Consultation outcome

Equality Impact Assessment for McCloud Pension Remedy – Prospective

Updated 14 March 2022

This was published under the 2019 to 2022 Johnson Conservative government

Public Sector Equality Duty (PSED)

Armed Forces Pension Scheme: Future Pension Provision from 1 April 2022

22 November 2021

1. Outline your proposal

This webpage contains the equality analysis for the prospective McCloud pension remedy for the Armed Forces (AF). The MOD has assessed that the prospective remedy directly impacts:

• Those members of the Armed Forces that remained in their legacy schemes as Full Protection members and are still active members of the Armed Forces.

The MOD estimates that c12,000 Full Protection members will have left the Armed Forces by 31 March 2022. The remaining c3,000 Full Protection members will move from their legacy schemes into AFPS 2015 on 1 April 2022. In April 2015^{[footnote 1]} public service pension schemes were reformed; the cost of the legacy schemes had significantly increased over the previous decades, with most of those costs falling to the taxpayer. To protect against unsustainable increases in costs, new schemes were introduced with career average earnings design and increased Normal Pension Ages alongside the introduction of a cost control mechanism. They were also progressive, providing greater benefits to some lower paid workers. The Armed Forces reformed scheme is known as the Armed Forces Pension Scheme 2015 (AFPS 15).

As part of the 2015 reforms, those members of the unfunded^{[footnote 2]} schemes who were within 10 years of their Normal Pension Age (NPA)^{[footnote 7]} on 31 March 2012 and had active status^{[footnote 3]} then and on 1 April 2015 remained in their legacy pension schemes. This transitional protection (known as “Full Protection” in the Armed Forces) was provided following negotiations with member representatives and was intended to protect and give certainty to people who were close to retirement. In McCloud^{[footnote 4]} in December 2018 the Court of Appeal found that this part of the reforms unlawfully discriminated against younger members of the judicial and firefighters’ pension schemes in particular, as transitional protection was only offered to older scheme members. The courts required that this unlawful discrimination be remedied by the Government. In July 2019 the Government confirmed that it accepted the Court’s judgment had implications for the other public service schemes that had similar transitional arrangements.

Following the HMT consultation on the approach to implementing a remedy for this discrimination, the government is proceeding with the Deferred Choice Underpin (DCU) for all unfunded schemes, other than the judicial schemes. DCU enables eligible members to make a choice as to whether to take legacy or reformed scheme benefits for the remedy period (1 April 2015 to 31 March 2022) when their pension benefits become payable or, if a pension is already in payment, as soon as practicable once the necessary legal provisions are in force. There will be an online calculator and detailed communications to assist members prior to making their choice. This was supported by the majority of respondents to the Treasury’s consultation, including the Armed Forces.

The Government has introduced new legislation in the form of the Public Service Pensions and Judicial Offices (PSP&JO) Bill, that will be supported by AF secondary legislation. The PSP&JO Bill will close the legacy schemes in relation to service after 31 March 2022, ending the remedy period, for which members in scope will have a choice of benefits. This will ensure that the discrimination is remedied. Additionally, from 1 April 2022 onwards all public servants (except members of the judiciary) who continue in service from 1 April 2022 onwards will do so as members of their respective reformed scheme.

The reformed schemes themselves are not discriminatory, and the Government wants to ensure that all members are treated equally in respect of the scheme design available to them after the discrimination has been brought to an end.

The impacts of the measures within the PSP&JO Bill have been assessed via the HMT EqIA^{[footnote 5]}. This included the closure of all legacy schemes to future accrual from 1 April 2022 (which will be implemented via the measures in the Bill and by amendments to scheme regulations). The impacts of any consequential amendments needed will be considered further at AFPS scheme-specific level when the responsible authority for each scheme consults on detailed regulations implementing the general provisions for remedy set out in the Bill.

The Armed Forces will conduct a public consultation on their prospective element of the regulations 22 November 2021- 31 January 2022. Included within the communication of the consultation will be the invitation to those with protected characteristics to comment on the proposal. Additionally, it is the intent of the MOD to run a series of workshops to discuss the proposed remedy and seek reassurance that it is compliant with the PSED. The PSED, as set out in section 149 of the Equality Act 2010, is an ongoing duty which will continue to be monitored and reviewed through to implementation of the measures in the Bill and secondary legislation. Further analysis on the detailed changes to scheme regulations (excluding all those measures where the final policy is set out via the primary legislation, where impacts have already been assessed by HMT) for the core McCloud pension remedy measures and reformed pension scheme measures will be conducted by AF Remuneration. Mitigations will be considered where additional impacts of the policy on protected characteristics are identified.

