In 2018 the Court of Appeal made a landmark ruling that reforms to public sector pensions in 2015 were unlawful age discrimination. The Court of Appeal ruled on two Employment Tribunal cases, Sargeant and McCloud that were brought against the Firefighter and Judicial Pension Schemes. The ruling was that the different treatment of existing members of the schemes was unlawful, not the introduction of new schemes or the fact that the new scheme applied to existing scheme members.
In July 2020, the Treasury published its proposals to remedy the discrimination identified in the McCloud and Sargeant cases. The consultation outlines proposals for all members to be enrolled into the 2015 schemes from the 1 April 2022. Two options were outlined in the consultation along with questions on a range of points. The two options were an Immediate Choice (IC) or a Deferred Choice Underpin (DCU). Prospect members can read our consultation response here.
In February 2021, the Treasury published its consultation response, confirming the age discrimination will be remedied with a Deferred Choice Underpin. Prospect welcomes the Treasury announcing that a deferred choice underpin has been chosen to remedy the unlawful discrimination. We have been clear that the remedy should provide members with an informed decision, have clarity on their pension benefits and not be in a position of detriment. This remedy meets our criteria.
The DCU will provide members with a choice on how they wish their service during the remedy to be treated at retirement. This will enable members to clearly understand what they will receive under either option. For those that have already retired before the remedy is implemented there will be a retrospective choice.
The scheme amendments to implement the remedy will be made in two tranches split between the prospective and retrospective remedy. Each scheme concluded their consultations on the prospective remedy in January 2022 with the scheme amendments made in March 2022.
- What is the McCloud judgement?
- McCloud remedy – Immediate Choice
- I voluntarily left the scheme instead of joining the 2015 scheme, what will the remedy do for me?
- Who was given protection from the pension changes?
- The protections have been found to be unlawful. Will I lose my protection?
- Does the judgment only affect the Judges’ and Firefighters’ pension schemes?
- What will the remedy be?
- Will the remedy put me back into my original scheme?
- What is the Judicial Review in the Firefighters Pension Scheme and does it affect the Civil Service Pension Scheme?
- How does the McCloud judgement affect the local government pension scheme?
- Do I need to make a claim for age discrimination because of the McCloud judgement?
- What is the cost-sharing mechanism and why is it important?
- Why have the valuations and the process to introduce improvements been ‘paused’?
- What were the Civil Service Scheme Advisory Board recommendations to the Minister following the 2016 draft valuation of the Pension Scheme?
What is the McCloud judgement?
The McCloud judgement refers to the Court of Appeal’s ruling that Government’s 2015 public sector pension reforms unlawfully treated existing public sectors differently based upon members’ age on the 1 April 2012.
The judgement came after two Employment Tribunals concerning the pensions of Judges’ (McCloud) and Firefighters’ (Sargeant) respectively.
In order for age discrimination to be lawful, it must be a proportionate way of achieving a legitimate aim. The Court of Appeal ruled that in these two cases the Government failed to demonstrate that the transitional protection arrangements were based upon a legitimate aim.
The key content of the judgment said: “We have found that in both the judges’ and firefighters’ cases the manner in which the transitional provisions have been implemented has given rise to unlawful direct age discrimination.
“In neither case could the admitted direct age discrimination be justified. In the Judges’ case, we see no error in the reasoning of Judge Williams either in his assessment of aims or means.
“In the firefighters’ case, we take the view that there were no legitimate aims and since we are satisfied that the contrary conclusion would not be open to an employment tribunal, we have made that determination ourselves and not remitted the case, save for the determination of remedy.”
In the firefighters’ case, the Court of Appeal importantly noted that: “the Government’s rationale for the protective provisions did need to be supported by evidence”.
The original ruling was made by the Court of Appeal in December 2018. However this was appealed by the Government. The Government’s appeal was rejected in July 2019 and the cases were remitted to Employment Tribunal remedy hearings.
It is important to note that it is the protection arrangements based upon members’ number of years to normal pension age that were found to be unlawful. Introducing new schemes for existing staff has not been found to be unlawful.
You can read more about how these cases have developed up to now in our McCloud Public Services Sector Pensions Briefing.
McCloud remedy – Immediate Choice
This section is for members who have been contacted by the civil service pension scheme about their “immediate choice” under the McCloud remedy and who want to understand more about the process or who have specific questions about their next steps.
The civil service pension scheme began to contact members impacted by the immediate choice from January 2025, and it is expected that it will take at least two years to contact everyone in scope of the exercise.
