Many people are not aware of how generous public sector pensions can be. These include pensions for police, NHS staff, teachers, armed forces, civil service, judicial and local government roles.
Labour sought to reduce the burden of these pensions on the taxpayer in 2005 through reforms including increasing the national retirement age for some of the schemes and dropping the automatic three-times salary lump sum payment.
The Coalition Government wanted to reduce the cost of public sector pensions further. They set up the Independent Public Service Pensions Commission, led by Lord Hutton, who reported back to the Government in 2011.
The revised proposals included retirement age for public sector pensions being increased, and schemes moving to ‘career average’ rather than final salary status. As you can imagine, trade unions were not too happy with these changes and, following a period of negotiation, it was proposed that the implementation of these changes would be ‘tapered’. The “calculation date” for those changes was 01 April 2012 and, at that point, it was decided that those within 10 years of retirement would remain in their existing pension scheme, whilst all others would be transferred to the new scheme which commenced on 01 April 2015. Those who had between 15 and 20 years’ service in their respective schemes received an element of tapering dependant on their pensionable service and on their age. This meant that they would remain in the final salary scheme for a defined period of time (based on their individual circumstances) before they too would then join the 2015 career average scheme.
Following two court challenges (McCloud on behalf of the judicial pensions, and Sargeant on behalf of firefighters) the Court of Appeal determined this tapering aspect to be discriminatory against younger members of the judicial and firefighters’ pension schemes. The government conceded that given the decision in relation to the firefighters and judges’ pensions, the decision should also apply to other public sector schemes (including the police).
The Supreme Court have refused the government permission to appeal, and so the matter has now being referred back for a remedy to be determined by the government, with a deadline for this remedy being October 2023.
The Practicalities of the Ruling upon Divorce
It is widely believed that, in principle, the remedy for the pension members will be to put them back in the better position of what they would have accrued in the old scheme and to consider what they would have accrued in the new scheme. Once the government are in a position to implement that remedy (likely post October 2023) the scheme will seek to determine which outcome is better for the individual, and will base the Cash Equivalent Transfer Value calculation on the higher benefits.
Will I Be Affected?
Thankfully, it is quite easy to determine whether the forthcoming changes will have an impact on you. If you were in service as a member of a public service pension scheme on 31 March 2012, and remained in service on 1 April 2015, then the McCloud judgement will have an impact on your pension as it stands now. Similarly, if you are getting divorced and you know your spouse falls into the above categories, you really must take legal advice about the potential implications of McCloud. Failure to do so could mean your spouse’s pension is worth more than it is currently valued at, and you could miss a potential pension uplift.
If you have any questions about the McCloud judgement, or any general queries about pensions on divorce, please do get in touch to book a free 30 minute initial appointment. Contact us by phone at our Harrogate office on 01423 637 272, Liversedge office on 01274 861 096, or via our website.