HMT, on behalf of the Government, does not envisage any differential impact on individuals or groups with protected characteristics as set out in the Equality Act 2010 at a scheme level, other than those set out throughout their assessment. However, this Equality Impact Assessment document will confirm whether this is correct for the Armed Forces.

2. Summary of the evidence considered in demonstrating due regard to the equality duty

This chapter provides a high-level overview of the equality impacts identified for the measures in the prospective remedy. Chapter 4 explores these equality impacts further. These equality impacts have been explored and grouped by each protected characteristic as identified in the Equality Act 2010, in line with the government’s duty to have regard to the need to eliminate discrimination, advance equality of opportunity, and foster good relations^{[footnote 6]}. These protected characteristics are explored as follows:

Section 4.1 – Age
Section 4.2 – Sex
Section 4.3 – Race
Section 4.5 – Other protected characteristics (religion or belief, sexual orientation, gender reassignment, disability, and marriage and civil partnership, pregnancy and maternity).

The Armed Forces has reached the conclusions set out in this assessment based on consideration of previous Equalities Impact Assessments, including at the consultation and consultation response stages, and other available data. The previous government equality impact assessments can be found in Table 1 below.

Table 1: Previous Equality Impact Assessments

Equality Impact Assessment	Department	Stage produced	Measures covered in this Bill
Public Service Pensions EqIA	HM Treasury	Consultation – July 2020	McCloud judgment
Public Service Pensions Updated EqIA	HM Treasury	Updated for consultation response – February 2021	McCloud judgment
Equality Impact Assessment	Department of Finance in Northern Ireland	Consultation response – February 2021	Northern Ireland McCloud judgment
Equality Analysis for Local Government Pension Scheme	Ministry of Housing, Community and Local Government	Consultation – June 2020	Local Government McCloud judgment
Local Government Pension Scheme GAD Equalities report	Ministry of Housing, Community and Local Government	Government Actuary’s Department (GAD) LGPS equality analysis – June 2020	Local Government McCloud judgment
Local Government Pension Scheme NI Equality report	Department for Communities in Northern Ireland	Consultation – November 2020	Northern Ireland Local Government McCloud judgment
Local Government Pension Scheme Scotland Equality report	Scottish Public Pensions Agency (SPPA)	Government Actuary’s Department (GAD) LGPS equality analysis – August 2020	Scotland’s Local Government McCloud judgment
Judicial pensions response to McCloud EqIA	Ministry of Justice	Consultation – July 2020	Judiciary McCloud judgment
Response to McCloud EqIA	Ministry of Justice	Updated for consultation response – February 2021	Judiciary McCloud judgment
Judicial pensions proposed response to McCloud EqIA	Department of Justice in Northern Ireland	Consultation – October 2020	Northern Ireland Judiciary McCloud judgment
Judicial Pension Reform EqIA	Ministry of Justice	Consultation – July 2020	Reformed judicial pension scheme
Judicial Pension Reform EqIA	Ministry of Justice	Updated for consultation response – February 2021	Reformed judicial pension scheme
Mandatory Retirement Age equality statement	Ministry of Justice	Reviewing the MRA in the judiciary – July 2020	MRA measures
Public Service Pensions and Judicial Offices Bill	HM Treasury	Introduction of The Public Service Pensions and Judicial Offices Bill	Prospective and retrospective legislation to remedy discrimination

Summary of Evidence

The work to date has primarily drawn on the UK Armed Forces Biannual Diversity Statistics, National Statistics, Apr 2021. Additional evidence of data pre-Apr 2012 is scant, but Defence Statistics were able to provide limited workforce data, which helped in building a picture of those in scope. It should however be noted that the data that the Armed Forces possesses around some of the protected characteristics is weak, or inherently flawed. Where this has been identified, the intention is to approach the Armed Forces networks to comment on aspects of the policy.

Conclusions

The proposed policy affects a group who will be over 55 years old from 1 April 2022 and are predominantly white males. MOD has concluded that this policy to close the existing legacy schemes and move all members into the AFPS15 reformed pension scheme does impact this group, although this is not always adversely. MOD has concluded that the policy is a proportionate means of achieving a legitimate aim; the aim of the policy is to enable sustainable, affordable pension provision for the Armed Forces. On that basis, although this policy impacts on members with the protected characteristics of age, race and sex, any adverse impact is considered to be justifiable in light of the MOD’s overall assessment that the policy is a proportionate means of achieving a legitimate aim. Affected scheme members retain accrued rights in their legacy schemes for the period of service to 31 March 2022, and they all have reached retirement age in the legacy scheme.