The “immediate choice” arises as a result of the McCloud judgement, which was a Court Of Appeal ruling that the government’s reforms to public service pension schemes in 2015 were unlawfully discriminatory on the grounds of age.
The government is obliged to remedy the discrimination. The first step in doing so was to move all pension scheme members to the same post-2015 schemes from April 2022. This ended the discrimination from that point forward.
However, there remained a retrospective period (called the “remedy period”), from April 2015 to April 2022, where public service pension scheme members were treated differently according to their age.
The government must apply a retrospective remedy to this past discrimination. The retrospective discrimination is remedied in two different ways, depending on whether the scheme member has put their remedy period benefits into payment by 1 October 2023 or not.
If someone is in scope of the McCloud remedy and has put some remedy period benefits into payment before 1 October 2023, then their retrospective remedy will be delivered through the immediate choice.
The immediate choice simply gives these members the option of continuing to receive the same benefits as currently, or, if it would be better for them, choosing instead to have benefits based on their remedy service being in a different scheme.
If the remedy period benefits were paid based on the member having stayed in their original (legacy) pension scheme, then the immediate choice would give the option of those benefits being treated as being in the Alpha scheme instead (and vice versa).
The immediate choice will almost always result in an option between the member’s current benefits or benefits calculated on an alternative basis. Members will tend to keep their existing benefits if those are better and only take the alternative option if those were more beneficial.
You can find further information about the immediate choice exercise from the civil service pensions website.
Members who are (1) in scope of the McCloud remedy and (2) have put remedy period benefits into payment before 1 October 2023 will be covered by the immediate choice exercise.
You can check if you are in scope of the McCloud remedy here:
Am I Affected Remedy – Civil Service Pension Scheme
If you are in scope of the McCloud remedy and either fully retired or partially retired having put some post April 2015 benefits into payment, then you will be covered by the immediate choice exercise.
The scheme began to contact members covered by the immediate choice from January 2025. Under the relevant legislation, the deadline for providing this information is 31 March 2025. However, the scheme has contacted the regulatory authorities to explain that the information will not be ready by then in most cases. It expects to take another two years to get the paperwork about the option to members.
You will have up to a year after receiving the information to decide about your immediate choice.
Prospect is not authorised or regulated to give financial advice. But we can answer questions and otherwise provide relevant information that might well be useful in helping you decide under the immediate choice.
I have been contacted by the civil service pension scheme administrator to say that under a different option I would be owed thousands of pounds in backdated pension and would have an increase in my ongoing pension. This seems too good to be true. Is there a catch?
It is definitely sensible to question communications about financial matters (whether from your pension scheme, your bank or anyone else). Incidents of fraud are growing strongly; fraudsters are very sophisticated, and we know they particularly target pensioners. So, you should check that anything you receive is from the organisation It purports to be from. You should never send money or give personal information in response to an unsolicited letter or call without checking they are who they say they are.
That said, we do know that tens of thousands of pensioner members of the civil service pension scheme (and even greater numbers of members of other public service pension schemes) will receive letters about the immediate choice under the McCloud remedy. While many will not be any better off under the immediate choice, a significant number will be offered backdated payments and a higher ongoing pension.
We cannot advise members in this situation what to do. But it is worth remembering that the government is not offering this voluntarily. It has to offer this because it was found by the courts to have unlawfully discriminated against the members concerned. Any money offered is compensation for that discrimination, not a generous bonus or anything else. All the relevant information you need to assess the option is provided in the pack provided, there is no hidden catch that you are not being told about that could impact you detrimentally in the future.
Yes it will.
Yes, the backdated pension is taxable income. Tax will be deducted at source by the scheme administrator. If this results in an overpayment (eg if it pushes a member into a higher tax rate than would have applied if the correct pension had been paid at the right time), then the member can approach HMRC to have the back payment reallocated to the years in which they arose, and the tax will be adjusted accordingly.
Yes, this interest payment is also subject to tax. The interest is paid gross of tax. Members will have to engage with HMRC if tax is due on it. (Any tax would be due in respect of the year the interest was paid.)
If you choose Alpha, then the survivor’s benefits for this period of service will also be based on the Alpha rules (ie 37.5% of that pension). But it is important to look beyond the percentages of 37.5% and 50% in assessing which option provides the better survivor’s pension. The 37.5% in Alpha applies to the pension before any amount is exchanged for tax-free lump sum. It is possible that 37.5% of this amount is higher than 50% of the Classic pension that would be payable for the same service in the remedy period.
