MHCLG called on to outline McCloud regulations as soon as possible

Aon has urged the Ministry of Housing, Communities and Local Government (MHCLG) to outline McCloud regulations for the Local Government Pension Scheme (LGPS) in England and Wales "as soon as possible" in light of the “significant issues” they could pose.

The firm also called on LGPS fund administrators to move ahead where possible with preparations for the changes in an effort to avoid further delays.

Aon predicted that the judgement will affect around 1.5 million members of the LGPS, stating that the job of implementing it would “at the best of times” present a significant challenge to administrators.

However, it warned that administrators could “easily be overwhelmed” by the amount of change facing them over the next couple year, with further issues arising around the £95,000 cap, the cost management exercise, GMP indexation and equalisation, and the challenges of the Covid-19 pandemic.

Aon partner, Alison Murray, stated: “We understand that the government’s preference is for changes to the Public Service Pensions Act (which is required to implement the McCloud judgement in the unfunded schemes) to be made before amendments to the LGPS regulations are finalised.

“The hope had been that this would not unduly delay the LGPS legislation. However, with the various other legislative priorities at present, the timetable appears to be at risk.”

Murray explained that it would be disappointing if the McCloud changes to the LGPS were also delayed due to external factors, given the significant issues faced in the mis-timing of legislation from different parts of government in relation to the exit cap.

Considering this, she emphasised that it is "imperative" that MHCLG provides software providers with enough detail on the content of the final LGPS regulations to ensure the provisions can be implemented by the effective date, if they are unable to finalise the regulations in good time.

She added: “Despite all this, at Aon we have been helping our clients plan their McCloud implementation and to progress the areas that they can control.

"That includes data collection, initial member/employer communication, identifying the resources they are likely to need, as well as planning mitigations for the risks of delayed regulations and software changes.

“Many are taking advantage of using an independent project manager as that frees up time for pension managers and other senior staff who would otherwise have to commit a great deal of time and worry to setting up and running the McCloud project.”

Adding to this, Aon senior consultant, Virginia Burke, stressed that this is not just a matter of legislation needing to make its way through the system, clarifying that most LGPS administrators rely on external providers for their software, presenting another cause for concern.

She continued: “Changes to administration systems can take a year or more to implement and until the software is updated and tested, administrators will be unable - without an unsustainable amount of manual intervention - to administer casework in line with the new regulations, let alone to review all the calculations for members who have already left service.

“If systems and processes are not updated in time, there could be a snowball effect on administering newly retiring members’ benefits, death benefits, transfers, etc, leading to backlogs and repercussions for other work within the team.

“Faced with this, administrators will struggle to deal with the McCloud leavers’ benefits review. This could mean members who are receiving benefits might actually be getting paid less than they are entitled to for a significant amount of time.

“That could lead to complaints and, in the worse-case scenario, financial loss and hardship.”

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