15 Jan 2019

On 20 December 2018, the Government suffered a huge loss when it was found to have discriminated directly against younger members of the judges' and firefighters' pension plans (and indirectly against ethnic minorities and women in these arrangements). The cases of McCloud and Sargeant related to transitional provisions implemented by the Government when it brought in the benefit design changes required by the Public Service Pensions Act 2013.

Background

In 2015 the Government closed the Judges' Judicial Pension Scheme (JPS) (a final salary pension arrangement). Judges who had not yet retired were transferred into the New Judicial Pension Scheme (NJPS), which was a career average revalued earnings (CARE) plan. The Government also implemented similar changes to the Firefighters' Pension Scheme 1992 (FPS 1992), which meant that older members could stay in the FPS 1992, whilst younger members had to transfer to a new arrangement, which was a CARE plan rather than a final salary plan. 

The Government implemented transitional protection, so that plan members who were within 10 years of normal pension age (NPA) on 1 April 2012 were permitted to continue to accrue benefits in their respective old arrangements, with tapered protection from the benefit design changes for those with 10 to 14 years to go until NPA.  

Younger judges and firefighters did not benefit from the transitional protection and were immediately impacted by the design changes. A number of claims that this amounted to age discrimination were brought against the Government by these judges and firefighters. It was also claimed that the transitional protection was indirectly discriminatory on the grounds of sex and race, because younger judges and firefighters were more likely to be female and from ethnic minorities. 

The Government accepted that the transitional protection was directly age discriminatory, but tried to objectively justify that discrimination. For this, the Government would have to demonstrate a legitimate aim and show that the transitional protection was a proportionate means of achieving that legitimate aim. 

Ruling against the Government

The Court of Appeal found in favour of the judges and firefighters. The Government had claimed that it had implemented the transitional protection with the aim of protecting those members who were closest to retirement as they would have less time to rearrange their affairs. However, the court disagreed and found that:

  • those closest to retirement were in fact the ones least affected by the changes; and 
  • the Government had no evidence to support its assertion that the members who benefitted from the protection would be unable to rearrange their affairs.

It was therefore held that in both the case of the judges and the firefighters, the Government had failed to establish a legitimate aim. That being the case, it wasn't necessary to consider whether the protection was a proportionate means of achieving that aim.

As the age discrimination claims were successful, the other discrimination claims were not crucial to the outcome. However, in considering those claims, the court found that discrimination had occurred. 

Impact

The affected members of the judges' and firefighters' pension plans will need to be compensated for the less favourable treatment that they have received and the discriminatory provisions will need to be removed. This means, in essence, that the younger members are entitled to have their benefits 'levelled up' so that they are treated as having the same protection as the older members. In practice, the younger members who have been accruing benefits in the newer CARE schemes since 1 April 2015 will need instead to have their benefits calculated on the basis that they had remained in the old final salary plan throughout that time. The consequent costs could be significant.

This case could also have a significant impact on other public service pension arrangements that were implemented in accordance with the Public Service Pensions Act 2013. Almost all of these included transitional protection which took almost identical form to the protection provided in the judges' and firefighters' arrangements.

Permission to appeal this decision was not granted. However, the Government may – due to the far-reaching consequences of the Court of Appeal decision - intend to apply directly to the Supreme Court for permission to appeal. 

What does this signal?

Age discrimination legislation has been with us for many years. Most employers undertook an age discrimination review in 2006/7 after the age discrimination legislation was first published in the UK. In addition, where benefit changes have been made since then, most employers have considered the age discriminatory effect of the changes and identified the appropriate objective justification, if necessary.

However, these cases show that even the Government can struggle to demonstrate – to a court's satisfaction – an objective justification for age discrimination in a pension plan's rules. 

Age discrimination cases continue to be brought regarding retirement ages in the private sector, which can have implications for pension plans (because retirement from service usually involves the employee leaving pensionable service too); a professor at Oxford University is currently claiming at Watford Employment Tribunal that his forcible retirement is age discriminatory and not objectively justified by the University's desire to 'safeguard the high standards' of the university, achieve 'inter-generational fairness', 'refresh the workforce', 'facilitate succession planning' or 'improve diversity'. 

In any event, when the original age discrimination reviews were conducted, it may have been concluded that plan and remuneration policies had the potential to be age discriminatory, for example, benefits which ceased to apply once the employee reached age 65 or more, but that there was no age discrimination in fact because there were no employees in the older comparator age groups at the time. Furthermore, employees may have been expected to retire from service before they reached those ages (for instance because of the industry they worked in). They were seen as 'hypothetical' scenarios.

What we know now, 12 years later, is that in fact many employees are seeking to remain in employment for longer, because they cannot afford to retire, or they do not want to retire. This is a national trend; the Office for National Statistics has predicted that by 2035, no worker will retire before age 65. 

Compliance with age discrimination legislation is an ongoing requirement. All of these continuing cases on the subject of age discrimination suggest that now could be the time to dust off that earlier age discrimination review and see whether the conclusions reached then continue to hold true now. In particular, where the employee demographic has changed since the review was carried out, practices and plan rules may need to change.

If you would like to discuss a review of your pension plan and any implications in light of this case, please contact your usual Pensions Team contact.