LGPS funds urged to act soon in assessing impact of McCloud ruling

Local Government Pension Scheme (LGPS) administering authorities need to act quickly in carrying out impact assessments to see how many of their members will be affected by the McCloud ruling, Aon has said.

The McCloud judgment ruled that changes to public service pension schemes, where older members were allowed to remain in final salary pension schemes and younger members had to move to new career average schemes, were unlawful on the grounds of age discrimination.

Aon noted that it is expected that, to remove age discrimination, relevant members of public service schemes will be given a choice of accrual between the legacy and reformed schemes.

However, it warned that the situation is “slightly different” in the LGPS, as protection was via an underpin.

Aon encouraged LGPS administering authorities to carry out an impact assessment to see how many members fall into the scope of McCloud, to get their core team together to consider how they will implement McCloud and how it will affect their fund, to prepare to collect data from employers, and to respond to the forthcoming consultation.

“It’s clear that LGPS schemes face a real administrative challenge to meet the requirements of McCloud,” said Aon partner, Alison Murray.

“Given the significant number of members who will need their benefits checked - and irrespective of whether they will actually increase - implementing changes to legislation resulting from the McCloud judgment is likely to represent the largest administrative headache for public service schemes since the 2014/15 reforms.

“Around 1-1.5 million members of the LGPS are potentially in scope in England and Wales alone.

“We expect this work to take two years or more and that it will require significant additional resources, even if much of the more straightforward data collection and casework can be automated.”

Aon added that it has been assisting many of its LGPS clients in assessing the impact on their funds, and work to make the changes happen is expected to encompass data collection, backdating pension calculations and changes to ongoing administration processes, systems, and communications.

Murray continued: “Pensions administration teams are already stretched, given Covid-19 and the challenges of working from home, not to mention an ever-increasing list of projects. These include GMP rectification, data improvement, systems improvements, and other legal challenges which may have a retrospective effect on survivors' benefits.

“We expect the Ministry of Housing, Communities & Local Government to publish a consultation on the draft regulations shortly - hopefully before the summer parliamentary recess. But funds don’t need to wait for final regulations before getting started with planning and data collection – in fact it could be a mistake to delay.

"It was therefore reassuring that Aon's webinar polling showed that 57 per cent of respondents had already started initial planning to implement McCloud.”

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