The government is facing a £17bn ($21bn) bill for handling “unlawful” age discrimination in public sector pensions.
The ruling, made on Thursday, means three million people, including teachers, nurses, police officers, firefighters and civil servants, are set to recoup an average of £5,600 each.
This spells trouble for the government which will have to finance the hit through spending cuts or taxation.
“Correcting the monumental pension mistake caused by the 2015 pension scheme could not have come at a worst time for the government,” Ian Browne, retirement planning expert at Quilter, a firm of independent financial advisers, told the Financial Times.
Taxpayers are effectively now having to pick up the tab for the mistakes, as ministers scrambled to reduce the UK’s ballooning public sector pensions bill.
Decisions in 2010 meant public sector pensions went under review, shifting to new plans in 2015. These typically offered less generous terms.
Some older people were able to stay on the more generous schemes, while younger people were moved onto the ones with less generous terms, prompting an age discrimination row.
“While returning protected members to their legacy schemes would be consistent with the declarations issued by the tribunals to date, it would be detrimental for a significant number of members who are likely to be better off in the reformed schemes,” the Treasury told the FT.
Damages that have been awarded as a result of the court case will be given regardless of whether the person concerned has lodged a legal claim, the government said.