailed within this circular are subject to either ongoing legal proceedings, will be the subject of future legal proceedings or are currently being progressed through without prejudice legal meetings.
Immediate Detriment
As detailed in previous circulars “Immediate detriment” cases are members who have retired since 1 April 2015 or who will retire before October 2023 and who, because of the age discrimination proved in the Sargeant case, are paid benefits on the basis of the rules of the ‘wrong’ pension scheme. Typically, they are members who were transferred from the FPS 1992 to the FPS 2015. They should be paid on the terms of the FPS 1992 but are being paid FPS 2015 benefits.
There are two main categories of members in this position:
- Members who retired early on the grounds of ill-health and are receiving lower tier (unenhanced) 2015 scheme benefits. They should be getting enhanced 1992 FPS benefits.
- Members who have reached the stage where they could have retired from the FPS 1992 because their age and length of service, added together, totals 75 or more. This is a smaller but growing category.
We have issued court proceedings for three members, two in category (1) and one in category (2). They are due to be heard in the High Court on 20 or 21 October. As previously reported, we have applied for summary judgement.
There have been a number of without prejudice meetings with the LGA and Bevan Brittan (solicitors acting for the FRAs) and further meetings are scheduled, but the cut-off date to reach agreement is 20 October. The union is making good progress on all immediate detriment issues, not just those in the two categories.
The government published the Public Service Pensions and Judicial Offices Bill on 19 July 2021 to set the framework for remedying the discrimination (and to close the 1992 and 2006 schemes finally). It sets out how the government wishes to sort out all cases where a member is owed compensation for the discrimination. It will not provide a remedy until October 2023 unless a scheme can commit the administrative resources to sort them out sooner – and it is anticipated that most schemes will not.
The current without prejudice immediate detriment negotiations, set against the backdrop of the FBU legal challenge, seek to address the immediate detriment issues and provide a timeframe for the FRAs to follow to process retirements and resolve detriment for those already retired. The negotiations are detailed and complex, the nature of the issues and lack of direction from HMT make them so. Issues discussed include (non-exhaustive list): shortfall in retirement lump sum and past pension payments, interest on shortfall, employee contributions (shortfall), tax relief on employee contributions, contribution holidays (inc 18-20 cohort), interest payable on employee contributions owed and tax.
Rest assured that if any additional tax must be paid, the Unions position is that the FRAs will have to pay it. There is no guarantee that all issues will be able to be resolved, but if they cannot be agreed through the without prejudice negotiations then they will be dealt with in the October hearing.
RDS Employment Tribunal Pension Claims
(Matthews and others v Kent and Medway Towns Fire Authority and others)
Negotiations have been taking place with the Home Office and the FRAs nationally to bring final settlement to the pension’s aspects of the Employment Tribunal claims brought on behalf of RDS members under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (‘PTWR’).
Membership of the Modified Section of the NFPS was opened to RDS firefighters in respect of service between 1 July 2000 and 5 April 2006 (with the NFPS permitting membership for RDS firefighters from 6 April 2006 anyway). All individuals with service between these dates (regardless of whether they had lodged an Employment Tribunal claim, or whether they remained in service) were to have been given the opportunity to take part in an ‘options exercise’. Individuals should have received information in 2014/15 to explain what they could expect to receive in benefits if they chose to take up the option of membership for such periods of service, what they would have to pay in contributions and the steps they needed to take if they wished to take up the option. This was the ‘first options exercise’. We know that at least one Authority did not fulfil its duties in this regard.
The ‘first options exercise’ only permitted service going as far back as 1 July 2000 to be taken into account for membership of the Modified Section of the NFPS. It remained legally uncertain whether previous service could be taken into account. For this reason, the Employment Tribunal claims were stayed pending resolution of that issue.
The issue was effectively resolved in another case in November 2018, meaning that service going back to the start of employment could be taken into account for the purpose of a claim under PTWR. The Home Office having accepted that the same principles should be applied to the RDS pension claims. The agreement with the Union seeks to resolve these outstanding issues in the RDS Employment Tribunal claims through a ‘second options exercise’.
Eligibility to take part in the second options exercise will apply to those with relevant RDS service which began before 6 April 2006, regardless of whether the RDS firefighter presented a claim to an Employment Tribunal or not.
The position is different for RDS firefighters with exclusively post 1 July 2000 service because the offer they would receive under the second options exercise would not include any service in excess of that which should have been included in their offer under the first options exercise. The logic pursued by the Home Office and the FRAs is that RDS firefighters in this category would be getting a chance to go back on the decision they originally took under the first options exercise. Whilst that argument has force where the first options exercise was properly carried out, it is also the case that at least some FRAs failed to carry out the first options exercise.
