McCloud and LGPS

Plu2370

There was a recent thread on the proposed response to McCloud. Reading up on this in terms of the LGPS it looks like detailed remedy plans have already been consulted on but not yet implemented. 

Some of the key points I picked up on, and listing to check my understanding:

1. No one can be in be put in a worse position.

2. The calculation to determine if an individual has been disadvantaged will not just be done now but up to the point of retirement, so maybe 40+ years for now. 

3. For those who will benefit from McCloud the assessment for impact on annual or lifetime allowances will only be made when the pension is taken. 

4. For this impacted the final salary underpin will be extended up to April 2022, in affect replacing the CARE scheme for that period. Which will also mean this element is now payable from 65 and not NRA. 

I am considering now as I would like to make a contribution to my SIPP this tax year to use up all my unused annual allowance. However I won’t do this if McCloud means I need to recognise an increase in my pension in the next couple of years as I will need all the AA available. 

It seems I will significantly benefit from McCloud, having seen my pay more than triple since 2014 with the majority of that in recent years. All feels a little unbelievable, I appreciate my circumstances are probably at the extreme end but my rough calcs show this could be worth many tens of thousands to me in extra pension and early payment. Am I missing something? 

Dazed_and_C0nfused

4. For this impacted the final salary underpin will be extended up to April 2022, in affect replacing the CARE scheme for that period. Which will also mean this element is now payable from 65 and not NRA. 

I'm not sure it is necessarily that simple and to a certain degree it comes down to an individual's definition of what is a "worse position"

What you outline is the starting position but for some people they may be better opting for the new pension scheme, particularly when there is only a small difference in NPA.

Some of the new schemes accrue much larger basic pension entitlements (1/43rd compared to 1/80th for example) so even with actuarial reduction it may be a better option for some to opt for the new scheme for the remedy period.

Whereas for you it might make more sense to stick with the old scheme if you gain 7 years of a greatly increased final salary.

hyubh

Plu2370 said:

There was a recent thread on the proposed response to McCloud. Reading up on this in terms of the LGPS it looks like detailed remedy plans have already been consulted on but not yet implemented. 

Some of the key points I picked up on, and listing to check my understanding:

1. No one can be in be put in a worse position.

That's already the intent of the original underpin, and again for McCloud, yes.

2. The calculation to determine if an individual has been disadvantaged will not just be done now but up to the point of retirement, so maybe 40+ years for now.

No, when the member leaves (or so it is proposed). For the original underpin, it's on leaving with an entitlement to a pension being paid (which for the members covered by the original underpin will very likely have come to the same thing).

Are you still an active member yourself? Back in 2017 I recall you were thinking of giving up your LGPS membership for advancement within the company (you were working at an admission body where LGPS eligibility was contingent on continuing to work in a role to do with the original outsource, I think it was).

3. For those who will benefit from McCloud the assessment for impact on annual or lifetime allowances will only be made when the pension is taken.

For the LTA that's by definition, for the AA that is presently the typical practice (see below).

4. For this impacted the final salary underpin will be extended up to April 2022, in affect replacing the CARE scheme for that period. Which will also mean this element is now payable from 65 and not NRA.

'Replacing the CARE scheme' is a little bit strong, since beyond the pension accrual and NPA for the period (which is admittedly the major thing of course), everything else is still per 2014 scheme rules. So when you can take an early retirement etc. is per the latest version of the scheme.

I am considering now as I would like to make a contribution to my SIPP this tax year to use up all my unused annual allowance. However I won’t do this if McCloud means I need to recognise an increase in my pension in the next couple of years as I will need all the AA available.

This is a question asked in the government's consultation on implementing McCloud in the LGPS. The consultation notes that existing practice for the current underpin is usually not to take account of the underpin for AA purposes on a year-by-year basis, but to instead count the total increase due to the underpin only at the underpin date, i.e. right at the end. However, as this may be problematic for certain groups of younger member, the government was asking for views on the issue.

That said, the deadline for replies to the consultation was early last October, and the government hasn't published its response yet, so unfortunately there's no definite answer at the moment.

It seems I will significantly benefit from McCloud, having seen my pay more than triple since 2014 with the majority of that in recent years. All feels a little unbelievable, I appreciate my circumstances are probably at the extreme end but my rough calcs show this could be worth many tens of thousands to me in extra pension and early payment. Am I missing something?

A chunky increase for sure, but I'm not sure about 'many tens of thousands' - unless you mean over several years in payment...? Assuming you were/are an active member for the whole protected period (2014-2022), the difference is 1/49 for the pay for 8 years as you went along vs. that same 8 year period getting you 1/60 your final pay instead. Anything after will be 1/49 with an NPA of SPA (or whatever things turn out to be). Also, a minor point, but existing LGPS rules about not being able to take final salary and CARE parts of the same membership separately still stand.

Plu2370

Thanks, some helpful info and clarifications, particularly about it not ‘replacing CARE’. I am sure, as ever, the devil will be in the detail so will need to wait for the final announcement. 

Yes, I am still in the scheme, another ladder presented itself that gave me the right job and ability to retain membership. 

On the extent of the impact it will have, getting the protection for 2014-22 (assuming I stay a member till then) will give me 8/60ths of final salary pension rather than 8/49ths of CARE in the period. And this would be payable from 65 (fixed) and not 68 (currently, but likely to rise), I think. My back of the fag packet maths - on a final salary of say £120k this would give an accrued pension for the period of £16k pa payable from 65 so at least 3 years extra, £48k+. Along with the enduring extra pension as 8/60ths of pension is better than the CARE currently accrued as my salary was so much lower in and around 2014.

This extra is being diminished though as recent CARE accrual would be better, I assume though they will apply the remedy for the entire period and not pick and choose. That really would be having your cake and eating it!

hyubh

Plu2370 said:

My back of the fag packet maths - on a final salary of say £120k this would give an accrued pension for the period of £16k pa payable from 65 so at least 3 years extra, £48k+. Along with the enduring extra pension as 8/60ths of pension is better than the CARE currently accrued as my salary was so much lower in and around 2014.

£120K is a very large salary for an LGPS member - for a smaller local authority that might be the salary of the chief exec, and even for the largest, very few individuals will be on that level of pay. You may say, well I'm not employed by a local authority, however I wouldn't bank on your pay continuing to rise while still being eligible for the scheme.

If however the £120K is after inflation, well remember CARE accruals revalue by CPI, so really you should be thinking in today's money instead (OK, salary inflation tends to outpace price inflation, but still).

Plu2370

hyubh said:

£120K is a very large salary for an LGPS member - for a smaller local authority that might be the salary of the chief exec, and even for the largest, very few individuals will be on that level of pay. You may say, well I'm not employed by a local authority, however I wouldn't bank on your pay continuing to rise while still being eligible for the scheme.

If however the £120K is after inflation, well remember CARE accruals revalue by CPI, so really you should be thinking in today's money instead (OK, salary inflation tends to outpace price inflation, but still).

Thanks, fully appreciate that £120k is seldom seen in a local authority, fortunately I don’t work for a local authority. I pass no opinion on the appropriateness of salaries or relative value for particular roles. 

£120k is what I anticipate my salary will be next March at the end of the remedy period, following a typical pay rise this year. 

hyubh

Plu2370 said:

£120k is what I anticipate my salary will be next March at the end of the remedy period, following a typical pay rise this year. 

Then I recommend spending a tiny fraction of that salary on proper financial advice/planning, rather than relying on the opinions of random anonymous individuals on the Internet who confuse you for a junior