Treasury threatened with court challenge over civil service pensions ‘theft’

Unions preparing judicial review plans over department’s “diabolical” proposals to pay for McCloud case costs
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By Jim Dunton

04 May 2021

Ministers’ proposals to make up for botched reforms to public sector pensions could themselves be subjected to a High Court challenge, civil service unions have warned.

PCS, the civil service’s biggest union, said the Treasury’s solution to pay for the additional pensions costs resulting from the Court of Appeal’s 2018 McCloud judgment would effectively “steal” reduced contributions and increased benefits from members of the Civil Service Pension Scheme.

It is working with public sector unions including Prospect and the FDA on a judicial review bid that would seek to have the Treasury’s McCloud remedy declared wrong in law, and said it will be pressing for a hearing of the case “this summer”.

The McCloud judgement found elements of government reforms to public sector pensions that were introduced in 2015 to be discriminatory because of transitional arrangements geared towards protecting the interests of older scheme members.

Liz Truss, then chief secretary to the Treasury, caused outrage shortly after the judgement by pausing part of the routine valuation process for public sector pensions that was due to trigger reduced contributions for scheme members. She said the impact of the McCloud judgment could be £4bn a year.

In February this year, the Treasury published its proposed remedy for removing the unfairness in the reforms exposed by the McCloud case. It gives eligible scheme members a seven-year window in which they can choose whether they accrue benefits under their original pension scheme or the new one introduced as part of the reforms. They do not have to make the choice until they retire.

Civil service unions supported the offer at the time, but expressed concerns that ministers had still not implemented the reduced contributions from the 2016 valuation process paused by Truss, which would have saved members around 2% on their contributions.

PCS said it is now evident that the Treasury’s funding proposal would essentially “load the full cost of the McCloud remedy into a single four-year valuation period”, resulting in less favourable figures and no obligation to reduce contributions for scheme members.

“It is clear that this outcome is due to the Treasury’s deliberate and diabolical loading of the full remedy cost into a single four-year valuation period,” the union said.

“Given a seven-year remedy period and the reality that payment of remedy costs at retirement are spread over many years ahead – 30 years or more in some cases – there is a strong argument that if these costs are imposed within the calculation, then they should be spread over more than one valuation period.”

Prospect deputy general secretary Garry Graham said the union shared the view that the Treasury had specifically designed its McCloud remedy to stop the Civil Service Pension Scheme’s cost-cap mechanism from being triggered, which would members’ contributions.

“We do not believe that McCloud costs should fall to scheme members,” he said. “This is not just the view of the civil service unions – it is also the view of the scheme advisory board, which includes employer representatives.”

Graham said that not only had the Treasury “loaded the costs onto employees”, the department had also chosen to do so over an “artificially short period to magnify those costs”, even though the actual cost of the McCloud remedy would take many decades to fall due.

“We have made it very clear that this is not acceptable and questionable from an actuarial perspective,” he said.

Graham said with a pay freeze affecting most civil servants this year, there has never been a more important time for pensions contributions to be reduced in line with the 2015 cost-cap mechanism.

He said Prospect is “exploring all legal routes” on the issue and is named interested party to a potential judicial review “if the Treasury does not see sense”.

Insult to injury

FDA assistant general secretary Lucille Thirlby said the union – which represents senior public servants – opposed ministers’ decision to pause the pensions cost-cap mechanism after the McCloud ruling and that the government is compounding its mistakes.

“The decision by the government to consider the remedy costs to be purely a member cost is erroneous,” she said.

“To propose that the costs are covered in the first valuation adds insult to injury, and is out of step with normal pensions policy. The costs could and should be spread over a longer time frame.

“The FDA continues to work with the TUC and other unions to seek a resolution to this issue.”

The Treasury had not responded to CSW's request for comment at the time of publication.

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