In 2015, the Government implemented changes to public sector pension schemes such that they changed from providing benefits on a basis related to the beneficiary’s final salary (FS) to benefits related to "career average revalued earnings" (CARE). Provision was made for those closest to retirement to stay in the final salary scheme, and for a further group closer to retirement to transition in later phases after the date on which other members moved across to the CARE scheme to "protect" those closer to retirement when the CARE scheme was introduced from unanticipated changes to pension benefits.
IPSA implemented analogous changes to the MPs’ pension scheme in 2015, as part of its review of MPs’ overall remuneration. Our objective in making the change from FS to CARE was to ensure that MPs’ pension arrangements, which had grown increasingly expensive to provide in the preceding years, were put on a more sustainable basis.
The McCloud judgment subsequently found those transitional arrangements in some other public sector schemes – but not the CARE scheme itself – constituted unlawful age discrimination under the Equalities Act 2010.
In the light of that judgment, the government has consulted on and proposed changes to various public sector schemes to move to a position where all scheme members are treated in the same way regardless of proximity to retirement and to address the position of those who were subject to transitional provisions that the court found to be unlawful.
The legal arrangements for the MPs’ scheme differ in several respects from those for the public sector schemes about which the government has consulted. This means it was for IPSA to determine whether changes were needed to the MPs’ scheme in the light of McCloud and, if so, what those should be. In line with our principles for MPs’ remuneration more broadly, we approached this principally as a matter of fairness, both to MPs and taxpayers. We considered the tests set out in the Equality Act 2010 to arrive at our view of whether changes were needed, and in considering how to make changes we reflected on the approach taken by the government to other public sector schemes, and also on where the specific characteristics of the MPs’ scheme need to be taken into account.
We concluded that when the Equality Act tests were applied some members were treated unfairly relative to others during the transition to the CARE scheme. In our consultation paper and report, we explained how we arrived at that view and the actions we thought were needed to address this unfairness. The approach we proposed would follow the government’s approach for other schemes in giving those who were treated unfairly the choice of whether to be treated as a member of the former FS scheme or the CARE scheme for a period at the end of which the FS scheme would close to future accruals.
Consultation: MPs’ pensions and the McCloud judgment
MPs' Salaries and McCloud summary