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Treasury lets public sector members pick their pension after £17 billion Court defeat

Tom Selby, senior analyst at AJ Bell, comments:

“The Government has finally unveiled the solution to a colossal pensions debacle that will reportedly cost an eye-watering £17 billion to put right.

“The Treasury says those costs will ‘feed into employer contribution rates’, meaning pension costs for public sector employers are almost certainly going to go up, placing a drain on resources at the worst possible time.

“The decision announced today means affected members will be able to choose whether they build up benefits under the legacy scheme or the reformed scheme between 1st April 2015 and 31st March 2022. They will not have to make the decision until they reach retirement, however.

“This effectively unravels the preferential treatment given to older workers as part of reforms first announced a decade ago, bringing to an end a sorry, expensive and entirely avoidable saga.”

Background

“In brief, in 2011 Lord John Hutton produced an independent report setting out how public sector pensions should be reformed.

“His proposals, which were adopted in their entirety by the Coalition, included moving from a final salary to a career average defined benefit (DB) structure and aligning the normal pension age with the state pension age.

“The aim of these reforms was to put generous public sector pensions on a more sustainable footing while avoiding a ‘race to the bottom’ in terms of the quality of retirement provision.

“As part of negotiations with trade unions, the Government agreed scheme members within 10 years of retirement could keep accruing benefits under the old scheme – despite Hutton explicitly warning this would breach age discrimination legislation in his final report.

“This decision was all too predictably challenged in the courts, with trade unions who had helped broker the deal ironically now attacking it for discriminating against younger workers.

“The Government’s defeat at the Court of Appeal in 2018 left it little choice but to remedy the situation.”

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