McCloud - in a nutshell
Terry Saeedi and Matthew Ambler from the Irwin Mitchell Pensions team, explain the McCloud remedy for employers with staff members in either the Teachers Pension Scheme or the Local Government Pension Scheme.
What is the McCloud ruling?
McCloud is the case which ruled that the way public service pension schemes were changed in 2014 and 2015 was age discriminatory. The name of the case comes from a member of the Judicial Pension Scheme who was involved in it.
How were public service pension schemes changed in 2014?
In 2014/15, after a long review into their sustainability, the Government created new public service pension schemes which provided benefits based on career average earnings (CARE) rather than final salary. Benefits for individual scheme members nearing retirement age were protected with transitional provisions.
In December 2018, the Court of Appeal ruled that younger members of 2 schemes, the Firefighters and Judicial Pension Schemes, had been unlawfully discriminated against.
How did the Government respond?
Ultimately, the Government accepted that the McCloud judgment affected all the public sector pension schemes and enacted legislation (the Public Service Pensions and Judicial Offices Act 2022) to remove the discriminatory provisions.
Broadly this Act and separate regulations for each affected scheme extend the benefit protections beyond the group of older employees who were originally protected and make the switch to CARE benefits effective at a later date (1 April 2022).
The Government has also issued tax regulations and guidance designed to ensure that scheme members are put in the tax position they would have been in had the discrimination not happened.
What is the effect of the McCloud ruling?
It created a Remedy Period of 7 years (1 April 2015 to 31 March 2022) for all schemes except the LGPS. The Remedy Period for the LGPS is 8 years and runs from 1 April 2014 to 31 March 2022.
It has added significantly to the public service pension scheme liabilities because more individuals will be entitled to final salary benefits for a longer period of time. These liabilities will eventually feed into the funding requests made of employers with employees in the public service pension schemes.
How does the McCloud remedy work?
There are two phases – phase 1 ensures equal treatment from 1 April 2022 by putting everyone in the new CARE schemes. It has closed the discriminatory elements.
Phase 2 gives “eligible members” a choice about the type of benefits (final salary or CARE) they want to receive for the Remedy Period.
What do employers in the education sector need to do?
The government is responsible for implementing the McCloud remedy for both the Teachers’ Pension Scheme (TPS) and the Local Government Pension Scheme (LGPS).
Eligible scheme members will be offered a choice of benefits for the Remedy Period as part of their retirement process.
Employers need to be aware that these additional liabilities will feed into the funding requests made over the next few years and are likely to increase funding costs.
What should we tell staff members who ask us about McCloud?
LGPS members can find out about McCloud here: What is the McCloud Remedy? :: LGPS (lgpsmember.org). They can also use an online questionnaire called “Am I affected” to find out how it impacts them: Am I affected :: LGPS (lgpsmember.org)
TPS members can find out McCloud on the TPS website here: Transitional Protection | Scheme Changes | Teachers' Pensions (teacherspensions.co.uk). They need to look for “Transitional Protection” rather than “McCloud”. There is a decision tree, a video called “Am I affected” and a help bot.
How can I find out more and get advice?
Please contact Terry Saeedi, Pensions Partner via email or by calling 0113 3946846
We provide regular legal updates for business Please click here if you wish to subscribe to our content.
