Following this week's consultations and ministerial statement the Q&A has been updated. Please see the link below:
The McCloud case Q&A for administering authorities page (opens in new window)
The above page will be updated as and when new information becomes available
On Thursday 16th July a MHCLG McCloud consultation was published on proposed remedies for the LGPS to remove age discrimination.
In summary the consultation proposes that: -
- Qualifying members would be protected by the application of a revised underpin
- Qualifying members will be all who were active in 2008 scheme on 31st March 2012 and accrued benefits in the 2014 scheme without a disqualifying break
- Qualifying members who have already left the scheme will have the revised underpin applied retrospectively
- Unlike the current underpin qualifying members do not have to have an entitlement to an immediate benefit when they leave the scheme
- Members must meet the qualifying criteria in a single membership for underpin protection to apply – so where a member has had a break in service or a period of concurrent employment, they must aggregate the benefits for the underpin to apply
- Members who have previously chosen not to aggregate scheme employments will be given a further 12 months to reverse that decision where failure to aggregate would mean they would not meet the revised underpin qualification criteria in either or both unaggregated periods
- The revised underpin will take account of early/late retirement adjustments
- The revised underpin will apply to death in service and survivor benefits
- The revised underpin will be a two-stage process with an initial check done at the ‘underpin date’ which is the earlier of leaving the scheme, reaching Normal Pension Age or death
- A second check will be applied at the ‘underpin crystallisation date’ when the member takes their benefits which will take into account early/late retirement adjustments. At this point the revised underpin will, should it apply, increase the benefits payable to the member
- Revised underpin protection will cease in respect of membership after 31st March 2022, however final salary protection will continue after that date in respect of membership before that date
- Annual Benefit Statements should contain information on the potential impact of the revised underpin but only in respect of membership or benefits accrued to the earliest of the date of leaving, the end of the scheme year or 2008 NPA
- If the second underpin check results in an increase to the member’s benefits, this will be included for annual allowance purposes in the year of the ‘underpin crystallisation date’. Any underpin protection is not included in earlier years
- Any addition made as a result of the underpin checks will be included for Lifetime allowance purposes when the member takes their benefits.
The consultation runs until 8th October 2020
On Thursday 16th July a HM Treasury consultation on McCloud was published on proposals to bring the unfunded public service pension schemes in line with the result of the McCloud/Sergeant case by removing age discrimination within the protections given to older members, together with an update on the employer cost cap process.
These were accompanied by a Statement from the Chief Secretary to the Treasury.
To be clear the HMT consultation relates to members of the unfunded public service schemes including the Fire, Teachers and Police schemes. A separate consultation on proposals for remedying the age discrimination within the Local Government Scheme will follow shortly from MHCLG.
In summary the consultation proposes that: -
- Protections will be extended to cover all unfunded scheme members who were in active scheme membership on or before 31st March 2012 and have membership in the reformed schemes (without a 5 year break) regardless of whether they have made a claim to a tribunal on this matter
- Protection will take the form of the right to membership of the relevant unfunded final salary scheme during the protected period which runs from 1st April 2015 to 31st March 2022
- Protection will be backdated for qualifying members even if they have left the scheme since the start of the protected period
- Accrual in all unfunded final salary schemes for existing and new protected members will cease at the end of the protected period
- Protected members will be given the opportunity to elect for benefits accrued during the protected period to be calculated on a CARE basis as an alternative to protected final salary benefits
- There are two proposals for when the election is to be made – immediate (soon after the proposals are in force) or deferred (when the member takes their benefits)
- If the Deferred option is taken forward Annual Benefit Statements will need to reflect benefits in both the CARE and Final salary schemes for the protected period
- Should an election result in changes to tax relief (annual and lifetime allowances) the member will only be liable for underpayments of tax in the 4 years prior to the change in benefits
It is the intention of government to bring forward new primary legislation to provide the necessary powers to make changes to schemes in order to remove the discrimination identified by the Courts. The nature and timing of such legislation will be developed following responses to the consultation but it is the intention for changes to take effect from April 2022.
The consultation runs until 11th October 2020
Following last week's ministerial statement the Q&A has been updated. Please see the link below:
The McCloud case Q&A for administering authorities page (opens in new window)
The above page will be updated as and when new information becomes available
Yesterday a ministerial statement by Lord Agnew was made regarding progress toward remedy in public service pension schemes following the McCloud/Sergeant age discrimination case. The statement confirms that no qualifying scheme member will need to make a claim for the remedy to apply to them.
The statement refers to an element of choice for relevant members. We understand this applies to schemes (such as Teachers’, Police, Fire, etc) that gave older workers transitional protection through continued access to their final salary pension schemes. In the LGPS, the position is different, as all members participate in the same career average scheme, with an automatic underpin for protected LGPS members to ensure they are not disadvantaged. We do not anticipate this general approach changing under the new arrangements.
When the Government reformed public service pension schemes in 2014 and 2015 they introduced protections for older scheme members. The Court of Appeal ruled that younger members of the Judges and Firefighters Pension schemes were discriminated against because the protections did not apply to them. The Government has confirmed that there will be changes to all public sector schemes to remove this age discrimination.
The Government and the SAB are having high level discussions about what this means for the LGPS. The SAB is confident that the eventual outcome will provide younger members in scope with protection that is equal to the protection provided to older members.
