Civil Service pensions and the McCloud judgement

paulfmboro2

I've worked in the Civil Service for over 33 years now. 
My pension was originally in Classic (retire at 60) but this was scrapped in 2016 and replaced with Alpha. I have 28.5 years in Classic up to 2016. I then spent 2 years in Alpha Pension but then decided I'd be better off opting out of the civil service scheme and moving into Partnership pension with Legal and General. The recent McCloud consultation now states it was unlawful to stop Classic at this time and that it should have ran until 2022 which would have given me more pension at 60 and a bigger lump sum. The question is when this comes into effect and because I opted out of civil service pensions ( I opted out because of the information at the time) will I: 

• Be entitled to 28.5 years up to 2016 plus the 6 extra years until 2022 giving me 34.5 years in Classic 
• be entitled to 28.5 years plus the 2 years in Alpha giving me 30.5 years. Losing 4 years of potential Classic because of a decision I made, in good faith to join Partnership. 
• Or can I re-join Alpha until 2022 and get 28.5 plus 2 (previous Alpha) plus 1.5 years till April giving a total 32 years of Classic. 

with hindsight I would have stayed in Alpha until 2022 and this could all have gone into Classic. But you can only base decisions on the rules at the time. 

There is a section of the Consultation on page 45 referring to part of this but too be honest it doesn't make much sense to me. see: assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/900766/Public_Service_Pensions_Consultation.pdf
Grateful for any advice. 

hugheskevi

My pension was originally in Classic (retire at 60) but this was scrapped in 2016 and replaced with Alpha. 

To use the correct technical terms, in 2016 you moved to alpha for future pension accrual after benefitting from a small amount of tapered protection enabling you to remain in Classic beyond 2015. Following the move to alpha you retained a final salary link to your classic benefits.

The question is when this comes into effect and because I opted out of civil service pensions ( I opted out because of the information at the time) will I: 

• Be entitled to 28.5 years up to 2016 plus the 6 extra years until 2022 giving me 34.5 years in Classic 
• be entitled to 28.5 years plus the 2 years in Alpha giving me 30.5 years. Losing 4 years of potential Classic because of a decision I made, in good faith to join Partnership. 
• Or can I re-join Alpha until 2022 and get 28.5 plus 2 (previous Alpha) plus 1.5 years till April giving a total 32 years of Classic. 

You ceased to be a member of the Defined Benefit arrangements in 2018, and that is when you ceased to be subject to the unlawful age discrimination. Therefore you will be given a choice of whether you would like to have either classic or alpha benefits for the period between 2015-18.

You can choose to return to alpha at any time. As you would then have been away for under 5 years, the deferred classic and alpha awards will be cancelled. Subject to consultation, you would then be able to choose whether you would like alpha or classic benefits for the period between when you rejoin and April 2022. Although, there is a risk this could instead be a choice between alpha and something different, eg, some sort of hypothetical scenario of what you would have returned to had you not been moved to alpha.

There is a section of the Consultation on page 45 referring to part of this but too be honest it doesn't make much sense to me

If you can demonstrate that your choice to switch to Partnership was 'contingent' on having been moved to alpha, then you may be permitted a choice of benefits during your time in Partnership, subject to receipt of correct contributions. For example, if you were a high earner and subject to Annual Allowance charges in alpha, that would be a strong case for arguing that had you not been unlawfully switched to alpha and consequently incurred the tax charges, you would not have moved to Partnership. If on the other hand you switched to Partnership because you could not afford the contributions then that it not a strong case, as the contribution rates under alpha and classic are the same, so presumably you would have made the same decision despite the unlawful discrimination.

paulfmboro2

Many thanks for the reply. My employer is practically useless for advice. 

For clarification. You state that ' I ceased to be subject to unlawful age discrimination' when I moved to Partnership in 2018. The way I see this is that as I wanted to stay in Classic but that option was taken away from me and this sounds like I will be penalised for a decision made with the facts as they were in 2018 thus losing 4 years Classic pension. 