The pension scheme is contacting members as soon as possible. It will not generally be possible to expedite this process. It would be helpful if the scheme has your current contact details though, so it might be worth checking what information the scheme holds on you.
Often it will be obvious that one option is more valuable than the other (e.g. both the pension and the lump sum you can take are higher under one option than the other). Sometimes it can be more complicated (e.g. the pension is higher under one option but the lump sum you can take is higher under the other). In more complicated cases there may be different factors to bear in mind. We will provide further information to help members in these circumstances shortly. Please contact Prospect if you are in this situation and need more support.
The scheme will not generally allow members to revisit decisions about how much pension they put into payment on partial retirement. It may be possible to argue that you would have made a different decision about this but for the discrimination that affected you. Please contact Prospect if you are in this situation and need more support.
Yes. For example, your redundancy package may have been capped at 6 months’ pay because you were over pension age. But if you have been in the other (Alpha) scheme you would not have been above pension age and would have received a higher redundancy payment. This would then be considered alongside the difference in pension entitlement.
No. You can generally only be treated as being in either the legacy scheme or Alpha in the remedy period (and not both). If neither option is as good as your existing benefits, then contact Prospect for more support.
I voluntarily left the scheme instead of joining the 2015 scheme, what will the remedy do for me?
We are aware of a very small number of members who decided to opt-out of their pension scheme instead of transferring to the 2015 scheme. In the civil service this will also include members who switched to the non-contributory defined contribution Partnership scheme.
The Treasury consultation from last summer outlined a proposed approach for contingent decisions with the response published in February 2021 providing additional information. This outlined that there will be a process for members to highlight they made contingent decisions as a result of the discrimination and request to be put in the situation they would have been in had the discrimination not occurred. Members will need to show that this decision was as a result of being moved into the 2015 scheme. Decisions on these cases will be made on a case by case basis.
You can read the full response from HM Treasury on contingent decisions on pages 55 to 57 of the McCloud consultation response here.
Each scheme has a scheme advisory board that will discuss implementation and administration of the remedy for their scheme. We are awaiting further information on how members who’ve made contingent decisions will be able to apply for consideration to be put back into the position they would have been in had the discrimination not occurred. If approved members would need to be prepared to make back-payment of employee pension contributions.
In the Civil Service, planning is at an early stage and we do not currently have any additional information on the process for raising contingent decision issues. As a union we will look at how we can support members who would like to go through this process.
It is important to note that we recommend members get independent financial advice before making important financial decisions such as opting-out or switching to Partnership.
When members move to the 2015 schemes all accrued rights are protected and only benefits built up after joining the new scheme have a pension age of state pension age (or 60 for active members in Fire service). It is important to note that whilst the reformed schemes have a higher pension age, the new schemes provide a valuable benefit and in certain circumstances, members could receive a higher level of pension in the reformed scheme than their original scheme.
Who was given protection from the pension changes?
The transitional protections that have been deemed discriminatory treated existing pension scheme members who were in service on 1 April 2012 differently based upon age.
Pension scheme members within 10 years of normal pension age on 1 April 2012 were allowed to continue their membership of their existing pension scheme.
Members with more than 13.5 years to normal pension age became members of the new 2015 schemes on the 1 April 2015.
Those with between 10 and 13.5 years to pension age had a tapered date on which they would join the new scheme.
These protections for the oldest workers were one of two major concessions offered by the coalition government to trade unions in order to reach agreement on reform of public sector pensions for the second time in a decade.
The original proposal from the government was for all members to move to the reformed schemes in April 2015.
Interestingly, Lord Hutton’s 2011 report ‘Independent Public Service Pensions Commission’, which influenced the government’s proposals for reform, noted that “age discrimination legislation also means that it is not possible in practice to provide protection from change for members who are already above a certain age.”
The protections have been found to be unlawful. Will I lose my protection?
In order to end the unlawful treatment, the Government has indicated all members will go into same scheme (assuming members haven’t already left or retired) at a date in the future. The Government’s consultation response confirms the remedy period will end on the 1 April 2022.
This means members with full protection who were expecting to be able to maintain membership of their original scheme forever more will now join Alpha on this date. However all members with full protection will reach their normal pension age before the end of the remedy period. Therefore this will only affect members who work beyond their normal pension age.
Does the judgment only affect the Judges’ and Firefighters’ pension schemes?
The judgement affects members of all public sector pension schemes who were in service on the 1 April 2012 and subject to the unlawful protections.
