Concerns around McCloud remedy costings persist

Industry organisations have supported the government’s proposals for a delayed approach following the McCloud judgment, although concerns around member communications and the cost of the remedy persist.

The government's response to the McCloud consultation, published yesterday, confirmed that it intends to proceed with the deferred choice underpin (DCU) approach when providing members with their options following the McCloud judgment.

Hymans Robertson head of LGPS consulting, Catherine McFadyen, praised the government for heeding the comments of respondents, who called for members to be allowed to make a choice at retirement, rather than make an immediate choice based on assumptions.

"The deferred choice approach provides greater security for members and avoids the administrative challenge of carrying out an immediate options exercise for 3 million members," she said.

However, she warned that it would be a huge challenge to implement these changes alongside revisiting any benefits changes as a result of the 2016 cost control valuations, urging the treasury to complete the cost management process as "soon as possible".

AJ Bell senior analyst, Tom Selby, echoed concerns around the costings, noting that the solution to the "colossal pensions debacle" will reportedly cost an "eye-watering £17bn" to put right.

“The Treasury says those costs will ‘feed into employer contribution rates’, meaning pension costs for public sector employers are almost certainly going to go up, placing a drain on resources at the worst possible time,” he added.

The British Medical Association (BMA) has also raised concerns that members will be “footing the bill” for these changes, as a result of costs feeding back into the scheme, emphasising that this was a situation entirely of the government’s making and called for broader reforms to the scheme.

“The complex NHS pension system and its punitive taxation arrangements are key reasons behind the medical recruitment and retention crisis, and it is vital that there is real reform, including the scrapping of the annual allowance in defined benefit schemes, to ensure fairness and to allow doctors and other healthcare workers to remain in the profession treating patients,” BMA pensions committee chair, Dr Vishal Sharma, stated.

Indeed, BMA's response to the consultation called for "absolute assurance" that doctors would not have to shoulder any payment for the solution.

Furthermore, Sharma stated that the BMA had also been clear in its response that doctors must not be forced to make an immediate decision on which scheme to be a part of, especially in the midst of a pandemic "when they’re facing the most intense pressures of their careers".

“It’s therefore common sense that the government has listened to us and opted for deferred choice, with this crucial decision being made at the time of retirement,” he said.

“However, while the move to a deferred choice model was the only acceptable option for our members, the failure to adequately ensure those who made decisions based on the age discrimination are able to rectify these is worrying.”

In particular, he noted that doctors may have opted out of the scheme, taken early retirement, cancelled added years contracts or decided to work part-time, with knock-on effects to their pension entitlement.

The government’s response confirmed these decisions will be assessed on a case-by-case basis, requiring doctors to prove that these decisions were made as a result of the discrimination.

However, Sharma warned that this puts all of the onus on individual members and is a “huge administrative burden” for doctors when they should be focusing on patients.

“The approach should be far more streamlined, giving automatic eligibility to members in certain circumstances to purchase any pension entitlement lost as a result of these decisions,” he stated.

Issues around uncertainty have also been raised more broadly, despite the proposals being praised for providing greater certainty at the point of retirement, as LCP partner, Steve Webb, warns that the plans represent “decades of complexity” for public servants until that point.

He said: “It is understandable that the Treasury would opt for a ‘deferred choice’ where members can look back and see which scheme would have been better for them.

“But between now and retirement this means that members will simply not know what their pension is going to be and will also have to hope that future governments keep this promise. This will make retirement planning even more uncertain.

"Members will need clear communications about where they stand and support in understanding how their pension has been worked out.

“There is no doubt that unpicking this mess will lead to decades of complexity and uncertainty for public service pension scheme members”.

Royal London senior intermediary development and technical manager, Moira Warner, echoed this, adding: “Although these proposals seek to bring to an end a longstanding legal issue and prevent further litigation going forward, this is above all a human issue.

“The solution is complex and, for some impacted members, means that the position won’t be completely resolved for many decades. Responses to the consultation from individuals make clear that many are worried about the continuing uncertainty at a time when life itself seems uncertain due to the pandemic."

She continued: “They are concerned at the possible additional personal burden of having to revisit their tax position over a number of years. Others are concerned that putting things right will simply be forgotten or overlooked by their scheme many years into the future.

“As the Chief Secretary to the Treasury has noted, these workers “provide vital services that all of us count on, and their unwavering commitment is inspiring”.

"So public service pension schemes have a real and moral duty to ensure relevant member communications and other support is as clear, balanced and jargon-free as possible.”

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