McCloud

Understanding the impact of the McCloud judgment starts with your data.

What’s the McCloud judgment?

In 2015, the government introduced reforms to public service pension schemes and most active members were moved into the new career average schemes with later normal retirement ages. The government created some transitional rules for workers within 10 years of retirement to protect them from the changes, on the basis that they had less time to plan for their retirement.

These changes were challenged by members of the Judicial (the McCloud case) and Firefighters’ pension schemes on the grounds of age discrimination. In July 2019 the Court of Appeal ruled that younger workers – those more than 10 years from retirement – were unfairly discriminated against.

The government accepted the Court’s decision and has confirmed that the difference in treatment will need to be remedied across the board. All public service schemes including those for the NHS, Civil Service, Teachers, Local Government, Armed Forces, Judicial, Police and Firefighters will be affected.

Get ahead by preparing early

In the case of the Judicial and Firefighter schemes, the Employment Tribunal are working out how a remedy should be applied to correct members’ positions. Although it’s  understood that the LGPS will have its own consultation, it’s likely that the high level decisions made here will need to be rolled out across all public sector schemes.

So, what can you do now?

We’ve set out some steps to help you prepare for the implementation of the McCloud remedy. Whilst the finer details of the remedy are yet to be agreed, some high level principles are known and there is much that can be done in order to prepare for the significant administrative challenge of implementing the remedy.

Step 1 – Assess the quality of your data and the likely impact on your members

Begin by assessing the scale of the implementation project – we can help you with this by:

  • Analysing your active membership and identifying members likely to be affected.
  • Identifying affected members who are no longer in active membership.
  • Estimating the scale of impact on members’ benefits.
  • Assessing data quality and working out what data is missing.
  • Helping you prioritise certain groups of members, such as those receiving payments and those approaching retirement, ready to implement any remedy.
  • Helping you prioritise certain employer groups enabling you to obtain missing data.

By carrying out this impact assessment sooner rather than later you can start planning your implementation project, including resourcing, member communications and employer liaison.

Step 2 – Ensure you have the data you need

Once we’ve analysed your data, get ahead by commencing your data cleanse. This will include:

  • Obtaining missing data from employers or other sources, particularly part-time and service break information. But this could also include any data required to recalculate benefits for those who have left active membership.
  • Agreeing an approach where missing data is unobtainable.
  • Carrying out a basic member data cleanse – tracking down members you’ve lost touch with as well as mortality screening.

Step 3 – Implementation

The biggest step. But by carefully planning and performing a data cleanse in the earlier stages, implementing a remedy will be easier. There are two main areas:

Remediation

  • Members affected will need to have their benefits increased where benefits have been underpaid.
  • Possible system changes to ensure future calculation of benefits is on the remedied basis.
  • Underpayments for any pensions in payment will need to be made.
  • Consider if it’s necessary to extend choices to members which were available under the old scheme, e.g. the right to retire on unreduced benefits.
  • Think about whether any members could also be impacted by GMP rectification. We can help you assess this on a member by member basis.

Communication

  • You’ll need to let members know how their benefits have been impacted.
  • You may need to track down members you’ve lost touch with – we can help with this as part of our early data analysis.
  • Communications can become more complex if GMP rectification is in the mix.
  • If an options exercise is considered, you may need a communications plan to get the right messages to the right members.

What’s next?

We’re following all the latest thinking around implementation of a remedy and are already working with public sector schemes to prepare their data and assess the impact. Find out how we can help you by getting in touch.

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