Also for clarification again - if I move back to Alpha now I 'might' be able to choose to take this period as Classic? 

The reason I moved to Partnership was purely based on the fact that I want to retire at 60 (or before) and saw this as the better option given the contributions made by my employer. If I retired on Alpha I would lose 5% for every year before 67 so 35% if I went at 60. I could only base my choice on the facts at the time. I would never have left Alpha if I'd known that closing Classic had been unlawful. 

hyubh

paulfmboro2 said:

For clarification. You state that ' I ceased to be subject to unlawful age discrimination' when I moved to Partnership in 2018. The way I see this is that as I wanted to stay in Classic but that option was taken away from me and this sounds like I will be penalised for a decision made with the facts as they were in 2018 thus losing 4 years Classic pension. 

Also for clarification again - if I move back to Alpha now I 'might' be able to choose to take this period as Classic? 

The reason I moved to Partnership was purely based on the fact that I want to retire at 60 (or before) and saw this as the better option given the contributions made by my employer. If I retired on Alpha I would lose 5% for every year before 67 so 35% if I went at 60. I could only base my choice on the facts at the time. I would never have left Alpha if I'd known that closing Classic had been unlawful. 

Since I don't have hugheskevi's technical background, take this with a pinch of salt, but I'm more inclined towards your general interpretation of where this is likely to go (nothing's actually been decided yet).

That said, if so, the next issue might be whether the expectation was reasonable or not. I'd want further info before concluding that Alpha was worse for retiring at 60 vs Classic, let alone Partnership, given its sky-high accrual rate and the fact you have mentioned nothing about your Classic pensionable pay between 2016 and 2022.

Dazed_and_C0nfused

The deduction isn't actually that large though.

For NPA of 67 you would have a 31.3% reduction not 35%.

And the pension accrued under Alpha is so much higher than under Classic that some people impacted by McLoud will inevitably choose to stay in Alpha rather than revert to Classic as the pension due at 60 even with the actuarial reduction will be with more that it would be in Classic.

Obviously some of this is dependent on career trajectory and a promotion late in career would probably swing it back more to Classic.

For someone earning £28k (national average?) Classic is worth £350 for one year (1/80th)

Alpha would accrue £650 for the same year (1/43.1th)

hugheskevi

paulfmboro2 said:

For clarification. You state that ' I ceased to be subject to unlawful age discrimination' when I moved to Partnership in 2018. The way I see this is that as I wanted to stay in Classic but that option was taken away from me and this sounds like I will be penalised for a decision made with the facts as they were in 2018 thus losing 4 years Classic pension.

This is the 'contingent decision' aspect. You may have made a decision contingent on believing that you were in alpha (ie you would not have made the decision had you been in classic), and if so may be able to revise that decision in future.

Once you made that decision however, you were subsequently treated equally, as regardless as whether you switched from classic or alpha you were treated the same from the time you switched, hence no discrimination

The key point is that it is the motivation for switching that is important, and whether or not that decision was contingent on having been moved to alpha.

Also for clarification again - if I move back to Alpha now I 'might' be able to choose to take this period as Classic?

The HM Treasury is consulting on general aspects, including contingent decisions. Following this, individual schemes will develop their own rules on issues such as this. Until these rules are finalised it is not possible to say with any certainty how situations such as yours will be handled.

The reason I moved to Partnership was purely based on the fact that I want to retire at 60 (or before) and saw this as the better option given the contributions made by my employer. If I retired on Alpha I would lose 5% for every year before 67 so 35% if I went at 60. I could only base my choice on the facts at the time. I would never have left Alpha if I'd known that closing Classic had been unlawful. 

