PURPOSE OF REPORT

1 To provide members of the Fire and Rescue Authority (the Authority) with an update on the legal challenge to the implementation of the firefighter pension scheme reforms which were effected in 2015. The successful legal challenge was brought by the Fire Brigades Union (FBU) on behalf of its members on the grounds of direct age discrimination. The outcome has implications across all public sector pension schemes.

EXECUTIVE SUMMARY

2 Following the lengthy legal process regarding age discrimination in the public sector pension reforms, the Court of Appeal ruled in favour of the claimants and the judgment was issued on the 18 December 2018. This confirmed that the age discrimination inherent within the 2015 pension reforms had not been justified. The case is referred to as the McCloud/Sargeant Judgment (the Judgment).

3 The UK Government has confirmed that eligible members will be transferred back to their legacy schemes for the period of remedy which is 1 April 2015 – 31 March 2022. On 1 April 2022 all members will revert to the reformed schemes, irrespective of previous protections.

4 Members transferred into their legacy scheme for the period of remedy will be permitted to make a choice at the point of retirement. Known as the deferred choice underpin this allows members to choose between receiving the pension benefits accrued during the remedy period in either their legacy scheme or the reformed scheme.

5 To facilitate these changes there is a requirement to amend primary legislation and develop specific guidance on the detailed aspects of the remedy. Changes will then be required to the Welsh Government regulations to provide the legal framework for Scheme Managers. National work is ongoing to develop the provisional definition documents which will allow software providers to commence system updates.

6 Although the detailed timetable is not yet known it is anticipated that the work will be completed by October 2023. Members who are due to retire prior to legislative arrangements being finalised are considered to be in immediate detriment. Until the detailed planning documents are provided it is not considered feasible to calculate their benefits due to the technical uncertainties.

7 The FBU has brought further litigation against two fire and rescue authorities in respect of immediate detriment cases, seeking a legal judgment requiring them to be processed ahead of the regulatory changes. Although North Wales Fire and Rescue Authority is not party to the litigation the outcome is relevant to all authorities within the sector.

8 The legal advisors for the UK fire and rescue authorities recognise the difficulties being experienced across the sector. They are seeking to agree an approach with the FBU which would enable immediate detriment cases to be dealt with swiftly, fairly and in a consistent manner.

OBSERVATIONS FROM THE EXECUTIVE PANEL OR AUDIT COMMITTEE

9 This report has not previously been considered by either the Executive Panel or the Audit Committee. The Local Pension Board received an update on this matter during its meeting on 21st April 2021.

RECOMMENDATIONS

10 Members are requested to:

(i) note the background to the McCloud/ Sargeant Judgement;
(ii) note the current position with regards to remedy; and
(iii) approve the recommendation that immediate detriment cases are not progressed pending further guidance from legal advisors or the receipt of national guidance.

BACKGROUND

11 Following Lord Hutton’s 2011 review of public sector pensions, the Public Service Pensions Act (2013) provided the legal framework to reform public sector pension schemes. Reforms included restricting existing final salary schemes, extending retirement ages and introducing career average schemes.

12 During 2015 all main public service pensions, including the firefighters’ scheme, were reformed to provide defined benefits on a career-average basis and extend the normal retirement age of members. To effect these changes the pension scheme regulations were amended.

13 The amended regulations also provided protection for members of existing final salary schemes. This protection was age related and members reaching the normal pension age of 55 by 31 March 2022 were afforded full protection with other members receiving protection on a tapered basis depending on their age. This protection was known as transitional protection and members who did not qualify for protection were moved directly into the new 2015 Firefighters Pension Scheme.

14 Two legal claims were combined and taken through the legal process; one against the judges’ pension scheme (the McCloud case) and the other against the firefighters’ pension scheme (the Sargeant case). The basis of the legal challenge was that the transitional arrangements were discriminatory on the basis of age, sex and race.

15 In December 2018, the Court of Appeal determined that the transitional protection gave rise to unlawful age discrimination. The Supreme Court refused the Government’s application for permission to appeal, meaning that the Court of Appeal decision stands.

16 In July 2019, the UK Government confirmed its intention to work with the Employment Tribunal to effect remedy across all public sector schemes. This removed the need for further litigation by members of other public sector schemes similarly affected by the Judgment.

REMEDY

17 The UK Government has confirmed that eligible members will be transferred back to their legacy schemes for the period of remedy which is 1 April 2015 – 31 March 2022. On 1 April 2022 all members will revert to the reformed schemes, irrespective of previous protections.

18 Members transferred back into their legacy scheme will be required to make a choice at the point of retirement. Known as the deferred choice underpin members will choose between receiving the pension benefits accrued during the remedy period in either their legacy scheme or the reformed scheme.

19 To facilitate these changes there is a requirement to amend primary legislation and develop specific guidance on the detailed aspects of the remedy. Changes will then be required to the Welsh Government regulations to provide the legal framework for Scheme Managers. National work is ongoing to develop the provisional definition documents which will allow software providers to commence system updates.

20 Although the detailed timetable is not yet known it is anticipated that the work will be completed by October 2023. Members who are due to retire prior to legislative arrangements being finalised are considered to be in immediate detriment. Until the detailed planning documents are provided it is not considered feasible to calculate their benefits due to the technical uncertainties, especially for more complex cases involving transfers into the scheme, pension sharing on divorce or cases involving breaches to the lifetime or annual tax allowances.

21 The FBU has brought further litigation against two fire and rescue authorities in respect of immediate detriment cases, seeking a legal judgment that these should be processed ahead of the regulatory changes. North Wales Fire and Rescue Authority is not party to the litigation although the outcome is relevant to all authorities.

22 The legal advisors for the UK fire and rescue authorities recognise the difficulties being experienced across the sector. They are seeking to agree an approach with the FBU which would enable immediate detriment cases to be dealt with swiftly, fairly and in a consistent manner.

23 Technical discussions have also been held with both Welsh Government officials and colleagues from other Welsh fire and rescue authorities to agree a common approach. All of the authorities are undertaking preparatory work to enable cases to be processed as swiftly as possible, when feasible to do so, although no immediate detriment cases are currently being processed.

IMPLICATIONS

Wellbeing Objectives Although not directly linked to the well-being objectives all members of the public pension schemes offered by the Authority will be impacted by the proposed changes.
Budget Future remedy will have an implication on the Authority’s budget; remedy will result in increased administration and employer superannuation costs.
Legal The Authority is under a legal duty to ensure compliance with the Scheme Regulations.
Staffing This matter directly impacts on employees who are members of the public sector pension schemes offered by the Authority; depending on the scheme, members may choose to retire earlier under the new proposals than under current regulations.
Equalities/
Human Rights/
Welsh Language The proposals address the unlawful age-based transitional protection arrangements in the 2015 pension schemes, ensuring fair treatment for all pension members.
Risks The processing of immediate detriment cases prior to amendments in the scheme regulations increases the risk of error and further litigation.