This is because the reformed public sector pension schemes were not completely negotiated separately. The TUC and the Government reached an initial agreement on overarching scheme design with then scheme specific discussions tailoring the schemes to each sector. The transitional protections were a part of the original agreement and therefore appear in all the schemes introduced in 2015.
On 15 July 2019, the government issued a written ministerial statement and confirmed that as ‘transitional protection’ was offered to members of all the main public service pension schemes, the difference in treatment will need to be remedied across all those schemes, including the civil service pension scheme.
A remedy will now be developed for each of the public sector schemes. This includes the Civil Service Pension Scheme.
What will the remedy be?
The remedy is the name of the practical way that the Government is going to put right the unlawful discrimination.
The remedy will consist of two elements.
The first will bring to an end the continuing discrimination by enrolling all members into the same scheme from a set date in the future. The Treasury has confirmed this happen on the 1st April 2022.
The second will remedy the discrimination experienced by members during the remedy period. The Treasury has confirmed the remedy period is between the 1st April 2015 and 31st March 2022. To do this each scheme will introduce a deferred choice underpin which will allow members at retirement (the point they access their pension) to choose how they wish to have their service during the remedy period treated. In their legacy scheme or the reformed scheme.
The remedy will only apply to those members who treated differently based upon age. Members who joined the public sector since 1 April 2012 were not treated differently based upon age and are therefore out of scope of the remedy.
The Treasury has announced that members will not incur annual allowance charges resulting from their election under the deferred choice underpin.
Will the remedy put me back into my original scheme?
There is an ongoing process to implement the remedy to the unlawful age discrimination identified by McCloud in the Civil Service, Firefighter, NHS and Teachers pension schemes.
Until the remedy has been implemented there will be no change to members’ pensions and the existing transitional protections will continue to apply. Members that retire before the remedy has been implemented will retrospectively benefit from the remedy with a post election choice.
A remedy that simply reverted all members to their legacy scheme would not have been appropriate for the Civil Service Pension Scheme. This because it would not address the detriment for all members in the scheme, and in some cases could even result in detriment. This is because the Alpha scheme has a higher value accrual rate as well as a higher pension age. As a result, when members retire or intend to retire will be a factor to the detriment.
In February 2021 the Government has published a response to its public consultation on the changes to the transition arrangements for the reformed schemes. This response outlines that members will be able to make an election at retirement for their service during the remedy period. This set out the broad principles to remedy the discrimination. Each scheme will then individually consult on scheme amendments for the prospective and retrospective remedies.
The Cabinet Office consulted on the scheme amendments for the prospective remedy for the Civil Service pension arrangements from December 2021 to January 2022, with the regulations legislated for in March 2022. We are expecting the Cabinet Office to consult on the scheme amendments for the retrospective remedy in 2022.
What is the Judicial Review in the Firefighters Pension Scheme and does it affect the Civil Service Pension Scheme?
The Judicial Review led by the Fire Brigades Union (FBU) is challenging the Government’s continued ‘pause’ of the valuation of the Firefighters’ Pension Scheme for the cost sharing mechanism. This policy has been adopted by the Government across the public sector and will therefore impact all the public sector pension schemes including the Civil Service Pension Scheme.
Prospect are an interested party to the Judicial Review as a trade union recognised for collective bargaining in the Civil Service and Fire & Rescue Service.
As an interested party we have received a copy of the pleadings that have been submitted. Having carefully reviewed the pleadings we have concluded that there no further matters of law or fact that we need to add and in discussions with the FBU have been keen to stress submissions should only be made in that situation. We will continue to monitor developments and update our members on the case.
In February 2020 we wrote to the Chief secretary to the Treasury urging for the resumption of the valuations of all public sector pension schemes and the implementation of the Civil Service Scheme Advisory Board recommendations. Read our letter to the Chief Secretary to the Treasury.
How does the McCloud judgement affect the local government pension scheme?
The reforms to public sector pensions agreed in 2012 were implemented differently in the Local Government Pension Scheme (LGPS) to the Fire and Judicial pension schemes.
The LGPS introduced a new scheme in April 2014 for all members, however an underpin was introduced for members who were in service on the 1 April 2012. This underpin was based upon the same principles as the protection arrangements that were deemed unlawful age discrimination in the Employment Tribunals brought against the Firefighters’ and Judicial Pension Schemes. These are known as the Sargeant and McCloud cases.
The underpin ensured that members of the scheme who were in service at 1 April 2012 and meet certain age criteria would have their benefits calculated using the better of the 2008 rules or the 2014 rules.
