The Treasury could be forced to enact a cut in Civil Service Pension Scheme members’ contributions worth hundreds of pounds a year to officials if a just-launched High Court challenge is successful.
The civil service’s biggest union, PCS, is one of six public-sector unions seeking a judicial review of the government’s decision not to activate the cost-control mechanism agreement built into 2015’s pension reforms, and which should have reduced contributions from 2019 by 2%.
Professionals’ union Prospect and leaders’ union the FDA are also interested parties in the challenge – which is being spearheaded by the Fire Brigades Union but will have implications for all public sector pension schemes.
The row follows an earlier court challenge to 2015’s public-sector pension reforms that found elements of the changes were discriminatory on age grounds because of protections offered to older scheme members, but not younger colleagues.
In the wake of the McCloud judgment, Liz Truss – then chief secretary to the Treasury – paused the routine valuations process for public sector pensions, which would have demonstrated schemes’ health and triggered the reduction of contribution rates under the 2015 reforms.
She said the move was necessary because fixing the discrimination issues underscored in the case could cost up to £4bn a year, making it impossible to get “clarity” from valuations.
The cost of fixing the discrimination highlighted by the McCloud case is now given as £17bn. But unions dispute plans for pension scheme members to fund that cost, and for it to be spread over a four-year valuation period rather than 20 years.
They also argue that scheme members should benefit from the reduction in contribution rates that 2016’s valuation would have delivered from 2019 if the cost-control mechanism had been applied.
PCS general secretary Mark Serwotka said ministers’ failure to enact the cost-control mechanism for the Civil Service Pension Scheme and other public sector schemes had forced officials to overpay contributions for the past couple of years.
He said PCS members had lost an average of £1,000 since 2019 as a result. Earlier this week the union cited the contributions issue as one of several factors fuelling a looming cost-of-living crisis for civil servants.
“Our members and key workers across the public sector have kept the country running during the pandemic and yet the government, their employer, has treated them appallingly. Bringing this case is a significant, united step in fighting this great injustice,” Serwotka said.
In October, the FBU sent both the Treasury and the Home Office a pre-action letter informing them of its intention to seek a judicial review of the government’s failure to apply the cost-control mechanism for public-sector pensions based on the 2016 valuation. The Home Office is the government department responsible for fire and rescue services.
At the time, FBU national officer Mark Rowe said the new firefighters’ pension scheme was 5.2% cheaper than had been anticipated, which would have triggered contributions and benefits changes under the cost-control mechanism.
“The government are trying to use financial improvements that should rightfully provide improvements in benefits or reduction in contributions to our members to rectify the cost of the government’s discrimination,” he said.
“The cost of rectifying the government’s discrimination within the 2015 scheme transitional protection arrangements must not be passed on to scheme members, but the improved benefits and/or reduced contributions, as a result of the most recent valuations, must be passed on.”
In 2019, the Civil Service Pension Board recommended a reduction of 2% in the rates of employee contributions and some improved benefits, based on a valuation that indicated it was operating at 5.4% below target cost.
A Treasury spokesperson said the department was unable to comment on ongoing litigation.