In response to the Public Service scheme pension changes proposed by the consultation commissioned by the government, they have released an official response to the findings. It has been confirmed that they will implement the deferred choice underpin option and close all legacy schemes on 31 March 2022.
This does not constitute advice and advice should be sought in all instances before acting on it.
Read the response to the ‘Public Service Pension Schemes Consultation’.
Background on the changes
The government requested a consultation to propose options to rectify age discrimination relating to the transitional arrangements in the 2015 Public Sector schemes. It was a result of the Court of Appeal judgment in December 2018 that ruled that transitional protection in the judges’ and firefighters’ pension schemes gave rise to unlawful discrimination.
Accepting that the same issue could be applied to all Public Sector schemes, the government resolved to fix the identified discrimination. The issue was that for those nearer their normal retirement age, they could stay in the legacy schemes but younger members were forced to move to the 2015 schemes which was ultimately ruled as discrimination.
The solution
The solution is to offer the same transitional protection to all members who were in service on or before 31 March 2012 and on or after 1 April 2015, whether they are currently active, deferred, or a pensioner member.
The remedy period spans seven years – from 1 April 2015, when members were moved into the 2015 scheme, until 31 March 2022.
The consultation decision
The consultation proposed two options, an immediate choice option and a deferred choice underpin option.
The Government chose to implement the deferred choice underpin, the favoured option by most of the respondents to the consultation. They also confirmed that beginning 1 April 2022 all legacy schemes will be closed for future accrual and all members will be moved to the 2015 schemes.
What does the ‘deferred choice underpin’ option mean?
With the deferred choice underpin option, the member will be reinstated into the legacy scheme at first but given the option at retirement to choose to access benefits using the reformed scheme rules, so deferring the choice until retirement.
The reason this is advantageous compared to the immediate choice option is that the member is able to make direct comparisons of their actual entitlements available under both schemes at the time they take them. With the immediate choice option, it would have required the member to choose which scheme would provide them with the best outcome without knowing all the information necessary to make such a decision.
While deferred choice option allows for more straightforward decision-making, there’s no escaping annual allowance complications.
All members will need their annual allowances recalculated for the remedy period. In addition, if, when they come to take benefits, they revert to the reformed scheme their tax position would need to be assessed again. Not to mention a whole slew of other tax, allowance, and retirement implications.
How does this affect you?
If you have questions about how these changes affect you, help is available.
This is a complex area and requires the proficiency of financial advisers, with experience in providing the right calculations. Dental & Medical Financial Services provide the carry forward and tapering calculations free of charge as part of our client commitment.
Contact us for a review of your current pension, including carry forward and tapering calculations today.
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