Bespoke McCloud remedy for LGPS set to be clear by summer 2020

LGPS funds will have a clearer idea about the administration challenges facing them to remedy the outcome of the McCloud court judgement by the second quarter of next year, according to the secretary of the LGPS Advisory Board.

In July, the Supreme Court ruled that 2015 changes to the public sector pensions had discriminated against younger employees.

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The board is currently in discussions with lawyers and the Government Actuary’s Department on what action funds will need to take to compensate members who have lost out in recent years.

The board said that it understands that the LGPS will be treated separately from the rest of the public sector in respect of the McCloud remedy.

A statement from the board said: “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.”

However, speaking to Room 151 this week, board secretary Jeff Houston said that the shape of action that funds will need to take would be clearer by the first quarter of next financial year.

He warned that resolving the issue could be an “administrative nightmare” for funds.

The board said that 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.

It said: “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.”

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, the statement said.

On the tax implications, the board said 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”.

The board added that it understands that cost cap calculations will be re-run once the McCloud remedy has been agreed, meaning McCloud costs will be fed into the cost cap calculations.

In July, writing on Room 151, Tony Williams, head of pensions risk policy and strategy, Local Pensions Partnership said the McCloud judgement “has significant implications, not just for the LGPS but all public sector pension schemes and whether they continue to remain affordable”.

In May, Michael Scanlon, deputy chief actuary in the Government Actuary’s Department said funds are likely to face an increase in their liabilities of up to 1% as a result of the case.

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