McCloud
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 McCloud?
On 20 December 2018, the Court of Appeal determined that the transitional protection arrangements introduced to the Firefighters’ and Judicial pension schemes as part of wider pension scheme reforms in 2015 constituted unlawful discrimination. This is commonly known as the McCloud judgment. While the Court of Appeal decision related specifically to the Firefighters’ and Judges’ schemes, HM Treasury confirmed in 2019 that the judgment impacts all main public service schemes.
A public consultation took place between July and October 2020 and the discrimination identified by the courts is being addressed in two stages through legislative changes that will apply to all public service pension schemes.
Firstly, all previously protected members were moved from their final salary schemes to the relevant CARE (Career Average Revalued Earnings) scheme from 1 April 2022 to remove future discrimination.
Secondly, every eligible member will be entitled to the better of either their final salary benefits or the CARE benefits accrued during the “remedy period”. To be eligible a member must have been active in a public service pension scheme on/ before 31 March 2012 and at the start date of the CARE scheme, and not had a break in service of more than five years.
For members of the Local Government Pension Scheme (LGPS), the remedy period is 1 April 2014 to 31 March 2022 and the "better of” calculation will be automatically applied as an underpin at retirement.
For members of other public service pension schemes, members will be given a choice of final salary or CARE benefits for the remedy period (1 April 2015 to 31 March 2022) at retirement, or as soon as possible after 1 October 2023 if they have already retired.
As part of the remedy for the McCloud judgment and in response to the subsequent legislative changes, schemes will need to:
- Ensure all members are accruing CARE benefits from 1 April 2022.
- Identify members within scope of the judgment 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.
- For benefits paid from 1 October 2023, provide members of non-LGPS schemes within scope with a choice of final salary or CARE benefits for the period 1 April 2015 – 31 March 2022 inclusive, and enact this choice when paying their benefits.
- Apply the underpin calculation correctly for LGPS members retiring from 1 October 2023 onwards.
- Ensure that members’ scheme benefit options are considered during periodic bulk processes, e.g., Annual Benefit Statements and Pensions Increase.
Heywood is developing tools, processes, and calculations to ensure that these legislative requirements can be met.
Data Assessment
To start, you will need to assess your data to identify which members are within the scope of the McCloud judgment – this will typically be members who were active both prior to (as of 31 March 2012) and after the introduction of CARE (31 March 2014 or 2015, depending on the scheme). This includes active membership of a different public service scheme or where a member has a multiple employment in the same scheme.
For all of these members, you will need to ensure that you have a record of their full service history, and for non-LGPS schemes, both final salary and CARE details for the remedy period, regardless of the member’s previous protection status. Many schemes stopped collecting this data when the CARE schemes 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.
Case Review
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 McCloud judgement, potentially offering them a choice of which scheme they wish to draw benefits from. You will also need to ensure that all benefits paid in future are compliant with the McCloud judgement.
Heywood Pensions Technologies can help you every step of the way, including:
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 including production of relevant fields to include in Remediable Service Statements (RSS).
Communicating with members to ensure that they understand the options and the impact on them.
Tracking down members you have lost touch with.
Benefits
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.
About Heywood
Heywood Pension Technologies builds modern software solutions for pension schemes, pension administrators and employers to help transform how their members manage their lifelong financial journeys.
