A McCloud(ed) judgement where costs may be shared.

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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.

McCloud (ed)

The eventual cost may however be shared between the general taxpayer and members of the schemes affected.

Ian Colvin of Hymans Robertson told the FT,  the cost of fixing the unlawful discrimination would be “much lower” than previous estimates, because the remedy only applied to those who joined the scheme before April 2012.
While  the government also unveiled plans to transfer a further 2m public servants into the reformed career-average schemes from April 2022.
And it’s thought that the general public’s exposure may be capped by existing cost controls.
This is because of a complicated cost sharing arrangement known as the  “cost+2% cap”  which could mean that those in Government schemes affected , may have to pay for the extra benefits in higher contributions.
The ace expert on this is ISIO’s Steve Simkins who pointed out in a recent Daily Telegraph article 

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”.

Simkins went on to explain on  social media

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 “

Cost sharing protecting the public purse

Cost sharing in open defined benefit pensions is quite common. It is also in operation in the RailPen, where railway workers will be forced to pick up any increases in costs on their schemes 60/40 with employees paying 40%.


The is one of the reasons that RailPen has lobbied hard to keep a high discount rate on its future liabilities (by investing in long term growth assets rather then less risky bonds and gilts).


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
simkins 2

Simkins – blowing his own trombone

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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