LGPS faces cost uncertainty after Supreme Court upholds McCloud ruling
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The Local Government Pension Scheme (LGPS) faces ongoing uncertainty over compensation costs after the Supreme Court ruled last week that 2015 changes to the public sector pensions had discriminated against younger employees.
Last week, judges ruled in favour of the Fire Brigades Union (FBU) and a group of judges led by Victoria McCloud, challenging the rule changes, which protected the pension benefits of older workers.
The Supreme Court ruling means that council pension funds will likely have to compensate and account for payments to ensure that no employee is left out of pocket.
The ruling said: “We have found that in both the judges’ and firefighters’ cases the manner in which the transitional provisions have been implemented has given rise to unlawful direct age discrimination.
“In neither case could the admitted direct age discrimination be justified.”
In May, Room151 reported comments by Michael Scanlon, deputy chief actuary in the Government Actuary’s Department, that LGPS funds are likely to face an increase in their liabilities of up to 1% if the government lost the case.
Speaking to Room 151 after last week’s ruling, Barry McKay, associate actuary at pension adviser Barnett Waddingham, said: “Given local authority accounting deadlines of 31 July, the immediate action for funds and employers will be to consider how they will allow for this in their accounting disclosures.
“We have already provided many funds with an estimate of this impact on their balance sheet.
“Funds will also need to consider if, and how much, to set aside in the 2019 valuations, which are now underway, given the nature of any remedy is unlikely to be known in time to accurately reflect in employer results.”
He said that further headaches would likely arise from more administration complexities resulting from the Supreme Court ruling.
McKay added: “Given the potential administrative complexity it will be key that any remedy can be implemented cost effectively.
”The remedy for the LGPS therefore might not necessarily be to apply the underpin to 2012 active members but instead something else of equal value like a one off pension increase or CARE revaluation.
“A practical, pragmatic solution in this case may be better than the theoretically correct one.”
Also speaking to Room 151, Jeff Houston, secretary to the Local Government Pension Scheme Advisory Board, said: “The decision by the Supreme Court removes some of the uncertainty surrounding the implications of the McCloud case but what we don’t know still significantly outweighs what we do.
“We now know that there will be a remedy but it remains uncertain what that remedy will be, how much it will cost and when it will be implemented.”
He said speculating on what the remedy might look like at this point “would not be helpful as there is still a long way to go before we get the certainty needed by employers and scheme members”.
After the ruling, a Treasury spokesperson said: “We are disappointed by this decision.
“The government will now consider how best to compensate those affected by the judgement as part of the court process.”
FBU general secretary Matt Wrack said: “Ministers have been doing everything they can to avoid paying back an estimated £2.4 billion they owe dedicated public sector workers’ pension pots.
“They should be ashamed of themselves – they are taking money from the people who keep our health service, councils and government running.
“The government should take the ruling as an opportunity to do the right thing and pay up what they owe.”
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