From 1 April 2022, all those who continue in service will be eligible to do so as members of their respective reformed pension schemes (i.e. those introduced in 2015, of which many are already members), regardless of age. This includes members who were previously covered by ‘transitional protection’.
This means that members will keep any service earned within the legacy schemes up until that date and will be able to access those benefits in the same way and at the same time as they are currently able to, but any pension benefits earned after will be within the reformed pension schemes.
The legacy schemes will be closed to future accrual from April 2022.
Will members who had ‘tapered protection’ also be asked to choose between legacy and reformed scheme benefits?
Members who received tapered protection in 2015, or would have received such protection but for the provision that unlawfully excluded younger members from transitional protection, will be offered a choice of whether to receive legacy or reformed scheme benefits in relation to any continuous service between 1 April 2015 and 31 March 2022.
This will remove the discrimination that arose between older members who were subject to transitional protection and younger members who were not.
Members who received tapered protection in 2015 will be offered a choice of whether to receive legacy or reformed scheme benefits for the entire period of 1 April 2015 to 1 April 2022 (or their retirement date, if earlier).
This is consistent with the Court of Appeal judgment that discrimination applied to all of those who did not receive full transitional protection.
Will the survivors of eligible members who have died since 1 April 2015 also be asked to make a choice between the different pension schemes?
Where an eligible member has died since 1 April 2015, schemes will review these cases as a priority. Where the member retired from the reformed scheme, schemes will seek to revisit cases ahead of the introduction of the deferred choice underpin where this is possible. Individual schemes will check whether a higher pension or lump sum amount would be due under the alternative scheme.
In the case of any increase, schemes will inform surviving beneficiaries, and the higher amount will be paid with their agreement. If the higher amount is already in payment, the survivors will be notified.
The choice between benefits will fall to the late member’s surviving spouse or partner. If there are children also in receipt of a survivor pension, and the decision maker lives in a separate household to the child, any decision taken will not affect the child’s pension. Where the child and decision maker live in the same household, the usual rules around total survivor benefits payable will apply.
All public service pension schemes have different arrangements. However the main changes between the legacy and reformed schemes for most schemes included a change to career average pension schemes from final salary and an increase in normal pension age.
The change to career-average means members’ pensions are now calculated on their average salary throughout their career as opposed to their final salary.
The reformed schemes were designed to make public service pensions more affordable and sustainable for the future, while still ensuring public servants received appropriate pension provision in retirement. The reforms created a fairer system. The move from (mostly) final salary to career average pension means members accrue their pension at a typically higher annual rate based on their average salary in most of the public sector pension schemes. Although some members are better off in legacy schemes, the reformed schemes are more beneficial for others, particularly many lower paid members.
Why is the government saying all members should be in the reformed pension schemes from 1 April 2022?
The 2015 schemes that were introduced following the recommendations of the Independent Public Service Pensions Commission (the reformed schemes) offer generous pension provision, improve affordability and sustainability, and are fairer to lower and middle earners.
The reformed schemes are some of the most generous available in the UK: backed by the taxpayer; index-linked; and offering guaranteed benefits on retirement; comparing very favourably to the typical private sector scheme.
The reforms created a fairer system. The move from (mostly) final salary to career average pension means members accrue their pension at a typically higher annual rate based on their average salary in most of the public sector pension schemes. Although some members are better off in legacy schemes, the reformed schemes are more beneficial for others, particularly many lower paid members.
The transitional protection policy, which gave rise to discrimination, will have been removed and, from 1 April 2022, all those who remain in service will do so as members of the reformed schemes, treating everyone equally in this respect, and ensuring the aims of the 2015 reforms are met.
As set out in the consultation response in more detail in Chapter 3, Future Pension Provision, “since the legacy schemes have a lower Normal Pension Age (NPA) than the reformed schemes, members who have accrued service in both types of scheme may choose to retire when they reach that NPA, and the relevant Minimum Pension Age (MPA) has been reached, and access the relevant pension benefits from both schemes. They will not have to wait until the NPA in the reformed scheme, which in most schemes is linked to State Pension Age (SPA)”.
For the Firefighters’ Pension Scheme this means that individuals can still retire after 30 years’ service, subject to the normal rules.
The majority of members will see no change to their tax position over the remedy period. For a minority of members, the pension changes will cause their tax position to change, which could result in tax charges for the member, or the member becoming entitled to a reimbursement of tax previously paid.
In some cases, the pension changes may mean that individuals will have to pay new or higher annual allowance charges, but typically only where their projected pension at retirement has increased. Adjustments to lifetime allowance charges may also be required, where retired members’ accrual changes.
Some members may also face changes in their contributions in respect of the remedy period, which may also affect their income tax position.
Where a member has already retired, a member’s total pension income may also change, and tax will be payable on any increase in pension
Will non-claimants receive injury to feelings compensation alongside these retrospective pension changes as claimants will?
A deferred choice underpin will apply to all eligible scheme members regardless of whether they have made a legal claim. Members do not need to submit a legal claim to benefit from these changes.
Any further legal claims for compensation made by claimants in respect of their individual circumstances will be decided by the courts. Remedy hearings for the claims against Firefighters’ Pension Scheme (known as the Sargeant case) are underway. We are unable to comment further on ongoing litigation.
Before new legislation can be introduced, several remaining technical policy decisions on the overarching approach will be taken, including around intereactions with tax. It is intended that legislation to move people to the reformed schemes will take effect on 1 April 2022.
Scheme specific policy decisions will also be taken, and necessary legislation drafted.
The Home Office will engage with stakeholders including the Firefighters’ Pensions Scheme Advisory Board for England during this process.
Following the publication of the consultation response and in parallel to introducing new legislation, the Home Office will engage with scheme managers and administrators to allow them to prepare for implementation of the deferred choice underpin. The changes will be implemented by October 2023.