3. Identify the impacts

1. The MOD will conduct a public consultation (22 November 2021-31 January 2022), where it will outline the McCloud Prospective Remedy contained with the PSP&JO, and includes the draft secondary legislation to underpin changes required to the Armed Forces pension schemes in order to achieve the Bill’s purpose.

2. The proposals covered in this assessment; the moving of Full Protection members into AFPS 2015, have been assessed by reference to the public sector equality duty contained in the Equality Act 2010. The reason for conducting the remedy is to end existing discrimination on the basis of age. The MOD believes that closing older legacy pensions schemes and moving all active pension scheme members into the same pension scheme does not result in any direct, or indirect discrimination. The proposals will apply equally to all eligible individuals regardless of protected characteristics. Eligibility criteria will apply in the same way to all groups. The analysis is set out in more detail in the next chapter.

3. Reformed pension schemes themselves are not discriminatory and the rationale for the 2015 reforms remains sound. In order to ensure that all active members are treated equally in respect of the scheme design available to them, the Government has introduced legislation which will close all legacy schemes to future accrual after 31 March 22, with the effect that all those active members who continue in service will do so as members of the reformed scheme, i.e. AFPS 15.

4. Pension remedy affects c140,000 Service Personnel and Veterans. Primary and secondary legislation must be passed to deliver prospective and retrospective change to enable pension remedy; policies need to be agreed across Public Service Pension schemes to reconcile the differences between legacy and reformed schemes; taxation, compensation and interest on back-dated pensions need to be resolved; and complex business change needs to be implemented.

5. DBS has accessed the pension records of Service Personnel and Veterans and has calculated the following volumes of personnel that they believe will be eligible for pension remedy, based on the current assumptions of HMT defined eligibility. It should be noted that there are areas of unresolved policy on certain cohorts so eligibility figures will change.

Cohort: Full Protection Members (remained in legacy Scheme)

Total members: 15,550

Cohort: Transition members (AFPS15 members with accrued rights in a legacy scheme)

Total members: 127,474

Grand total members: 143,024

6. DBS currently estimate that the c3,000 active Full Protection members of the Armed Forces that will transition onto the reformed scheme are members of 4 different legacy schemes:

AFPS 75 = 1,397
AFPS 05 = 856
NRPS 11 = 37
RFPS 05 = 947

4. Analyse the impacts

The total number of active service people since 31 March 2012 has slowly decreased from 179,800 (1 April 2012) to 149,280 (1 April 2021), which is due to strategic defence review workforce reductions. However, there has been a rise in the number of Reserves (29,390 (31 March 2013) to 37,410 (31 March 2021) in the Armed Forces for the same reason. Reserves now comprise 25.06% of the Armed Forces, a 7.84% increase.

The data tables contained at the UK Armed Forces Biannual Diversity Statistics, National Statistics, Apr 2021 have been used to derive most of the analysis. Each table that has been used is indicated at the top of the section.

4.1 Age

Table 3 UK Regulars by Age and Gender – Strength

The data shows a drop of active members around the age of 45; only 10% of the workforce serve beyond 45; this is a continuous trend throughout the period 2012 to 2021.

It is likely that those aged 48 and over on 1 April 2015 will be Full Protection members, provided they meet the other criteria for eligibility, such as being in service (or on a qualifying gap in service) on 31 March 2012. DBS estimate this cohort to be approx. 15,500. Many of these individuals will be in scope for the McCloud remedy and it is assumed that they will be Full Protection members. These individuals will be impacted by the prospective remedy i.e. moving from their legacy schemes into AFPS 2015.

Table 9 Intake to UK Regulars by Age and Gender

Table 9a Intake to UK Regulars by Age

Those aged 35 to 49 were predominantly ‘unprotected’ members. However, a proportion of these members (those aged 45 and over on 31 March 2012, and in service or on a qualifying gap in service on that date) received Full Protection.

Due to the Conditions of Service for the Armed Forces a significant proportion (70%-80%) of those regulars who had Full Protection will have left service and will not be affected by the prospective remedy.

Overall, the MOD estimates that approximately 1 to 2% (c3,000) of the active membership of all Armed Forces Pension Schemes on 1 April 2022 will be affected by the prospective remedy, as they are moved onto AFPS 15 from their legacy scheme. The prospective remedy will ensure equal treatment for all members in terms of the scheme design applicable to their pension and brings the existing discrimination to an end.

The MOD estimates that approx. 2,000 Reserve members of the Armed Forces are Full Protection members of reserve pension schemes, which would indicate that c60% of the Reserves in 2012 were Full Time Reserve Service (FTRS) and Non Regular Permanent Staff (NRPS) aged over 50. Of those c2,000, the MOD estimate that c1,000 are still active members in 2021 and might be affected by the prospective remedy.