The Union and our legal advisors have made the argument throughout that the simplest thing to do would be to re-run the first options exercise for all RDS firefighters. We are hopeful that an agreement will be reached on this issue.
Implementation of the second options exercise will need to take place via statutory instrument amending the NFPS. The Home Office will commit to introducing the legislation ‘as soon as reasonably practicable’. The second options exercise will start as soon as reasonably practicable after the legislation comes into force, and will run for 18 months.
RDS firefighters who decided to take up the offer of membership under the second options exercise will be required to pay relevant employee contributions. Those who have already retired will have interest added to their backdated pension arrears. Those RDS firefighters who take up the offer of membership under the second options exercise who are unable to obtain tax relief through self-assessment will have the costs of purchasing past service reduced to reflect the tax relief that should have been available on their contributions.
Although the requirement to pay arrears of contributions will not be welcome, the value of the extra pension will vastly exceed the value of the contributions due. Members will be given an opportunity to pay over a reasonable period of time, and to pay any outstanding balance out of their additional pension lump sum when they retire. Members will be provided with specific detail and advice following the conclusion of current negotiations.
Cost Control Mechanism 2015 Scheme
Correcting the transitional protection discrimination for all pension schemes, not just firefighter pension schemes, according to the Government’s latest estimate will cost £17bn. The Government proposes to pass the cost of their discrimination on to members of the pension schemes. This is a matter that affects all members of the 2015 Scheme.
The cost control mechanism allows for assessing the cost of providing pensions, and adjusting members’ contributions or benefits if the cost, as assessed by the scheme actuary, diverges from the target cost by more than 2%. This 2% margin is symmetrical. If the assessed cost of the scheme is below the target cost by 2% or more, benefits must be improved or members contributions must be reduced (or a mixture of both). The cost control mechanism has always been presented as a fundamental aspect of the 2015 Scheme.
The most recent completed valuations of the 2015 schemes showed that they were considerably cheaper. In the case of the firefighters’ schemes the new scheme was 5.2% cheaper than anticipated, which would lead to an increase in the accrual rate from 1/59.7 to 1/51.2 (in fact the Scheme Advisory Board [which the FBU has a seat on] recommended a smaller improvement in the accrual rate and an improvement in early retirement reductions making it more palatable to retire before age 60).
Whilst benefits and contribution changes were being negotiated, the McCloud and Sargeant judgment was handed down. The Government “paused” the cost control mechanism, on the basis that until the final outcome of the case was known (an appeal to the Supreme Court was still pending at that time) the cost of the 2015 schemes could not be known.
The Union issued judicial review proceedings to lift the pause and, once lifted, to require the improvements outlined above to be implemented. The detail of the case is complex, but it comes down to: (a) what costs the cost control mechanism measures (b) that the cost of correcting the discrimination is mainly related to the pre-2015 schemes – they have more members than the Government expected because a lot of members did not in fact transfer even if the Government thought that they did. The proceedings are now stayed. They were issued when the cost control mechanism was paused.
The pause has now been lifted, with the Government saying that they will try to pass the cost on to 2015 Scheme members through the cost control process. The way they are doing this is by not initiating improvements in benefits or a reduction in contributions for 2015 Scheme members; they want to use the overall savings in the remedy calculation.
Therefore, the Government are trying to use financial improvements that should rightfully provide improvements in benefits or reduction in contributions to our members to rectify the cost of the Governments discrimination.
The FBU have been clear to all parties though, that the cost of rectifying the Government’s discrimination within the 2015 Scheme transitional protection arrangements must not be passed on to scheme members, but that the improved benefits and/or reduced contributions, as a result of the most recent valuations, must be passed on to scheme members.
The Executive Council recently considered this matter in detail and also considered the legal advice as to the next steps the Union could take. It would be unwise to report that discussion and the decision of the Executive Council as to the legal route to be followed, but members should rest assured that this matter will be pursued through legal channels.
In that vein, I am sure that members will appreciate that for the union to discuss the matters contained within this circular in more detail in an open forum and/or outline the present position in negotiations and/or detail our legal strategy would seriously jeopardise any progress made by the union on these issues. As members can see the Union continues to fight for what rightfully belongs to our members. We are close to concluding negotiations on a number of key pension’s issues.
The Fire Brigades Union remains the only Union fighting these issues for firefighters. There are of course other pensions related matters not reported within this update. The Union continues to fight for resolution of all of those issues, they will be the subject of further updates when it is appropriate to report them.
Yours in unity.
MARK ROWE
National Officer
