How Much Is My Public Sector Pension Worth?

For many people, a large part of the Divorce process will revolve around how their financial assets will be divided. However, for those who work in the public sector, the value of their pensions has been unusually uncertain over the past few years, which has proved challenging to pension actuaries and to solicitors, who have struggled to advise their clients with certainty. Under a newly implemented scheme however, public sector workers may find their pensions worth more than previously thought.

How did the Government cause uncertainty in public sector pensions?

In 2014, the then Coalition Government reformed public sector pensions, as they viewed the current position as untenable. Pension would be calculated on the worker’s final salary and did not take into account average salary across the worker’s career, and as such would pay out large sums of money. As such, the Government amended the scheme to reflect average salary. However, in implementing this, the Government structured it so that those within 10 years of retirement would see no change, but anyone beyond that would be moved over to the new “average wage” scheme.

This meant that different members of the same scheme would find themselves with differing pension values based purely on their date of birth. In the case of McCloud and others v Lord Chancellor and another; Sergeant and others v London Fire and Emergency Planning Authority and others [2018] EWCA Civ 2844, more commonly known as McCloud, it was successfully argued that this was age discrimination, and the Government agreed to unravel their error.

How will my public sector pension change?

To remedy the discrimination, a protection was devised, and this became known as the underpin. The underpin works such that when a relevant worker takes their pension, the pension they would have received under the final salary scheme is compared against the pension that would have been obtained under the career average scheme. The worker is then afforded the higher of these two figures.

Older members, who were close to retirement, were protected from the changes, and so had no need for the protection of the underpin. Younger members may find, though, that their pensions increase in value because of it.

However, there are some caveats on the underpin. It only operates over pension that built up between 1^st April 2014, and the 31^st March 2022. Any pension that has been built up beyond this date will be based on the career average scheme. Further, should a worker have retired before 31^st March 2022, any calculation will only take into account pension from the 1^st April 2014 until the date of retirement.

What do I need to do now?

The Underpin came into force on the 1^st October 2023, but there is little for the individual worker to do. Individual pension funds will now calculate under which scheme the worker would have earned more, and make any adjustment needed.

However, this may mean that your financial situation has changed, which would be relevant if you are looking to, or are currently going through, a divorce. Here at Johnson Astills, our experienced Family Team would be able to guide you through your Divorce, and help you resolve any financial disputes that may arise upon divorce, including any disputes regarding your pension.

Please do not hesitate to contact us on 0116 255 4855 or complete an online enquiry form today.