On the face of it , the McCloud judgement looks like a civil service cock-up on a grand scale, costing the Government billions in what were thought “saved” revenues and compensating civil servants who already have gold plated pensions for flaking of the gold plate.
HM Treasury is taking forward a consultation to address the discrimination for all affected members in public service schemes for the armed forces, firefighters, police, NHS workers, teachers and civil servants (and specifically the Judges).
The consultation looks at how it intends to comply with the implications of McClood’s judgement.
This blog suggests that though this looks a “colossal , entirely avoidable” and “monumental mistake” – conflated judgements of Tom Selby of AJ Bell and Ian Browne of Quilter.
However the remedy may be (Mc) clouded by Treasury management and cost sharing regulations in place at the schemes affected.
The background to the McCloud judgement
Taxpayers will have to foot an estimated £17bn bill to boost up to 3 million public sector workers’ pensions after an “avoidable” mistake meant the Government has had to backdate payouts.
In 2018, the Government was found guilty of discriminating against younger workers when it radically changed public sector pensions in 2015 – moving away from a generous “final salary” model towards a “career average” calculation.
Millions of public sector workers lost out and are now each due close to £6,000 in compensation. This will cost the Treasury billions at a time when tax receipts are lower.
Who are the winners?
Those within 10 years of retirement from 2012, when the changed were finalised, had their pension promises protected. This was subsequently deemed illegal by the courts in 2018 as it was age discriminatory against younger workers who were forced onto the less desirable pension scheme without any compensation.
.The Government must now repay public sector workers to tune of £17bn (up from the 2018 estimate of £5bn). It will have to tread all workers as equal and increase their pensions as if they were under the old system for any years worked between 2015 and 2022.
This is when the 10-year grace period for older workers ends and the new career-average model covers all staff.
Public sector workers will have the choice of which scheme benefits they want to receive although few are likely to be better off under the career-average model.
The eventual cost may however be shared between the general taxpayer and members of the schemes affected.
This means that seven years of the reform and savings have been lost.
The delay may be designed to take away age discrimination but it is still the case that younger and future members will pay the price for the extra benefits received by older and current members”.
There are many references to a £17bn taxpayer cost of the McCloud judgement. But much of the cost may actually be picked up by scheme members (in extra contributions)
How much depends on whether the 2016 “+2%”cost cap will still be exceeded and on future cost cap calculations, still under review “
RailPen are worried not just for their sponsoring employers, but for their members, many of whom may find ongoing accrual too rich for their blood.
The risk is the same for members of the various civil service schemes affected by the McCloud judgement. Many members will simply not want to cough up for better pensions.
The final word is with Steve Simkins
If there is any silver lining to the McCloud case it is that it will drive the need for much better public service member engagement with and understanding of their pension scheme