On the go: The taxpayer could face extra public sector pension costs of £4bn a year following a court ruling last year that the government discriminated against younger judges and firefighters in both the Firefighters and Judicial Pension Schemes.
In a written statement on Wednesday, chief secretary to the Treasury Liz Truss said: “The provisional estimate is that the potential impact of the judgment could cost the equivalent of around £4bn per annum.”
The Court of Appeal ruling is expected to have an impact on other public sector groups such as police officers and other workers including NHS staff, teachers and prison officers, which have seen similar changes to their pension schemes.
Pennies are tight in the Treasury, so finding a rather chunky £4bn every year will cause much head-scratching
Nathan Long, Hargreaves Lansdown
In her written statement, Ms Truss explained that cost-control mechanisms, which automatically change public sector benefits, have had to be suspended.
“Given the potentially significant but uncertain impact of the Court of Appeal judgment, it is not now possible to assess the value of the current public service pension arrangements with any certainty,” she said.
Commenting on the decision, Julian Gravatt, deputy chief executive for policy, curriculum and funding at the Association of Colleges, said: “The partial suspension means that the cost-cap rectification proposals won’t go ahead.
“These would have involved schemes becoming more generous in some respects [for example, faster accrual] to make up for the loss of pension value for members resulting from lower longevity and pay rises than previously forecast,” he added.
However, Mr Gravatt warned: “By including the reform of two controversial pension schemes – judges, firefighters – in the government’s Hutton review package, it’s possible that the reform of the pensions of 5m public sector workers will be halted in its tracks.”
Nathan Long, senior analyst at Hargreaves Lansdown, said: “The government’s attempts to reduce the cost of public sector pensions, ensuring they remain sustainable for future generations in the face of people living and working longer, is facing a serious challenge. Pennies are tight in the Treasury, so finding a rather chunky £4bn every year will cause much head-scratching.”
If the government wins its appeal to the Supreme Court, it will go ahead with the reforms.
The decision will have no impact on the planned rise in employers’ contributions to unfunded public sector schemes.
