The Government is pausing a planned review of the cost of public sector pension schemes because of a court judgment that could add £4bn a year to its liabilities.
Unions are in uproar at the pause in the revaluation of the ‘cost cap’, announced yesterday by chief secretary to the Treasury Liz Truss MP in a written statement, which had been expected to lead to an increase in member benefits from April.
The ‘cost cap’, which was implemented in 2015 to control unexpected changes in pensions, requires the Government Actuary to assess whether the scheme is under- or over-funded. Because mortality improvements have not been as great as had been predicted, it had been expected that the Government would have been forced to increase benefits.
But the Government is announcing a pause to the valuations of public service pensions following a court ruling on part of the 2015 pension reforms.
The Coalition Government introduced reforms to public sector pensions, meaning most public sector workers were moved to new pension schemes in 2015.
In December 2018, the Court of Appeal ruled that the ‘transitional protection’ offered to some members as part of the reforms amounts to unlawful discrimination. The Government is seeking permission to appeal this decision, which it says could cost an extra £4bn a year.
The Government says: “Given the potentially significant but uncertain impact of the Court of Appeal judgment, it is not now possible to assess the value of the current public service pension arrangements with any certainty.
“The value of public service pensions will not be reduced as a result of this suspension. If the Government is successful in court, we will implement the changes to employee benefits as planned. If the Government is defeated, employees will be compensated in a way that satisfies the judgment.”
TUC deputy general secretary Paul Nowak says: “Public sector workers have had years of real-terms pay cuts and job losses. They now face the danger of the government breaking its promises on pension benefits.
“Public sector pension schemes have been cheaper than expected. Under the agreed rules, which the government committed to for 25 years, this should mean lower contributions or improved pensions for members.
“But halting the valuation process leaves this in jeopardy. The government needs to stick to its own rules and deliver what it pledged.”
Prospect deputy general secretary Garry Graham says: “We cannot allow the government to pick and choose which parts of an agreement it will honour and to back out of the parts that may not be convenient any longer.
“Years of pay restraint means that our members will already face lower pensions when they might have expected when they come to retire. Now they are being penalised again by the government going back on its agreed terms. It is no wonder more and more of them are beginning to wonder if their future might be better outside the civil service.”
Hargreaves Lansdown senior analyst Nathan Long says:“Pennies are tight in the Treasury, so finding a rather chunky £4 billion every year will cause much head scratching. There may be a temptation to dismantle the incentives for saving for retirement which currently means tax relief on pensions cost £38.6 billion a year, but this would be short sighted against a backdrop of people not saving enough for their life after work. It could also pitch the public and private sector workers against one another, just as the current case highlights inequalities across age groups.”