The government has revealed it will face a staggering a £17bn bill for rectifying unlawful age discrimination in public sector pensions, with 3 million people set to benefit by an average of more than £5,600 each.

The problem arises from public sector pension reforms that took place in 2015. Workers 10 years from retirement were given protection from reforms that saw younger workers moved to less generous pensions.

AJ Bell has estimated that the changes could affect around 3 million people and cost the taxpayer £17bn.

Pension reforms tried to save money

At the start of its administration in 2010, the coalition government set up a commission to look at ways to save money. A series of reforms were pushed through, moving most public sector workers to new pension schemes in 2015. These schemes were less generous.

To make up for this, the government put in place transitional arrangements. These usually meant older workers could stay in the more generous existing schemes, but younger workers would have to transfer to the new schemes.

Judges and firefighters claimed that these reforms were age discriminatory, as younger people were treated less favourably. In 2018, the Court of Appeal found against the Government and then the litigation finally came to a close last year when the Government’s request to appeal to the Surpreme Court was denied.

Fixing the pension problem

With Government spending already ballooning (and set to hit £300bn this year as a result of covid-19), the huge bill could not come at a worse time for Government finances.

The Government is now consulting on the issue. It says that everyone affected would be able to receive the benefits they were entitled to, regardless of whether they made a claim. For those affected, a choice is being offered to either stay on the old scheme, or transfer to the new one.

Making the changes will take primary legislation, set to take effect from April 2022.