The Supreme Court has denied the government permission to appeal the Court of Appeal’s judgment that transitional provisions introduced to the Judicial Pension Scheme (JPS) and Firefighters’ Pension Scheme (FPS) constituted unlawful age discrimination.
In 2011, the Hutton report recommended reforms to public service pension schemes, which included a change in the benefit structure of those schemes so that, in summary, (a) benefits for future service were assessed not on a “final salary” basis but on a career average revalued earnings (or CARE) basis and (b) there was an increase in normal pension age (NPA) in line with state pension age. The report recommended that benefits already accrued (i.e. for past service) on a final salary basis should be maintained.
Accordingly, no special protection was deemed necessary for those closest to retirement as their pensions would be the least affected by the changes.
The rules governing the JPS and FPS were amended by the government in 2015. As part of the changes, transitional provisions were introduced to protect the rights of all members within ten years of NPA, with tapering protections applied for those between 10 and 14 years from NPA. These protections allowed older judges and firefighters to remain members of the previous schemes either until retirement or until the end of the period of tapered protection - depending on their age.
Under the Equal Treatment Framework Directive, differences of treatment based on age are not discriminatory if they are objectively and reasonably justified by a legitimate aim. The directive has been transposed into English and Welsh law by the Equality Act 2010 which provides that less favourable treatment because of age will not be direct age discrimination if it is a proportionate means of achieving a legitimate aim.
McCloud and Sargeant
Younger judges and firefighters who did not meet the age criteria for protection were moved to new, less generous schemes, and some complained of unfair treatment. The employment tribunal in McCloud held that there was no proportionate means and no legitimate aim for the age discriminatory provisions. The government then unsuccessfully appealed to the employment appeals tribunal (EAT).
In Sargeant, in contrast, the employment tribunal held that the transitional provisions were a proportionate means of achieving a legitimate aim. On appeal, the EAT agreed there was a legitimate aim but found that the tribunal had erred in law in its findings on proportionality.
The government appealed to the Court of Appeal in both cases. The cases were heard together because of the similarities of the issues being considered.
Court of Appeal decision
The Court of Appeal dismissed the government’s appeals, finding for the claimants – the judges and the firefighters. It was accepted by all parties that the transitional provisions were directly age discriminatory, so the case turned on whether the changes were objectively justified. To find objective justification, the government had to show (1) that it had a legitimate aim and (2) that it had acted proportionately in trying to achieve that legitimate aim.
The government argued its legitimate aim was to protect those closest to retirement from the financial effects of pension reform as they would have less time to rearrange their financial affairs. The Court of Appeal held that the government had shown no evidence in support of this aim and that those people were in fact the least affected by the changes. While the government had to be given some margin of discretion in relation to both legitimate aims and proportionate means, it was for the tribunal to determine the appropriate margin by an objective assessment.
In the judges’ case, the court held that the tribunal had been correct to find that the desire to protect older judges was irrational. In respect of the firefighters, the court held that the government had not done enough to justify the discriminatory effect of the transitional provisions. A social policy aim is not automatically a legitimate one and supporting evidence is required to substantiate such a claim.
This is a significant decision, with potentially far-reaching consequences; particularly for public finances.
Affected younger members of the FPS and JPS need to be compensated for their less favourable treatment. This may be achieved by ‘levelling up’ their benefits to give them the same protections as older members. The formal governing documents of each scheme will need to be amended to remove discriminatory provisions. The government has estimated additional costs of approximately £4 billion a year to implement the judgment.
It is possible that further age discrimination claims will be made in respect of other public service pension schemes with similar transitional arrangements. Almost all public service pension schemes have transitional provisions meaning there could be substantial additional liabilities for the government to consider.
On 15 July, the Chief Secretary to the Treasury issued a written statement confirming that as transitional protection was offered to members of all the main public service pension schemes, the difference in treatment will need to be remedied across all of those schemes. Affected schemes include the NHS Pension Scheme, those sections of the Principal Civil Service Pension Scheme providing benefits on a salary-related basis, the Local Government Pension Scheme as well as those schemes providing retirement benefits for teachers, police officers and the armed forces (i.e. in addition to the judiciary and fire and rescue workers). Alongside this process, the statement confirmed that the government will be engaging with employer and member representatives to help inform its proposals to the tribunal and in respect of other public service pension schemes. The written statement also emphasises the government’s commitment to affordability and the sustainability of public service pensions which indicates that further reforms are on the horizon.
Finally, applying this judgment to the private sector, the terms of the judgment serve as a reminder to employers that they must be prepared objectively to justify any age discriminatory policies or practices and that evidence is needed to support any ‘legitimate aim’ to treat members differently on the grounds of age.