The McCloud Judgement has had a huge impact on public service pension schemes, posing a significant challenge for scheme administrators to ensure that they are compliant with the ruling.
If your scheme is impacted by the McCloud Judgement, Heywood Pensions Technologies can help. We are collaborating closely with our customers, regulatory bodies and industry working groups to implement simple, cost-effective solutions to ensure you can offer a great experience to affected members. Find out how we can help you by getting in touch.
What is the McCloud Judgement?
On 20 December 2018, The Court of Appeal determined that the transitional protection arrangements contained within the Firefighters’ and Judicial pension schemes (introduced as part of pension scheme reforms in 2015) constituted unlawful discrimination. This is commonly known as the McCloud judgement. Whilst the Court of Appeal decision relates specifically to the Firefighters and Judges’ schemes, HM Treasury has confirmed that it impacts all main public service schemes.
The discrimination identified will be addressed through legislative changes that will apply to all public service pension schemes. Every member active in a pension scheme prior to the introduction of the CARE (Career Average Revalued Earnings) scheme will be entitled to the better of either their final salary benefits or the CARE benefits accrued from the introduction of CARE. For members of non-Local Government Pension schemes, the members will have a choice of final salary or CARE benefits for the remedy period (1 April 2015 to 31 March 2022).
As part of the remedy for the McCloud judgement and in response to the subsequent legislative changes, it is expected that schemes will need to:
- Identify members within scope of the judgement and ensure all necessary data is accurately held for them.
- Review the benefits paid to scheme members within scope that have received benefits since 1 April 2014 (Local Government in England and Wales) or 1 April 2015 (all other schemes), and adjust those benefits where necessary.
- Have a process in place for dealing with any cases within the scope of the immediate detriment guidance.
- For benefits paid from 1 April 2022, provide members of non Local Government pension schemes within scope with a choice of which scheme they elect to be in for the period 1 April 2015 – 31 March 2022 inclusive, and enact this choice when paying their benefits. The deadline for having this in place is 1 October 2023.Ensure that members’ scheme benefit options are considered during periodic bulk processes, e.g. Annual Benefit Statements and Pensions Increase.
To start, you will need to assess your data to identify which members are within the scope of the McCloud Judgement – this will typically be members who were active both prior to (as at 31 March 2012) and after the introduction of CARE (31 March 2014 or 2015, depending on the scheme).
For all of these members, you will need to ensure that you have a record of their full-service history and complete CARE details – many schemes stopped collecting this data when Pension Reforms were implemented in 2014/2015. If you don’t have this data, you will need to obtain it and load it into your administration system.
Heywood Pensions Technologies can help you with this exercise, offering a full range of services; from a toolset to help you manage the exercise yourself to a full end-to-end managed service including:
A detailed analysis of your member data, identifying which members may be impacted and the data that is missing.
Produce templates, ready to be sent to your employers to submit data for the impacted members.
Liaise with your employers to gather the missing information .
Collate the employer data submissions and carry out integrity checks on this information.
Upload the data into Altair member records and carry out reconciliations between Altair and the employer submissions.
Full project management, including progress reporting.
You will need to review all casework and/or benefits paid to members within scope of the McCloud Judgement. We can help you:
Identify what casework and benefits may be impacted by the McCloud Judgement.
Creation of bulk routines to carry out ‘what if?’ scenario modelling, for example calculating the member opting to take their benefits on a different scheme basis (Final Salary or CARE).
Prioritise members for remediation and plan a communication strategy.
Remediation and Communication
Once you understand which members are impacted, you might need to revise or recalculate their benefits to take account of the McCloud Judgement, potentially offering them a choice of which scheme they wish to draw benefits from. You will also need to ensure that any benefits paid in future are compliant with the McCloud Judgement.
Heywood Pensions Technologies can help you every step of the way, including:
Bulk recalculation of member benefits.
Rectification of benefits, including considerations around additional contributions or underpayments.
Ensure that benefit calculation rules automatically apply the McCloud Judgement for future calculations.
Running an options exercise if required to allow members to choose which scheme (Final Salary or CARE) to draw benefits from.
Communicating with members to ensure that they understand the options and the impact on them.
Tracking down members you have lost touch with.
The benefits of our approach include:
Our fully managed services reduce the burden on business-as-usual operations.
Allows you to quickly gain an understanding of your potential exposure.
Helps you to adopt a consistent, controlled approach.
Decreases your dependence on in-house analysis abilities.
Leverages Heywood's unrivalled knowledge of McCloud, your scheme and the member data structure.
Helps you to meet the tight timescales associated with the data collection exercise and remedy implementation.