Public sector unions have lost the latest stage of a legal wrangle over the cost of fixing botched pension reforms that took effect in 2015.
The Court of Appeal decision, handed down yesterday, supports the view that HM Treasury can consider so-called "McCloud Remedy" costs – which are now estimated at £19bn – as part of the costs of running unfunded public sector pension schemes, including the Civil Service Pension Scheme.
PCS, the civil service's biggest union, was one of six organisations behind a bid to make ministers enact a cost-control mechanism that was part of the 2015 reforms. It would have reduced CSPS member contributions based on a 2016 valuation of public sector pension schemes.
However the 2015 reforms were found to be discriminatory in the Court of Appeal's 2018 McCloud judgment, and the government's method for fixing the unfairness is being funded by schemes themselves.
According to PCS, ministers’ decision not to apply the cost-control mechanism from April 2019 costs CSPS members an average of £53 a month – adding up to more than £3,000 each over the intervening five years.
Last year the High Court sided with the government in the case. Judge Mr Justice Choudhury said there was no dispute that the costs of implementing the government’s McCloud Remedy were "substantial" and that a question clearly arose over how they should be covered.
But he said there was “nothing” in the terms of the Public Service Pensions Act 2013 – which underpins the 2015 pensions reforms – to stop the government from taking costs like the McCloud Remedy into account in considering the financial health of public-sector pension schemes.
"The fact that those costs are the result of a finding of discrimination against the government does not of itself render it absurd or unconscionable for them to be taken into account, any more than might be an increase in costs that were the result of irretrievably poor economic policy choices made by government," he said.
Yesterday's Court of Appeal judgment upholds the decision. Lady Justice Sarah Asplin, Lord Justice Christopher Nugee and Lady Justice Elisabeth Laing agreed there was no material error in the approach taken by the High Court.
Lady Justice Laing said the fact that the McCloud Remedy is compensation for a civil wrong did not mean that HM Treasury was using the cost-control mechanism in public sector pension schemes for an improper purpose.
"As well as being compensation for a civil wrong, the cost of the McCloud Remedy was also the cost of providing benefits to members to which they were entitled, albeit that that entitlement had not been recognised initially, with the result that that cost was unexpected," she said.
"HMT was entitled to conclude that the cost of recognising that entitlement was a member cost, or, if not, a cost in the nature of a member cost."
An HM Treasury spokesperson said: "We welcome this ruling, which will ensure that the costs of public service pension schemes continue to be allocated fairly between scheme members and taxpayers."
PCS said the judgment was "disappointing" and that it and the other unions involved in the case would consider their next steps in conjunction with lawyers.
The Fire Brigades Union has been a lead player in both the challenge and the original discrimination case that found the 2015 reforms to be illegal.
FBU general secretary Matt Wrack said the union was proud of its "ongoing fight" to defend the pensions of firefighers and other workesrs across the public sector.
"We are disappointed with this ruling and will discuss next steps and options with our legal team," he said.
Although civil service unions Prospect and the FBU were not part of the appeal, they were interested parties. Decisions in the case apply to all members of relevant pension schemes.