The Government are planning a public consultation on the McCloud judgement – there’s no doubt that’s good news for members – but what does it mean for schemes? Here’s 3 things schemes should do now to prepare.
What is it?
Back in 2014-2015 the Government reformed public service pension schemes. Most active members were moved from a final salary based pension to a career average scheme with later retirement ages.
The Government added in a buffer for those within 10 years of retirement, protecting them from the changes. But some members challenged the changes on the grounds of age discrimination and in 2019 McCloud and Sargeant won their cases.
What needs to be done?
All public sector schemes will need to remedy, making sure members of different ages are put in a fair position. There is no simple way to do this – and the Employment Tribunal are still deliberating on the most effective methods.
It could mean public sector schemes will need to reinstate the older final salary scheme for members and calculate the difference over the last few years, so they can put it right. Or perhaps a dual record approach might be the way to go – calculating what a member would’ve had within the final salary scheme and comparing it to what they do have with their career average one, then making up the difference.
It’s likely that a ‘one size fits all’ approach isn’t going to work – with some members actually better off in the career average scheme. The Government needs to think carefully about their approach if they’re to avoid future claims of discrimination.
What are the challenges?
At the moment, it all hinges on the outcome and recommendations set out by the Employment Tribunal. In the meantime, the Government plans to launch a public consultation.
Local Government Pension Schemes are to be treated differently from other public sector schemes – likely with an increase in provision via underpin.
The Public and Commercial Services Union are calling for members to be given a choice so they can maximise their benefits. But that would be very tricky to administer and to explain the intricacies to members.
There are so many decisions, moving parts and complexities which need to be ironed out before a remedy can be implemented.
Whatever the method, there’s an overwhelming understanding that the success of any remedy will be based on good data, administration practices and member communications.
So, what can schemes do now?
Although McCloud is a fairly new issue in pensions, it’s not that dissimilar to other cases and rectifications in the wider pensions industry – things we can learn from.
The biggest and most valuable thing a scheme can do now is analyse, assess and cleanse their data.
ANALYSE – Firstly, you’ll want to identify the members who’ll be affected and understand the potential financial liability.
ASSESS – Then, carrying out a data audit should be top of the list. Checking what data you have, what is missing and where you might find it is going to be vital to the success of any method.
CLEANSE – Lastly, it’s extremely likely you’ll need to communicate with your members. You’ll want to make sure they haven’t died, and you’ll need their current addresses. This is information you can gather now.
Don’t sit on the fence when it comes to prepping
Schemes can’t wait when it comes to preparing. Waiting for final methods and decisions to be made before taking any action is going to stretch your resources. But planning ahead and spreading the project cost and resource intensity over time will put you in the best position, whatever the remedy.