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The Pensions Challenge – My views

 

You may be aware of a group (Cops Against Inaction and Demolition of our T&C’s) that has been gaining momentum to launch a legal challenge in respect of the introduction of the new Career Average (CARE) pension scheme on the 1st April 2015.

 

The purpose of this blog is to try to ensure that, if you are considering joining this group, you have carefully considered the merits of doing so. Ultimately you are all people who have the responsibility to make life changing decisions everyday. As such I think you can be trusted to make your own decisions. It is always helpful however to ensure you have sufficient and balanced information prior to deciding what is best for you, and indeed your colleagues.

 

As with any blog this is my understanding of the situation and I acknowledge that others may disagree with my interpretation. I make no apology for the length of this blog as I think there are a large number of issues that need to be considered.

 

Firstly the legal challenge isn’t a challenge against the introduction of the CARE scheme, it is a challenge on the grounds of discrimination (mainly age) against the transitional and protected elements that allow some officers to remain on the old scheme.

 

The basis of the discrimination can be explained as follows. Consider a situation where two officers, one aged 20 and the other aged 35 joined the police in 2000. Both would have joined the 1987 Police Pension Scheme.  On the 1st of April 2015 the younger officer was transferred to the new CARE scheme. The older officer remained in the 1987 Police Pension Scheme due to being within 10 years of that scheme’s normal retirement age of 55. The legal challenge is that the younger officer is being discriminated against solely due to age as they are being forced onto a substantially worse pension scheme.

 

There is undoubtedly merit in this argument. Even where discrimination is established the government still have an out if they can show a “proportionate means of achieving a legitimate aim”. It is true that economic reasons alone are not enough to justify discrimination. Someone can’t justify discrimination by saying it’s cheaper to discriminate. A legitimate aim could however be the running of an efficient service and I suspect this would be an argument used by the Government if a legal challenge was forthcoming. In addition those transferred to the new CARE scheme will get ‘weighted accrual’ of their 1987 element of the pension and there is no limit to the number of years service which will count towards pension. This could lead to younger officers being able to remain a constable and accrue a pension that could be worth as much as £32,000 per year at age 60. It could be argued that this was done to reduce any potential discrimination. Some of these provisions, to get a better deal for officers, were only introduced following representations from the Police Federation

 

On this basis it appears only people who were on the 1987 Police Pension Scheme and don’t qualify for transitional or full protection would have a claim. Just to emphasise, this claim isn’t against introduction of the CARE scheme it is against the discriminatory effect of the elements of protection and transitional protection.

 

Another thing that is apparent to me is that many officers don’t fully understand what they will actually get from the new scheme and how the combination of their 1987 or 2006 pensions combine with the new CARE element of pension.

 

The 1.25% + CPI provision means that ‘pension pots’ of those in the CARE scheme are likely to rise quicker than salary rises. Over 20 years this could easily have the effect of cancelling out any reduction to pension as a result of actuarial reduction applied if the CARE pension is taken at 55. The effect of the ‘weighted accrual’ means that officers could get substantially more than they thought from the 1987 element of their pension.

 

Undoubtedly the group most affected are those officers who were aged between 19 and 24 when they joined and were in the 1987 scheme. Under the 1987 scheme they could have expected to retire aged between 49 and 54. To access both elements of their pension they will now have to continue until 55. The ability to retire at 55 and immediately access your pension was something which was not originally proposed. The original proposal from the Government was a retirement age of 60. The Federation, as I’m sure many of us did, had significant concerns about an expectation that all police officers would be required to serve, and stay fit for operational duties, until they were 60. At least officers now have a choice and at 55 will be faced with a similar choice that officers on the 1987 scheme are faced with at 25 years service. They will have the choice of whether to retire and take an immediate pension or to continue in service to receive a better pension.

 

The General Secretary of the Police Federation has provided details of what legal challenges were considered. In addition a group of officers from the pension challenge group have had an opportunity to view that advice albeit they were not permitted to have a copy of the legal advice.

