If you are covering this, please see the following commentary from Ian Browne, pensions expert at Quilter:
“Government may have to find an extra £30bn to fund public sector pension schemes, according to today’s OBR report. The provision has been set aside in the event that the government is unable to overturn a Court of Appeal ruling from December regarding firefighters and judges, and other public sector bodies like the British Medical Association (BMA) may also be successful with similar age discrimination claims against the government.
“A December Court ruling adjudged pension benefits for judges and firefighters unlawful because they allow older members to benefit from more generous terms, while younger members were shifted to a less favourable scheme.
“In similar fashion, the BMA announced it would sue the government on grounds of age discrimination because the ‘underlying legal principles are essentially the same’ as the judges and firefighters case.
“The case is based on the argument that younger doctors were penalised when the NHS decided to switch schemes in 2015. Those on the newer scheme enjoy benefits which are not as favourable, because their scheme now offer benefits calculated on career average earnings rather than final salary. This means that a clinician’s pension is a reflection of their average pay over their career, rather than their earnings at the point of retirement, which are likely to be much higher. But when the changes were implemented they allowed some older members to remain in the previous final salary scheme.
“If the BMA’s age discrimination case is granted and the Court of Appeal decision cannot be successfully appealed the government could face a significant cost as a result.
“For the government, managing the long-term expense of public sector pensions is a huge challenge. The generous terms were never really adjusted properly as life expectancies increased, and as a result the public sector pensions bill now represents one of the biggest expenditure items for the Treasury. If the appeal fails and the BMA is also successful then it is likely the Chancellor will need to consider other measures to reduce the cost of these schemes without favouring older members.
“Anyone planning their retirement and who is concerned about their defined benefit pension arrangements should speak to a financial adviser. They will be able to help explain what options you have and how to make the most of savings opportunities.”
*OBR: On 20 December 2018, the Court of Appeal ruled that the Government’s transitional pension arrangements offered to some judges and firefighters amounted to unlawful discrimination. The Chief Secretary to the Treasury announced this could cost around £4 billion a year if extended to all applicable public service pension schemes.31 The Government has challenged the Court of Appeal’s decision. We asked the Treasury whether this was being treated as a contingent liability. It explained that schemes have made provisions of £29.5 billion in respect of a potential increase in liabilities. If the Government were to lose its appeal, the Treasury would not expect that to affect scheme contribution rates until beyond the period to 2023 for which they are currently in the process of being set. As such, this case represents a longer-term fiscal risk rather than one that would be likely to affect the public finances within our current forecast horizon.