In McCloud & Others v Ministry of Justice, the Employment Tribunal has ruled that transitional provisions in the New Judicial Pension Scheme (NJPS) were unlawfully age discriminatory because they were not objectively justified. Conversely, subsequent to McCloud, a separate Employment Tribunal has held (in Sargeant & Others v London Fire and Emergency Planning Authority & others) that similar transitional provisions in the firefighters' pension scheme (FPS) were objectively justified.
Following the 2011 Hutton Report on public sector pensions, in 2015 the Government implemented major cost-saving reforms across public sector schemes (including for local government, the civil service, the NHS, teachers, police and firefighters, as well as the judiciary). Existing schemes were closed and replaced. In doing so, all of those schemes introduced some kind of transitional protection for members over a certain age.
It has been confirmed that both the NJPS and FPS judgments will be appealed. While this means that the ultimate outcome for the schemes concerned remains uncertain, McCloud and Sargeant offer important guidance to employers and trustees of private sector schemes on what is required to construct a successful objective justification defence.
Facts in McCloud
The Judicial Pension Scheme (the JPS) was closed to future accrual in March 2015. A claim was brought by 210 serving judges who either have been, or will be, compulsorily transferred from the JPS into its replacement, the NJPS, for their future service. The NJPS provides less generous benefits. The JPS is a final salary scheme whereas the NJPS is a career average revalued earnings (CARE) scheme. Accrual rates were also lowered and normal retirement age (NRA) increased from 65 to align with state pension age.
The transitional provisions in the NJPS introduced exceptions to the compulsory transfer, creating three categories of member:
Full protection members
within 10 years of NRA
remain members of the JPS indefinitely
Tapered protection members
10 – 14 years from NRA
remain members of the JPS until the end of tapered period (between April 2015 and February 2022) depending on age, then join the NJPS
more than 14 years from NRA
immediately joined the NJPS from April 2015
The claimants – who are Tapered protection and Unprotected members – argued that the transitional provisions were:
- unlawfully directly discriminatory on grounds of age, because the claimants were being treated less favourably than older judges
- unlawfully indirectly discriminatory on grounds of race and sex/unequal pay, because in turn the younger group of affected members were more diverse in terms of gender and ethnicity.
The Tribunal highlighted two further ways in which the less favourable treatment suffered by the claimants was comparatively worse than for members in other public sector schemes:
- the value of judges’ pensions as a proportion of overall remuneration is greater
- uniquely for a public sector scheme, the JPS remains unregistered for tax purposes meaning benefits are not subject to the annual and lifetime allowance limits, but the NJPS is a registered scheme, meaning transferring members risked incurring significant additional tax charges.
It was common ground that the transitional provisions did involve less favourable treatment of the claimants. However, there is an available defence where it can be shown that the less favourable treatment is objectively justified, meaning that it is a proportionate means of achieving a legitimate aim.
The defendant, the Ministry of Justice, argued that the transitional provisions were objectively justified because they were designed with the legitimate aim of protecting those closest to retirement. This was consistent with measures introduced across other public sector schemes, including the FPS, in order to secure agreement with trade unions representing those workforces. In doing so, the Ministry of Justice ignored the recommendations of the Hutton Report which had stated that any special protections based on age (beyond protection of accrued rights and a final salary link) were unnecessary and potentially discriminatory.
Judgment in McCloud
The Tribunal found in favour of the claimants. The majority of the judgment focused on the age discrimination claim but the conclusions drawn, and the result, were found to apply equally to the sex and race discrimination claims.
The Ministry of Justice put forward two purported legitimate aims for the less favourable treatment, both of which were rejected:
- protecting those ‘closest to retirement’. This merely restated an intention to consciously treat one group more favourably by reference to its age, without identifying any further underlying social policy objective. The Government sought to rely on arguments that older judges would have less time to prepare for the reforms and would be more likely to have fixed retirement plans that were difficult to change. On both counts, the Tribunal found that this was based on no more than ‘generalised assertions’ entirely unsupported by any research or evidence. In fact, it was accepted by the Tribunal that those judges closest to retirement were the least prejudiced by the reforms, having had more time to build up final salary benefits in the JPS
- consistency with other public sector schemes. It was accepted that consistency was capable of being a legitimate aim. There was no direct evidence before the Tribunal as to why the trade unions argued for transitional protections in other schemes, and the Tribunal refrained from forming any view on this. Again the Ministry of Justice failed to demonstrate beyond ‘mere generalisations’ why there was a need to pursue consistency with other public sector schemes in this regard, especially as the NJPS differed from those schemes in many other respects.
The Tribunal went on to find that the transitional provisions were also not a proportionate means of achieving either aim because they go beyond what is reasonably necessary, given the ‘extremely severe’ impact on younger judges. There was no evidence of any thought process behind the 10-year criterion for protection, which appeared to have simply been imported from discussions with trade unions on other schemes and by analogy with state pension age reforms.
The Government has confirmed that it will appeal the decision, citing the judgment in Sargeant which found – on what the Government refers to as “substantially the same evidence” as McCloud – that the transitional provisions in the FPS were a proportionate means of achieving a legitimate aim.
Facts and judgment in Sargeant
Similar transitional provisions were implemented in the FPS, allowing older firefighters to stay in the FPS (or receive tapering benefits) while younger firefighters transferred to the new scheme. The claimants argued that the transitional provisions were discriminatory on the grounds of age, sex and race, for reasons similar to those in McCloud.
The Tribunal held that the age-related transitional provisions were objectively justified and consequently did not amount to direct age discrimination. The decision in McCloud was specifically disregarded as it related solely to the JPS, and the Tribunal reached its decision based solely on the evidence before it.
The question of objective justification, in the judge’s view, should be set in the context of the state being asked to justify its “social policy choice” of giving protection to those closest to retirement age, and should be distinguished from employers seeking to justify operational decisions. It was found that the following were legitimate aims:
- to protect those closest to NRA (with less time to rearrange their financial affairs before retirement)
- to take account of their greater legitimate expectation that their pension entitlement would not change significantly
- to prevent a cliff edge between the protected and unprotected groups
- to ensure consistency across the public sector
The transitional provisions were held to be a proportionate means of achieving the legitimate aims.
Separately, the Tribunal found that the reasons for any disparities in treatment were wholly unrelated to sex or race and therefore the equal pay and indirect sex and race claims failed. In any case, the decision on objective justification for the age claim would apply equally in relation to sex and race.
McCloud exposed a lack of detailed analysis and research underlying the Ministry of Justice’s decision to implement the transitional provisions in the NJPS. This serves as a cautionary tale to employers and trustees of the importance of being able to demonstrate a reasoned and evidence-based approach when seeking to rely on an objective justification defence.
However, the tribunal in Sargeant reached opposite conclusions over some of the key questions, including whether protecting those over a certain age was even capable of being a legitimate aim.
We will continue to monitor this suite of cases as they move through the appeal courts, together with any cases brought in relation to other public sector schemes – we understand that a case in relation to the police pension scheme has already been issued.