Due to the Conditions of Service for the reserve members of the Armed Forces allowing for service up to and beyond age 60, it would appear that a significant amount of the Full Protection cohort are likely to still be serving on 1 April 2022 (c50%) and therefore will be affected by the prospective remedy.

MOD has identified that the prospective remedy will impact personnel aged 55 years to 65 years from 1 April 2022. The MOD has concluded the policy is a proportionate means of achieving a legitimate aim; that of enabling sustainable, affordable public service pension provision for the future. These proposals ensure that all members of the AFPS will continue as members of the same scheme going forward, thus ending the age discrimination which has existed since 1 April 2015

4.2 Sex

Table 1 UK Regulars by NATO Rank and Gender – Strength

Table 3 UK Regulars by Age and Gender – Strength

Overall proportion of women in comparison to men has been low but slowly increased over time (approx. 1.3% points). There is a continuous long-term increasing trend since April 2017. The overall average proportion of females in the Armed Forces between 1 April 2012 and 1 April 2021 is 10.29%.

The proportion of females serving to a later age in the Regular Armed Forces is lower than their male counterparts. In 2012, females comprised 4.3% of the 45-49 age group and 2.7% of the 50-54 age group. Accordingly, the cohort who received Full Protection are likely to be overwhelmingly male.

The MOD estimate that approximately 500 Regular females, and approximately 13,000 Regular males could currently be Full Protection members, provided they were in service on 1 April 2015.

There will be additional Full Protection members, but they are in the Reserves and not included in this data.

Table 11 Outflow from UK Regulars by Gender

Table 13 Outflow from UK Regulars by Age and Gender

Based on current trends females comprise less than 5% of those aged over 55 in the Armed Forces. Therefore, of the estimated c1,500 active Full Protection Regular members on 1 April 2022, approx. 100 are estimated to be female and will move from their legacy schemes onto AFPS 15 as a result of the prospective remedy.

Table 15 - Strength of Future Reserve 2020 by Gender

Data for the Reserves begins later than the Regulars, starting as from October 2012. Therefore, identifying exact cohort sizes that meet the criteria for eligibility for the McCloud prospective remedy has been difficult.

Female Reserves have increased between October 2012 and April 2021 from 13.6% to 15.1% and have consistently been a greater proportion as a percentage of the workforce when compared to their Regular counterparts.

As already indicated in the Age section, only those active members of the Reserves that are FTRS, or NRPS, and aged over 50 on 1 April 2012, are affected by the prospective remedy. It has not been possible to break this cohort out by gender; however, as at April 2021, 10% of those aged over 55 in the Reserves are female and therefore it would be reasonable to assume of the c1,000 reserve active Full Protection members, approx. 100 are estimated to be female and will move from their legacy schemes onto AFPS 15 as a result of the prospective remedy.

MOD has identified that the prospective remedy will impact male personnel. However, MOD has concluded the policy is a proportionate means of achieving a legitimate aim; that of enabling sustainable, affordable public service pension provision for the future. These proposals ensure that all members of the AFPS will continue as members of the same scheme going forward, thus ending the age discrimination which has existed since 1 April 2015.

4.3 Race

Table 5 UK Regulars by Ethnicity and Nationality – Strength
Table 5a Trained UK Regulars by Nationality and Ethnicity – Strength
Table 2 UK Regulars by Ethnicity and Rank – Strength
Table 2a UK Regulars by NATO Rank and Ethnicity – Strength

Declaration of race is not mandatory for Armed Forces personnel; therefore, complete and accurate historical data is not available.

The data used within this document relates to those who have declared a known ethnicity.

Most of Armed Forces personnel have identified as ‘white’: between 1 April 2012 to 1 April 2021, the average has been 92.4%.

However, there has been a continuous increasing trend of active BAME members within the Armed Forces.

On 1 April 2012 there were 12,300 BAME personnel in the Armed Forces (6.9%).

To be eligible for the remedy, a member needed to be in Service prior to 1 April 2012: the MOD estimates that approx. 11,500 BAME personnel might be affected by the unlawful age discrimination. It has not been possible to directly use Ethnicity and age-related data, which would assist in identifying the numbers of those who are Full Protection members. However, based on the overall percentage of BAME in 2012 (6.9%), the MOD estimates that of the c3,000 Full Protection members in April 2022, approx. 200-300 might be BAME, and will be affected by the prospective remedy.

