Pensions - Articles - Millions may need help with public service pension options

Millions of teachers, nurses and civil servants may need a great deal of support over their pension options as the Government decides how to respond to the ‘McCloud judgment’ on age discrimination according to consultants LCP in their response to a Government consultation.

 Following its defeat in the courts on the issue of age discrimination in public sector pension reform, the Government published a consultation on how best to respond to the judgment. The consultation was published in July 2020 and closed on Sunday (11th October).

 In order to address the issue of age discrimination, the government is consulting on two options for members of the relevant public sector pension schemes. This is in relation to their membership during the period 2015/16 to 2021/22.

 Under the first option (known as ‘immediate choice’) members would make a decision now as to whether to be in the pre-reform or post-reform scheme for that period.

 Under the second option (known as ‘deferred choice underpin’), no decision would be taken at this stage. Instead, the situation would remain unresolved until retirement at which point the member would be able to choose whichever scheme turned out to have produced the highest pension. However, for a younger public service worker, this could mean that matters were not finally resolved for many decades.

 On balance, the LCP consultation response comes down in favour of giving scheme members an immediate choice.

 Under this approach, members could choose whichever set of scheme rules seemed likely to be most favourable to them. The big advantage is that matters would be resolved once-and-for all, rather than schemes having to operate a system of ‘dual records’ for decades to come. It would also mean that pension communications to members (including the planned pensions dashboard) would be on the basis of a single, definite set of benefits rather than having to reflect alternative possible outcomes. Members would also have the certainly of resolving matters now rather than relying on a future government to honour their promise at retirement.

 However, for many members, the decision as to which scheme to be part of between 2015/16 and 2021/22 would not be straightforward. The right answer might depend on factors such as age, health, retirement plans and/or expected career path. LCP argue that members would need to be given considerable guidance to help them make the best decision for them, and that this should include modelling tools to allow them to explore their options. Those with the most complex affairs (such as high-earning NHS staff) would almost certainly need tailored financial advice to make sure they took account of the tax implications of their choice.

 Commenting, Luke Hothersall, partner at LCP said:
 “Letting members choose the best scheme for them now would have the advantage of resolving this messy business once and for all, rather than running dual records for decades to come. But that choice is not a simple one for many members. If the government were to go down the immediate choice route, it is vital that this is accompanied by a meaningful level of guidance and support. This should include online modelling tools and, for those with the most complex circumstances, access to regulated financial advice”.

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