As others have pointed out above, it is actually very likely you would have received a higher pension from alpha at age 60 even with the actuarial reduction than you would from classic, due to the much higher accrual rate in alpha. The actuarial reduction would be lower than 35% (as Dazed and Confused says above), the 5% per year rule of thumb is not accurate when taking pension much earlier than Normal Pension age.

Whether this is considered to be a good enough justification to make an argument that switching to Partnership was contingent on having been switched to alpha is something that cannot be known at this time - although having spent 2 years in alpha may weaken the argument, given the same points would have applied in 2016 as applied in 2018 when you decided to switch which could weaken the argument that it was being switched to alpha which made you decide to switch.

My own personal view is that it will be a nightmare trying to judge on what was and was not a contingent decision, and this may drive so pragmatic decisions by schemes. However, until rules are decided nothing is known with any certainty.

Obviously some of this is dependent on career trajectory and a promotion late in career would probably swing it back more to Classic.

Due to the final salary link in classic being maintained after moving to alpha, the increase for a very late in career promotion for a member with little alpha service has to be enormous to swing it back in favour of classic (well beyond the standard 10% promotion). Note this is different in schemes with lower accrual and higher in-service revaluation, where lower increases can swing it due to the reduced difference in accrual rates between the old and new schemes.

paulfmboro2

The debate over which is best Alpha, Classic or Partnership is not really relevant here. People make their own choices given the data (if you can make sense of it !). I'm just annoyed that because of unlawful decision I've made choices I probably wouldn't have and now face the consequences. 

However, my reasoning was: 
In my mind Classic would give me a much better lump sum at 60 particularly if I got the extra 6 years. The reason I went to Partnership was the attraction of my employer contributing 17.75% a month towards my pension. Again just my opinion. 

paulfmboro2

many thanks Hugheskevi for the information. I'm debating whether to move back to Alpha for my final 4 years or so. 

Sharon_Jefcut

Hi. I was part of the civil service pension scheme under the classic arrangement this commenced in 1999.  I remained in this scheme until 2017 when I was moved to the Alpha pension.  I was in the transitional group that came under the criteria of the McCloud judgement.  In 2019 I was medically retired on the higher rate.  My question is how does the February remedy affect me and how do I establish which scheme would financially serve me as a better option. Thank you

hugheskevi

Sharon_Jefcut said:

Hi. I was part of the civil service pension scheme under the classic arrangement this commenced in 1999.  I remained in this scheme until 2017 when I was moved to the Alpha pension.  I was in the transitional group that came under the criteria of the McCloud judgement.  In 2019 I was medically retired on the higher rate.  My question is how does the February remedy affect me and how do I establish which scheme would financially serve me as a better option. Thank you

You will be given the choice between either (a) having remained in classic and being medically retired in 2019 from classic or (b) having moved to alpha in 2015 and being medically retired from alpha in 2019. 

Whatever you choose will result in a pension different to that which you are and have been receiving, so there will need to be a correction made so that you received the correct amount, going back to when you started to receive benefits in 2019.

It is highly likely that you would be better off under alpha from 2015 rather than classic (which is also likely to be better than the pension you are currently receiving), as that enhances your service to your Normal Pension age.

The scheme will contact you when they are in a position to correct your benefits, with details of what you would receive under both options.

Busy_Mee

I have been trying to work out my situation. My last day in classic was 31 Jan 2018, and then I moved to Alpha.

My retirement date is 31 August 2021 age 57. I have manually calculated what my classic pension would have been had I continued to 31 August 2021 and compared to my current classic + alpha forecast. As suggested above  the classic + alpha combo is the better option.

However I hadn't realised that I would get the choice to backdate my Alpha pension to 2015. Is that right ? Effectively I could choose to have my pension calculated on Alpha terms for the period from 2015 to 31 Jan 2018. If this is the case this could increase my pension but reduce my pension lump sum ? 

Would I need to pay back any underpaid contributions ( can't remember if there was any difference at that point).

Any wisdom Hugheskevi would be hugely appreciated.