This notes looks at the reforms to public service pensions introduced in 2015 under the Public Service Pensions Act 2013Jump to full report >>
Reforms to public service pensions introduced under the Labour Government had the aim of improving financial sustainability and reflecting changes in life expectancy, working practices and the private sector, including increases in the pension age for new entrants only.
In June 2010, the Coalition Government established an Independent Public Service Pensions Commission, chaired by former Labour Secretary of State for Work and Pensions, Lord Hutton of Furness, to look at “the long-term affordability of public sector pensions, while protecting accrued rights.” In its final report, published in March 2011, the Commission recommended replacing the existing schemes with new ones, with pension entitlement based on career average earnings rather than final salary, and increases in the pension age: i.e. linking the normal pension age to the State Pension age in all schemes except those for the ‘uniformed services’ (armed forces, police and firefighters), which would have a pension age of 60.
The Government accepted the Commission’s recommendations as the basis for negotiation with the trade unions. It announced final proposed agreements for reform of most public service schemes over the period March to October 2012. It then legislated in the Public Service Pensions Act 2013 for a framework for the new schemes to be introduced for future service from 2015 (2014 for local government). Section 10 provided for normal pension age linked to the State Pension age, except for the schemes for firefighters, police and armed forces, which are to have a normal pension age of 60. For more detail, see Library Briefing Paper CBP-6581 Public service pension age – 2015 onwards (November 2018).
There was protection for accrued rights and transitional protection arrangements to enable those ‘closest to retirement’ to remain in their existing schemes either until retirement, or for a limited period, depending on their date of birth. In December 2018, the Court of Appeal ruled that the ‘transitional protection’ offered to some members as part of the reforms amounted to unlawful discrimination. The Government is seeking permission to appeal this decision (HCWS1286, 30 January 2019).
In the course of the negotiations, the then Chief Secretary to the Treasury, Danny Alexander, said that the Government’s proposed reforms would be a “sustainable deal” that would endure for at least 25 years (HC Deb 11 November 2011 c929). Reflecting this, the 2013 Act provides for an enhanced consultation and report process in the event of proposed changes to “protected elements” - such as member contributions and benefit accrual rates - within 25 years of 2015 (s22). However, in line with one of the Commission’s recommendations, the Act also provided for an “employer cost cap” to protect against unforeseen changes in costs relating to scheme members, providing “backstop protection to the taxpayer.” For more detail, see CBP-6971 Public service pensions – the employer cost cap (February 2019). For the process for setting employer contributions see CBP-7539 (January 2019).
This note aims to provide an overview of the reform process. The funding arrangements are discussed in CBP-8478 Public service pensions -facts and figures (January 2019).
Commons Briefing papers SN05768
Author: Djuna Thurley