Pension schemes for public sector workers were rearranged in 2015, as the Government introduced reforms that moved public workers into new “alpha pension schemes”. However, this change was brought to the courts and in december 2018, the Court of Appeal ruled that the “transitional protection” offered to some members of the judges’ and firefighters’ schemes, as part of the reforms, gave rise to unlawful discrimination.
The Government detailed that the reformed schemes themselves are not discriminatory and they want to ensure all members are treated equally in respect of the scheme design available to them after the discrimination has been addressed.
They confirmed the following details on how this will be managed going forward: “The Government remains of the view that all public servants who continue in service from April 1 2022 onwards will do so as members of their respective reformed scheme.
“Legacy schemes will be closed in relation to service after 31 March 2022, closing the remedy period, during which members in scope have a choice of benefits.
“The government will bring forward new primary legislation when parliamentary time allows, in order to ensure that the discriminatory features relating to the remedy period and the transition to the reformed schemes are removed from the pension scheme rules with effect from April 1 2022.”
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These announcements were welcomed by Graham Crossley, an NHS pension expert at Quilter, who broke down what will likely be seen in practice: “The McCloud judgment was a landmark case of public service pensions age discrimination that the Government is now forced to unravel.
“The case found that by protecting older members from a downgrade to their defined benefit pension accrual, the government was discriminating against younger ones based on age.
“We are now at the stage where things must be put right, but this is far from straightforward and the amount of administrative burden on members and schemes alike will be a substantial weight to bear when people barely have the mental or physical capacity to do so.
“[The] Government has made a sensible call to allow a member to decide at retirement which pension scheme is used for their membership during the remedy period.
“However, the problem is far from over and scheme members still have reams of complexity to deal with when coming to a decision.
“Initially all members will get put back in their legacy pension for the remedy period, so there will be many pension members that will have to recalculate their Annual Allowance liability going back to 2015.
“If the AA charge is reduced retrospectively then the member will be able to get Annual Allowance compensation. In our experience this could impact a substantial population, including thousands of doctors. And the sums are substantial. Already we have seen doctors get thousands of pounds back. However, this isn’t a straight forward journey and it is likely that many will need professional advice to get this resolved accurately.
“In fact members will still need to check their pension record is accurate in the first place. In January alone, Quilter advisers saved nearly £350k in AA charges for NHS pension scheme members due to spotting errors in their pension records or the processing of their award.”
Graham concluded by criticising the Government’s apparent lack of long-term foresight and noted NHS doctors are still set to struggle: “It is unfortunate the government does not appreciate the financial confusion they are putting on members. Expert help is vital for impacted members and the Government really should be the ones funding it.
“Meanwhile, yesterday a separate consultation confirmed the Government’s view that tinkering with the annual allowance taper will resolve all the annual allowance issues in the NHS. These issues should not be underestimated as they mean that some doctors are refusing overtime or retiring early to avoid hefty tax bills.
“Changing the annual allowance will not solve the issue. In fact a number of affected doctors may feel compelled to continue to risk their family finances. We’ve heard instances of some regular opting out of the scheme to manage their pension growth, this is far from a good outcome.
“It is shameful that doctors are continually charged absurd tax on their pensions for doing their job and the Government are not acting.”
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