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Press comment: Gov faces £30bn bill over pension age discrimination cases

13/03/2019

Today’s OBR report indicates public sector pension schemes have set aside £30bn* to cover the potential cost if government is unable to overturn a  Court of Appeal decision that rules transitional pension arrangements offered to some judges and firefighters to be unlawful.

If you are covering this, please see the following commentary from Ian Browne, pensions expert at Quilter:

Ian Browne“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.

For more information contact

Michael Glenister020 7778 963807469 144535michael.glenister@quilterinvestors.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £114.9 billion in investments (as at 31 March 2019).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

  • The Multi-asset business is now Quilter Investors
  • Intrinsic to Quilter Financial Planning
  • The private client advisers business is now Quilter Private Client Advisers
  • The UK Platform to Quilter Wealth Solutions
  • The International business to Quilter International
  • The Heritage life assurance business to Quilter Life Assurance
  • Quilter Cheviot will retain its name.

 

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