 

It is important to explain why the Federation has not published the legal advice it has received in respect of this matter. Firstly, as it has been explained to me, if whenever legal advice was obtained then it was published it could weaken our future negotiating position. It is argued that if you publish it once then there is an expectation that you will publish it all the time. There will be different opinions on this approach but there is a clear rationale.

 

The legal advice obtained by the Federation has been reviewed by a QC and they are of the opinion that there is no prospect of any legal challenge being able to overturn the introduction of the CARE scheme. At least one Federation region has secured it’s own independent legal advice which also concludes this.

 

Leigh Day, the solicitors supporting this pension challenge, are of the opinion that they can successfully claim age discrimination (and potentially sex and race discrimination). A successful claim at an Employment Tribunal could lead to compensation and would likely lead to a further change in the pension provisions to ensure younger officers aren’t discriminated against.

 

There have been calls for the Federation to fund this legal challenge. In my opinion this would be perverse. The Federation made successful representations to bring in the tapering arrangements so as to get a better deal for as many officers as possible. Sadly the government weren’t able to be persuaded just to apply the new pension to new recruits. The Federation did however win some concessions for younger officers e.g. ability to take immediate pension at 55 rather than 60.

 

In my view funding a legal challenge against those very provisions risks totally undermining any credibility the Federation would have in making future representations about pay or conditions. Some would say that’s not a problem because the Federation have lost all credibility anyway!

 

The solicitors, Leigh Day, have stated that one of the funding options is ‘no win no fee’. With the option being that the claim is funded by legal insurance schemes attached to house, car insurance or bank accounts with the claimant possibly having to pay the excess. Leigh Day have also produced a list of frequently asked questions

 

As explained above the Federation have already had legal advice on the 2015 Pension Scheme and the view is that the process is lawful and there is no challenge available. Had legal advice suggested there was then the Federation would have funded a legal challenge.

 

However if members wish to enlist with ‘Pension Challenge’ they are obviously free to do so but in view of the Legal Advice received by the Federation there will be no financial support from the Federation for any subsequent Legal Action that members may become involved in.

 

Albeit it is not a Federation backed challenge I feel that it is only fair to make Officers in the 2015 Pension Scheme aware of this challenge.

 

Further details of this challenge can be found at:

 

http://www.leighday.co.uk/News/2015/August-2015/Lawyers-take-action-on-behalf-of-over-2000-police

 

Earlier I mentioned officers not fully understanding what benefits they were likely to get. Much of this is due to the effect of the CPI+1.25% increase every year. As a bit of a geek (I’ve got a degree in Maths) and a lover of excel spreadsheets I have run some sample calculations including a 1.25% revaluation increase each year. This increase is not factored into the governments own pension reform calculator.

 

There are two assumptions I have had to make.

  • This is based on somebody serving as a constable for the whole of their service

  • Secondly that annual salary rises

 

Based on this I have calculated that (in today’s money) a constable who joined in 2000 aged 20 would, at 55, get an unreduced (before commutation) pension of just over £24K per year (the govt calculator shows £22.3K).

If the officer chose to work until 57 that pension would increase to £27.2K per year (govt calculator = £24.2K). If the officer chose (and was able to) continue until they were 60 they would draw an annual unreduced pension of £32.5K (Govt calculator - £27.7K).

 

The same 20 year old officer working until 55 under the 1987 scheme would get an annual unreduced pension of £25K and this would remain the same even if they worked additional years. Of course the officer could, under the 1987, scheme have retired at 50 and received £25K unreduced pension.

 

The element of the pension that will be affected the most is the lump sum commutation with the conversion factor reduced to a uniform 1:12.

 

Whether you wish to convert any of your annual pension to a lump sum is your choice to make.

 

The above quoted figures are for illustration purposes only based on my understanding of the pension scheme.

 

Sorry for the detail and the ramble but I feel this is an important issue. If anyone has any questions I’d be more than happy to try to answer them.

 

Regards

 

Mike White

Federation Chair, Wiltshire

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