The court of appeal and two employment tribunals have ruled against the government in two cases relating to judges’ and firefighters’ pension schemes which could have far reaching consequences for other public sector pensions.
The government faced claims that the introduction of new pension schemes amounted to unlawful age discrimination in the judges’ and firefighters’ schemes.
The new schemes were introduced in 2015 for new judges and firefighters and existing judges and firefighters who were more than 10 years from retirement on 1 April 2012.
We are now waiting to hear if the Supreme Court will allow an appeal by the government.
The new schemes were based on recommendations made by Lord Hutton in the ‘Independent Public Service Pensions Commission’ report in 2011.
This report itself noted that: “Age discrimination legislation also means that it is not possible in practice to provide protection from change for members who are already above a certain age.”
For age discrimination to be lawful, there needs to be a legitimate aim and the use of age discrimination should be a proportionate means for achieving that aim.
In a Supreme Court judgment in 2012, Lady Hale explained the rationale that forms the basis for deciding if age discrimination is lawful:
“The means chosen have to be both appropriate and necessary. It is one thing to say that the aim is to achieve a balanced and diverse workforce. It is another thing to say that a mandatory retirement age of 65 is both appropriate and necessary to achieve this end.
“It is one thing to say that the aim is to avoid the need for performance management procedures. It is another to say that a mandatory retirement age of 65 is appropriate and necessary to achieve this end.
“The means have to be carefully scrutinised in the context of the particular business concerned in order to see whether they do meet the objective and there are no other, less discriminatory, measures which would do so.”
Court of Appeal judgement
In December 2018 the Court of Appeal judged that the government failed to demonstrate that the different treatment of existing civil servants based on age was a legitimate aim.
The key content of the judgment said: “We have found that in both the judges’ and firefighters’ cases the manner in which the transitional provisions have been implemented has given rise to unlawful direct age discrimination.
“In neither case could the admitted direct age discrimination be justified. In the Judges’ case, we see no error in the reasoning of Judge Williams either in his assessment of aims or means.
“In the firefighters’ case, we take the view that there were no legitimate aims and since we are satisfied that the contrary conclusion would not be open to an employment tribunal, we have made that determination ourselves and not remitted the case, save for the determination of remedy.”
In the firefighters’ case, the Court of Appeal importantly noted that: “the Government’s rationale for the protective provisions did need to be supported by evidence”.
QC Andrew Short, on behalf of the appellants, argued: “…that the closer the scheme members are to retirement, the less they would be affected by the reforms”.
The argument, put forward by QC Short and supported by evidence, was that those furthest from retirement would have the greatest loss helped lead to the Court’s conclusion that “the suggestion that older firefighters would be less able than the younger firefighters to make changes in their expenditure leading up to retirement is unsupported by evidence”.
We understand that the government intends to appeal against this Court of Appeal decision. If the court denies the appeal, an employment tribunal would have to consider the remedy for the unlawful discrimination.
If the government is granted an appeal, the case would go to the Supreme Court.
Prospect will be monitoring developments closely, including how any potential remedies are implemented.
Implications for public sector pensions
Protections for the oldest workers were one of two major concessions from the Coalition Government to counter trade union opposition to reform of public sector pensions for the second time in a decade.
The same protections were therefore present in the NHS, teachers and civil service pension schemes. The only exception was the Local Government Pension Scheme.
Therefore, if the government loses on the basis of not having a legitimate aim, the result of the case would have implications for all the schemes with the same arrangements – including Prospect members in the civil service pension scheme.
Cost sharing mechanism
The government has put potential improvements to public sector schemes from April 2019 on hold.
Schemes, including Alpha in the civil service, were set to be improved under the agreed cost sharing mechanism.
Another concession the government made to the trade unions was to introduce a cost floor as well as a cost cap.
This means that if the cost of any of the public sector schemes goes above the cost cap, the benefits provided in the scheme are reduced for future accrual.
Likewise, the benefits are improved in the event that the costs fall below the cost floor.
The first valuations indicated that the schemes had fallen below the cost floor and therefore preparations were made to start the process of improving the benefits in the schemes from April 2019.
If the government loses its appeal, these improvements look unlikely as it will seek to recoup the £4bn it estimates that losing the case will cost.