The Government have therefore conceded that the underpin needs to be amended and have launched a consultation on amendments to the underpin in the LGPS. The proposal in simple terms is for the underpin to apply to all members who were in service on the 1 April 2012 until the 31 March 2022.
The qualification for the proposed revised underpin continues to be only for members who were in service on the 1 April 2012. Those joining the local government pension scheme after this date will not benefit from the revisions to the underpin.
Prospect will respond to this consultation on behalf of members before the closure of the consultation. This response will be available to members in the Prospect Library.
Do I need to make a claim for age discrimination because of the McCloud judgement?
You do not need to make a claim for the remedy to the discrimination to apply. The Government has conceded that discrimination occurred and announced that the remedy will apply across the public sector schemes, irrespective of whether individual claims have been submitted. You can read the written statement here.
In a successful discrimination claim there are two main elements to compensation. Firstly a tribunal can award damages in respect of the financial loss suffered, the Government’s statement referred to above should cover this element for most people. The second part of any claim would be for injury to feelings. Injury to feelings compensation can be very unpredictable and is usually dependent on the individual claimant giving evidence about the level of distress caused to them by the discriminatory action. But in a case like this, which affects multiple claimants and is in respect of changes to the pension scheme, any award is likely to be at the lower end.
We are also aware of a union that has announced it is looking to take forward claims for ‘injury to feelings’ and other loses on behalf of its members that have experienced detriment caused by the discrimination.
The time limit for commencing a claim in the tribunal in this sort of claim would be three months from the end of employment (this can be complicated so please seek individual advice if you have retired or left employment for other reasons), or from when the discrimination is resolved.
The HM Treasury consultation from February 2021 indicated each scheme will establish a process for the consideration of rectification of ‘contingent decisions’. These are decisions that members would not have made, had the unlawful discrimination not occurred. The consultations on the proposed retrospective remedies for each public sector scheme will outline the proposals for this process.
If you’ve experienced additional losses or believe you have a claim for injury to feelings, then there may be grounds for a separate claim. If won this could provide compensation in addition to the remedy determined by the Government commitment. If you would like to explore this please contact us and we will provide further advice.
It is important to note that in the Civil Service, the new pension arrangements had a faster accrual rate than the legacy arrangements. As a result it is difficult to determine whether a member has been put into a position of detriment as a result of the discrimination, as members could receive a higher pension under the Alpha scheme. When a member chooses to retire, along with other factors, will determine whether they would be better off in their original scheme, or the Alpha scheme for the remedy period.
What is the cost-sharing mechanism and why is it important?
A key part of the agreement to reform public sector pensions for both Government and Unions was the introduction of a cost sharing mechanism. The purpose of the mechanism was to keep the schemes sustainable by limiting the cost to the taxpayer. A valuation of the public sector schemes takes place every four years and if the cost is outside of the pre-agreed cost envelope, then changes would need to be made to the scheme to bring it back to an acceptable level. The Government wanted a ceiling on the relative cost of public sector pensions, which unions agreed to as long as it was introduced with a cost floor – this led to the cost envelope. The legislation outlines an agreed process that begins if the costs of a public sector pension scheme change by more or less than 2% from the agreed benchmark in a valuation.
The initial results of the 2016 valuations were that the costs of the schemes breached the cost cap mechanism floor due to lower than expected increases in salaries and life expectancy. This triggered a process in the Scheme Advisory Boards (SABs) to reach agreement on changes to the schemes that bring them back into line with the benchmark.
Why have the valuations and the process to introduce improvements been ‘paused’?
The Government has ‘paused’ the cost sharing mechanism on the basis that the remedy to the McCloud judgement will increase the costs of public sector pensions and this will be deemed as a ‘member’ cost for the purposes of the cost sharing mechanism.
We dispute that this is a ‘member cost’, that there is a need to pause the valuations and also that the McCloud judgement is taken into account once the valuations restart.
We’ve written to the Chief Secretary to the Treasury urging the valuations to be resumed and for the Government to concede that the costs of McCloud should be borne by the Government and not members. You can read our letter here. We are seeking legal advice and considering what action to take.
What were the Civil Service Scheme Advisory Board recommendations to the Minister following the 2016 draft valuation of the Pension Scheme?
The Government published draft valuations of the Civil Service Pension Scheme which the Scheme Advisory Board used to make recommendations to the Minister on amendments to the scheme from 1 April 2019. The default option is for an improvement of the accrual rate to bring the scheme within the required limits of the cost sharing mechanism. The SAB proposals recommended:
- A new contribution structure with a fairer structure and lower overall levels
- Improvements to death benefits
- Higher value accrual rate.
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