The protection compares the benefits payable under the current rules with the benefits that would have been paid if the Scheme had not changed in 2014 and pays the higher. This protection will apply automatically – LGPS members who meet the qualifying criteria do not need to take any action.
It is important that members are made aware that many of them will not see an increase to their pension benefits. For others any increase is likely to be small because of low salary growth since the new schemes were introduced.
The SAB will continue to work with Government to ensure that the necessary changes to the LGPS are fully implemented and that all members automatically receive the protection they are due.
Changes to the Scheme will be backdated to April 2014 and will apply to qualifying members who left the LGPS after that date. Implementing and communicating the changes will be extremely challenging. The SAB have set up an implementation group to assist LGPS administering authorities and employers with this challenge.
The Scheme Advisory Board’s website provides background information on the McCloud judgment as well as a Q&A for administering authorities. This update is provided in addition to that material and sets out our understanding of the latest position.
Next steps for the LGPS
We understand that the LGPS will be treated separately from the rest of the public sector in respect of the McCloud remedy.
It is likely that the remedy will involve the extension of some form of underpin to members in scope who are not currently offered protection. Therefore, a full history of part time hour changes and service break information from 1 April 2014 will be needed in order to recreate final salary service. We recommended that administering authorities make Scheme employers aware of this.
It is also likely that, in order to ensure reverse discrimination does not occur, all leavers since 2014 will need to be checked against a new underpin.
We have had discussions with GAD (in their role as an adviser to the SAB) around the mechanics of how a remedy might work in the LGPS including the range of potential issues (both retrospective and ongoing) which could arise from the application of some form of underpin to a wider membership.
We expect decisions relating to members in scope, the extent of final salary service protection, the requirement for retrospection and the inclusion of ancillary benefits (transfers, survivors etc) to be determined centrally.
We don’t expect to see any remedy implemented before the end of financial year 2020/21. Therefore, issues around FRS102 and audit will once again need to be addressed.
Tax implications
We expect pension tax issues be decided centrally. We anticipate that a notional underpin may need to be taken into account in annual allowance calculations for active members going forward and that revisions to previous years’ calculations for all members may be necessary.
Cost cap
We understand that cost cap calculations will be re-run once the McCloud remedy has been agreed i.e. McCloud costs will be fed into the cost cap calculations.
Administration issues
We do not underestimate the challenges and concerns around administration and scheme complexity. However, decisions on the scope, extent and nature of the remedy will be largely driven by the views of government lawyers. They will seek to ensure that any agreed remedy removes, as far as possible, the risk of challenge.
Other public service pension schemes
We understand that there will be one high level policy consultation for the other public service pension schemes (apart from the Judges’ pension scheme).
Following the McCloud judgment the judges and firefighter cases were referred back to Employment Tribunals for remedy. The police case (Aaron and others), which was previously stayed pending the outcome of the McCloud judgment, was also referred for remedy.
Case management hearings have now taken place in respect of the judges and police cases; the case management hearing for the firefighter case is due to take place on 18 December 2019.
Both tribunals issued interim declarations providing that claimants who were active members on 31 March 2012 are entitled to be treated as having met the conditions for full transitional protection i.e. as if they had remained in their final salary scheme after 1 April 2015. Government have confirmed that non litigants in both the judges and police schemes will be treated in the same way, as will members of all other public service pension schemes. There are however many issues and questions to be dealt with before any final decision on a remedy can be arrived at.
The Chief Secretary to the Treasury announced in a written statement that ‘the government believes that the difference in treatment will need to be remedied across all those schemes. This includes schemes for the NHS, civil service, local government, teachers, police, armed forces, judiciary and fire and rescue workers. Continuing to resist the full implications of the judgment in Court would only add to the uncertainty experienced by members.
Statement by the Chief Secretary to the Treasury on McCloud remedies (parliament web site)
The SAB has published an advice note covering the implications of McCloud/Cost Cap in relation to the 2019 fund valuations:
Minister response letter regarding the pause of the SAB cost management process:
Letter from Minister regarding pause of SAB cost management process (pdf 42kb)
On 14th February the SAB published a Q&A on the McCloud case and it's potential impact on cost cap for administering authorities. Please see the link below:
The McCloud case Q&A for administering authorities page (opens in new window)
The above page will be updated as and when new information becomes available
On 7th February the SAB received confirmation that the cost cap pause and the uncertainty caused by the McCloud case announced in last week’s Written Ministerial Statement (see 30th January 2019 WMS on cost cap below) applies equally to the LGPS as to the unfunded public service pension schemes. Given that confirmation the SAB considers it has no option but to pause its own cost management process pending the outcome of McCloud.
As a result there are currently no changes to benefits planned in respect of the cost cap. This situation will be reviewed once McCloud is resolved which is not expected for some months.
Letter confirming application of WMS to LGPS (pdf 121kb)
Letter from SAB pausing the cost management process (PDF 78kb)
On 30th January the Government announced a pause in the cost cap process due to uncertainty caused by a court ruling on elements of the 2014/15 scheme reforms. The Written Ministerial Statement setting out the reason for the pause is listed below, together with a summary of and the the full Court of Appeal ruling in the case of The Lord Chancellor and Secretary of State for Justice and another v McCloud and Mostyn and others [2018] and Sargeant v London Fire and Emergency Planning Authority and others [2018]. Also listed is a letter from MHCLG confirming that the WMS applies equally to the LGPS as to the unfunded public service schemes.
