Claire Hey
Unless you’ve been hiding out under a very large pension-shaped rock for the past six or more years, you’ve probably heard of a little thing called McCloud.
We use the term McCloud to refer to a legal judgment relating to the Judicial and Firefighters’ Pension Schemes which deemed that the age-related protections introduced as part of the wider Public Service Pension reforms between 2014 and 2015 were discriminatory. Those protections were based on an individual’s age on 1 April 2012. If you happen to be a Fire enthusiast like me, you might also refer to it as Sargeant.
Following the government’s acceptance of the legal determination and a substantial round of consultations, it has been more or less determined how discrimination will be rectified across all Public Service schemes. Different remedies apply, depending on how protections were granted in the first instance, which means that rectification for the Local Government Pension Scheme (LGPS) looks very different for remedy in the Police and Firefighters’ Schemes.
What both have in common though is data.
Preparing for McCloud: Data, data, data
We already know that data underpins all things pensions. So much so that Heywood has a suite of products and services dedicated to improving it. And the Pensions Regulator asks schemes to report a data score every year as part of their scheme return.
However, McCloud takes data requirements to a whole new level. In this article, we look at what those requirements are, how Heywood can help schemes meet them, and the implications of the relevant data not being available for the McCloud implementation date of 1 October 2023 – just one short month away.
LGPS
The LGPS moved from final salary to CARE accrual on 1 April 2014 or 2015 depending on the scheme’s jurisdiction. Some members were given age-related protection by way of an underpin calculation which compared final salary to equivalent CARE benefits at retirement and awarded the higher of the two. For any members who did not qualify for protection, most administering authorities stopped collecting changes of hours and service break information from scheme employers as this was not required for the purposes of calculating a CARE pension.
Rectification of discrimination for the LGPS is being delivered by extending the final salary v’s CARE underpin to all members with service between CARE start date and 31 March 2022 (the ‘underpin period’), who were in pensionable service in a Public Service scheme on or before 31 March 2012, and who do not have a break in service of more than five years.
To carry out the comparison of benefits within the underpin period, a complete service history, including changes of working hours and breaks in service, is needed. For LGPS administering authorities, this involves the painstaking task of collecting seven- or eight-years’ worth of legacy data from a multitude of employers, often numbering into the hundreds. To assist them with this, tools and guidance were provided by the Local Government Association. These tools were also used by Heywood to develop a set of database reports to extract existing data from the administration system, and corresponding interfaces to load the shiny new data back in.
Police and Fire
For our friends in Police and Fire, the government’s solution is slightly more complicated. When the CARE scheme was introduced in April 2015, some police officers and firefighters were given full protection to remain in their final salary scheme, some moved into CARE immediately, and some transitioned into CARE on a tapered basis over a period of four years.
To make sure that all members are being treated equally for future benefit accrual, as well as removing past discrimination, remedy is being applied for Police and Fire in two stages. The first stage was to move all remaining, protected members to CARE on 1 April 2022.
So far so good.
The second stage will be implemented from 1 October 2023 and involves reverting any CARE accrual in the seven-year ‘remedy period’ (1 April 2015 – 31 March 2022) to final salary service. Members will then be given a choice of which benefits they want to receive for that period, either at the point the benefits are brought into payment, or for pensioners and deceased members as soon as practicable after 1 October this year.
In terms of data, this means that a full picture of both final salary and CARE build up must be created on a member’s record for the remedy period, so that they can be given the relevant choices at retirement – including a notional CARE record for fully protected members who remained in the final salary schemes.
While Police Forces and Fire & Rescue Authorities operate a single employer scheme and therefore do not have the same issues in attempting to collect information from a wide range of sources, the sheer volume of data required and the nuances between the final salary and CARE schemes makes the process exponentially more challenging.
As with the LGPS exercise, tools and guidance were provided by the Local Government Association and powerful means of exporting and importing necessary data items were developed by Heywood.
The clock is ticking
Following discussions with administrators across all schemes, it is clear that the data collection and reconciliation exercise is not as advanced as might be hoped by this point.
There are various reasons why that is the case. For example, resourcing pressures and conflicting priorities; recalcitrant employers or those no longer in existence (for LGPS); changes to payroll provider or pensions software system, or both. Not to mention individual member-level challenges such as transfers-in or -out.
Unfortunately, the stark reality is that without complete and accurate data for the underpin/ remedy period (as well as the remainder of an individual’s service) the McCloud calculations are either not going run at all or will run but not be correct.
As these new requirements have arisen as the result of a binding legal judgment, it is essential that members are offered the correct benefits and can make an informed decision (where necessary) at the appropriate time. Not providing the correct information, in line with the legislative timescales, may lead to increased complaints and, potentially, future legal challenges.
We urge all administrators to complete the data collection exercise as soon as possible and as accurately as possible within the remaining month to implementation, and where some data has been received already, to test the interfacing functionality to be as prepared as possible for McCloud go-live.
How Heywood Pension Technologies can help
In addition to the standard reporting and interface tools detailed above, Heywood offers a dedicated McCloud data readiness dashboard in Insights which allows detailed analysis of member data and inbuilt validation. Heywood can also offer additional bespoke support to administrators with uploading and reconciling employer submissions.
Heywood strives to maintain a supportive and collaborative relationship with its customers, providing regular bulletins, webinars, and opportunities for networking with like-minded colleagues.
For more information, or to find out how we can support you in your preparations, contact us.
