LGPS - McLoud judgement

MatthewPaul

Anyone have any idea of the likely/possible impact on the McLoud judgement.
I am enquiring from the point of view of Local Authority LGPS pension recipients.

drumtochty

Perhaps it may help if you provide a short summary of the judgement to assist other readers.

hyubh

drumtochty wrote: »

Perhaps it may help if you provide a short summary of the judgement to assist other readers.

There has already been threads on this from a civil service person scheme point of view. From an LGPS one, you can't do better than this for a summary:

https://www.lgpsboard.org/index.php/structure-reform/cost-management/ccmcloud

Also this for follow-ups:
https://www.lgpsboard.org/index.php/structure-reform/mccloud-page

MatthewPaul

xxx.publicfinance.co.uk/news/2019/06/pension-ruling-leaves-treasury-facing-ps4bn-yearly-bill[/url

Unfortunately I cannot be more helpful.
If you google LGPS and McLoud you will get loads of sites but none of them are in any way helpful as to what the impact for recipients will be.

hyubh

MatthewPaul wrote: »

If you google LGPS and McLoud you will get loads of sites but none of them are in any way helpful as to what the impact for recipients will be.

The Scheme Advisory Board links I gave will give you as far as you can get authoritatively without just guessing.

In simple terms, you can expect the existing underpin to be extended for all who were active on 1 April 2012 and still a member when the scheme switched to CARE, affecting accrual up to 2022. This will include people who have now left and are deferred. Final pensionable pay for this will likely also be not capped to 2020. Details beyond that (including whether the coverage will have to be wider) are in the hands of government lawyers.

Trying_to_be_good

You need to google McCloud, not McLoud - that may be why you're not finding the info you want (although a lot is yet to be confirmed).

MatthewPaul

Thanks for your informative reply.

What is the significance of 2022 ( affecting accrual up to 2022).

The retirement age at the time of the change for LGPS purposes was 65.
This is now 67.
Is it possible that the retirement age for LGPS purposes will revert to 65.

hyubh

MatthewPaul wrote: »

What is the significance of 2022 ( affecting accrual up to 2022).

The original protection was for members within 10 years of normal retirement age as at 1 April 2012. Ergo, the original underpin was to fall away 10 years after that, in 2022.

That said, you can't rule out the revised underpin extending beyond that, 2022 is just a plausible minimum.

The retirement age at the time of the change for LGPS purposes was 65.

Bit more complicated than that, since the original underpin allows for members with 85 year rule protection as well. However, I think it very unlikely extension of 85 year rule protections in itself would be part of the remedy, given the rule of 85 was itself removed on anti-age discrimination grounds some years before.

This is now 67.

More exactly, the member's state pension age under current government policy.

Is it possible that the retirement age for LGPS purposes will revert to 65.

While NRA talk is meaningful for certain other public sector schemes, it isn't for the LGPS, given the way the underpin works. In a nutshell, the underpin asks whether, on retirement, does a calculation under 2008 scheme terms extended to date of leaving produce a bigger pension than using the CARE scheme terms for 1 April 2014 to date of leaving?

So for example, take someone who joined in April 2008 and left 31 March 2020, and started to draw their pension the day after, on their 65th birthday. Two calculations would be done:

1. (Final pensionable pay x reckonable years 2008-14 x 1/60) + (CARE accruals 2014-20 (i.e. actual pay x 1/49, revalued by CPI) x actuarial reduction for going a bit early)

2. Final pensionable pay x reckonable years 2008-20 x 1/60

Whatever is the higher, the member gets. Were 1 April 2020 be their state pension date not their 65th birthday, it would be this variant:

1. (Final pensionable pay x reckonable years 2008-14 x 1/60 x actuarial increase for late retirement) + (CARE accruals 2014-20 (i.e. actual pay x 1/49, revalued by CPI))
   
2. Final pensionable pay x reckonable years 2008-20 x 1/60 x actuarial increase for late retirement

Same thing applies though: whatever comes out higher, the member gets.

In many cases, the much higher accrual rate of the CARE scheme, combined with public sector pay restraint, means the CARE scheme is more valuable even after the actuarial reduction if taken before SPA. Indeed, for the current underpin, hardly anyone protected has actually hit it.

However, there are various factors that mean extension of the underpin to younger members will potentially be much more costly:

• Younger people have more time to get promotions and therefore retrospectively increase the value of final salary service (this is the main one)
  
• It's only recently happened that SPA for new retirees has gone past 65
  
• Connected to the previous point, younger members will tend not to have rule of 85 protections, so retiring on CARE scheme NRA will nearly always involve an actuarial increase on final salary benefits. In contrast, an older retiree retiring at a SPA of 65 who reached the rule of 85 at 60 would have no actuarial increase (the 85 year rule just cancels the actuarial reduction if going before 65).

Rich2808

I am quite interested in seeing how this pans out.

I have 28 years continuous LGPS service (including 22 on the final salary scheme) - but am in my early 50s and my statutory retirement age isn't for another 16 years so did retain some 85 year rule protection but obviously not the full protection offered to those retiring by 2022. My salary has increased significantly since 2008.

Will I get full protection for accrued benefits up to 2022 or until I reach statutory retirement age in about 16 years. And what might this mean in tax terms in terms of potential breaching of the £40k annual allowance - will the uplifts be backdateable or will they hit in one year which could mean a huge tax hit?

Very little of the detail seems to actually have been clarified - unless I am missing something?

In theory its good news - but the annual allowance issue will also be of concern.

hyubh

Rich2808 wrote: »

I have 28 years continuous LGPS service (including 22 on the final salary scheme) - but am in my early 50s and my statutory retirement age isn't for another 16 years so did retain some 85 year rule protection but obviously not the full protection offered to those retiring by 2022.

Your understanding is incorrect. The underpin (= right to have more service count as 2008 scheme years if that comes out better) and 85 year rule protections (= right to retire early either without an actuarial reduction, or an ameliorated one) are different things. No one gained additional 85 year rule protections by virtue of the underpin, or for that matter lost them due to the CARE scheme coming in.

My salary has increased significantly since 2008.

In which case your service prior to April 2014 already benefits from that. The material thing is whether your salary (whole-time equivalent if part time, though I'd guess you're full time anyway?) has increased (or will increase) significantly compared to your CARE scheme years.

Will I get full protection for accrued benefits up to 2022 or until I reach statutory retirement age in about 16 years. And what might this mean in tax terms in terms of potential breaching of the £40k annual allowance - will the uplifts be backdateable or will they hit in one year which could mean a huge tax hit?

There are no answers yet.

Very little of the detail seems to actually have been clarified

Yes, a lot of the detail is still up in the air.

In theory its good news

To certain members with 2012-22 service not previously given the underpin, yes. For active members more generally, not so, since it has meant the cost cap process (which was to either reduce contributions or increase the CARE accrual rate) was stopped in its tracks.

mickybhoy67

Hi, with regard to this new judgement. I am a deferred LGPS Scotland member with 34 years service and I am currently 53 years old.  I’m still a member of an LGPS scheme. Can I retire at 55 without any reductions now following the implementation of the McCloud judgement ?