For pension rights built up between April 2015 and April 2022, public sector workers will be offered a choice between the old scheme (final salary) or the reformed scheme (career average salary).
Up to three million public sector workers could be affected.
Through the McCloud and Sargeant cases, the courts identified unjustified age discrimination, in that entitlement to transitional protection was dependent on age. The courts also identified indirect race and sex discrimination.
In order to remove this discrimination, the government needed to ensure equal treatment retrospectively back to 1 April 2015 and prospectively for the period until a fully equalised system takes effect.
AJ Bell has estimated the changes could cost the taxpayer £17bn or around £6,000 per pension scheme member.
Tom Selby, senior analyst at AJ Bell, said: “In the middle of a pandemic and with the Brexit transition period fast coming to a close, a £17 billion public sector pensions bill is probably among the last things the government needed.
“However, it was left with little choice after a 2018 Court of Appeal ruling determined transitional protections given to members within 10 years of receiving their pension - negotiated as part of radical reforms to public sector pensions introduced in 2015 - constituted age discrimination.
“This is a colossal and entirely avoidable own goal borne of the government’s desire to appease trade unions when the reforms were introduced.
“In fact, Lord Hutton’s final report on the changes specifically warned age discrimination legislation meant it ‘would not be possible in practice to provide protection from change for members who are already above a certain age’. The decision to ignore this advice has proven extremely costly indeed.
“For those affected by the new settlement, today’s announcement is clearly good news, with the average member due to benefit by almost £60,000. However, for public sector employers and in turn taxpayers, it represents a huge cost which can only be borne either by cuts to services or higher taxes.”