Table 16 - Strength of Future Reserve 2020 by Ethnicity

In 2012 4.7% of the reserves was made up of BAME personnel. This has slowly increased over time to 5.7% in April 2021.

This infographic shows that 9.2% of the UK Regular Forces is made up from BAME personnel, with the rest of the cohort being white. Of that 9.2% of BAME personnel, 4.8% are from the Royal Navy/Royal Marines, 13.4% are from the Army and 3.3% are from the Royal Air Force. It also shows that 5.7% of Future Reserves are made up from BAME personnel, with the rest of the cohort being white. Of that 5.7% of BAME personnel, 3.6% are from the Maritime Reserves, 6% are from the Army Reserves and 4.8% are from the Royal Air Force Reserves.

In relation to the prospective remedy, it has not been possible to identify the numbers of BAME personnel in the reserve element of Armed Forces who might be affected. However, the MOD does not believe there to be a significant number of such members.

The MOD has identified that the prospective remedy will affect white personnel, because the affected cohort is disproportionately white. However, MOD has concluded that the policy is a proportionate means of achieving a legitimate aim; that of enabling sustainable, affordable public service pension provision for the future. These proposals ensure that all members of the AFPS will continue as members of the same scheme going forward, thus ending the age discrimination which has existed since 1 April 2015.

4.5 Other protected characteristics

We have taken into consideration the impact of the policy on people with other protected characteristics including marital and civil partnership status, gender reassignment, maternity, sexual orientation, religion and disability as identified in the Equality Act 2010, in line with the Government’s duty to have regard to the need to eliminate discrimination, advance equality of opportunity, and foster good relations.

This policy does not have an impact specifically on people with these protected characteristics, therefore we have not considered the impact on these groups any further. If new data indicates that these groups may suffer disproportionate effects, the MOD will investigate further to address any negative impacts arising from the remedy.

5. Record your decision

Proceed as planned with the work or decision and obtain further evidence of impact through consultation.

The MOD has analysed the PSP&JO Bill in the context of the prospective remedy that applies to its workforce and its initial assessment is that it has found no disproportionately adverse impact on people who share a protected characteristic.

The MOD has identified that the prospective remedy might impact on white males aged 55 years and over from the 1 April 2022. However, MOD has concluded the policy is a proportionate means of achieving a legitimate aim; that of enabling sustainable, affordable public service pension provision for the future. These proposals ensure that all members of the AFPS will continue as members of the same scheme going forward, thus ending the age discrimination which has existed since 1 April 2015.

On that basis, although this policy impacts on members with the protected characteristics of age, race and sex, the policy is nevertheless a proportionate means of achieving a legitimate aim. Affected members retain accrued rights in their legacy pension schemes up to the date of transition and will all have reached retirement age in their legacy scheme by the time the policy is implemented on 1 April 2022.

By placing all active scheme members of the Armed Forces into the AFPS 2015 on 1 April 2022 the MOD will ensure equal treatment for all and no further discrimination in the future.

6. Monitor and review

The continued monitoring of the McCloud Remedy as a whole will be done on a quarterly basis as key decisions are reached and the MOD commences work on the second element of the Remedy: implementation of the Deferred Choice Underpin (DCU) and the retrospective legislation. It is in this phase that the MOD anticipates greater challenge in the PSED as it will be required to unpick the pensions policy and provide those that are eligible a choice of scheme benefits for the remedy period.

7. Approving the Work or Decision

This McCloud Prospective Remedy Equality Impact Assessment has been reviewed by the Secretary of State for Defence.

Contact us

If you have any queries related to this document or the Equality Duty in defence, please get in touch with People-Diversity-Inclusion@mod.gov.uk.

1. April 2014 for the Local Government Pension Scheme (LGPS) for England and Wales. ↩

2. The LGPSs for England & Wales, Scotland and Northern Ireland took a different approach of moving all members to new scheme but providing a pension benefit underpin for members within 10 years of their NPA on 31 March 2012 that offered the better of final salary or career average accrual for service from the date of reform up to the member’s NPA. ↩

3. This term NPA is used as shorthand throughout this document, and for these police schemes means the different ages as used in the design of the original transitional protection. ↩

4. Or a member who, on either or both of those dates, was entitled to return to active status in a legacy scheme within 5 years of leaving with a pension award, who then returned to active status within that 5 year period and whose pensionable service on re-joining was treated as continuous with their previous service. ↩

5. Lord Chancellor and another v McCloud and others, Secretary of State for the Home Department v Sergeant and others [2018] EWCA Civ 2844. ↩

6. See Table 1 for link to HMT EqIA ↩

7. s.149(1) Equality Act 2010 ↩