08 Jul 2019

On 27 June 2019, the Supreme Court denied the Government’s application to appeal a Court of Appeal ruling that the reforms to judges’ and firefighters’ pension plans were unlawful on the grounds of age discrimination. This decision is likely to have far-reaching effects for other public sector pension plans.

Background

The case concerned the judges' and firefighters' pension plans which were amended by the Government in 2015. The 2015 changes allowed older members to remain in their existing final salary pension plans – the Judges' Judicial Pension Scheme and the Firefighters' Pension Scheme 1992 respectively - whilst younger members were transferred to new career average revalued earnings (CARE) plans providing less favourable retirement benefits.

As a result, claims were brought against the Government (the Fire Brigades Union alone initiated over 6,000 employment tribunal claims) alleging that the changes were directly discriminatory on the grounds of age and 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 Court of Appeal

The Government accepted that the transitional protection arrangements were directly age discriminatory and, in its judgment handed down on 20 December 2018, the Court of Appeal agreed. The case therefore turned on whether the changes were objectively justified. To satisfy this, the Government had to demonstrate to the court that it had had a legitimate aim and that it had acted proportionately in trying to achieve that legitimate aim.

The Government claimed that its aim was to protect those closest to retirement from the financial effects of pension reform, since they would have the least time to rearrange their affairs before retirement. However, the Court of Appeal decided that the Government had presented no evidence to support this assertion and that, in fact, this group was the least affected by the changes (because benefits already accrued under the old Schemes for past service were protected for all). As a result, the Court of Appeal found in favour of the judges and firefighters.

The Supreme Court

The Government attempted to launch an appeal which was refused by the Supreme Court because it did not raise an arguable point of law. In addition, the Government has been ordered to pay the costs of the case.
Without permission to appeal, the Government has now exhausted all legal avenues and must implement the ruling.

A spokesperson for the Treasury said: “We are disappointed by this decision. The Government will now consider how best to compensate those affected by the judgment as part of the court process. The judgment does not alter the Government's commitment to public sector pensions that are fair to both workers and taxpayers”.

Impact

This is a significant outcome for all parties. The affected members of the judges' and firefighters' pension plans will need to be compensated for their less favourable treatment and the discriminatory provisions will need to be removed. On the face of it, this means 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 CARE plans since 2015 will need to have their benefits calculated on the basis that they had remained in the old final salary plan for this period. Whilst we wait to hear what the precise remedial action will be, there is no doubt that the consequent costs could be significant.

The ruling also has relevance for other public sector pension plans with similar transitional arrangements to the judges' and firefighters' plans. The British Medical Association has already announced that it is coordinating an age discrimination claim to the employment tribunal on behalf of a group of young doctors relating to changes made in 2015 to the NHS Pension Scheme.

Further age discrimination claims may also be lodged in respect of other public sector pension plans.

Earlier this year the Government announced that it was pausing the employer cost cap mechanism in valuations of public service pensions pending the outcome of the reference to the Supreme Court. The Government will most likely factor the cost of implementing the judgment into the equation when calculating whether any benefit improvements will have to be given under the cost cap mechanism. There may be push back from members and trade unions if this is the case.

The Government has estimated that the additional cost could be some £4bn per year, across all schemes.

The Supreme Court's decision serves as a reminder to any employer operating directly age discriminatory policies or practices that it has to be prepared to objectively justify their application. This can be difficult, as the Government has learnt at great expense.

What happens next?

The case will now go back to the employment tribunal to decide the remedy for the age discrimination. The Government is also considering its next steps. It has been reported that HM Treasury will be meeting with the Trades Union Congress this week to discuss the issue.

In the meantime, if you would like to discuss the implications of the Supreme Court's decision in more detail, please speak to your usual pensions team contact.