ASCL Pensions Specialist Jacques Szemalikowski explains the outcome of the McCloud judgment on local government pensions and teachers’ pensions.

Seeing clearly

I can see clearly now the rain has gone”, sang the late great Johnny Nash. “Gone are the dark clouds that had me blind.” Lately, I find myself going into certain meetings humming the song in my head, and inevitably changing the words to ‘McClouds!’

Many ASCL members will have heard of, and have asked me about, the so-called McCloud judgment, or to use its proper title, the Transition Protection Remedy.

It affects both the Teachers’ Pension Scheme (TPS) and the Local Government Pension Scheme (LGPS) and it is somewhat complicated. So, with Mr Nash in mind, let’s explain what it means for ASCL members so that we can “look straight ahead, there’s nothing but blue sky.”

The story starts in 2011, when Lord Hutton published his review of public sector pensions, including the TPS/LGPS. As I wrote in the previous edition of Leader, these are defined benefit (DB) schemes, guaranteeing a defined income (annuity) on retirement. The aim of the review was cited as reform to ensure long-term sustainability and affordability.

Consequently, in April 2014 and April 2015 respectively, both the LGPS and TPS were changed from final salary schemes to career average revalued earnings (CARE) schemes. Moreover, the normal pensionable age (NPA), the age at which you can access your full benefits, was aligned to the state pension age. Both remained as DB schemes.

In the switch, ‘protection’ was provided to members within ten years of their NPA as of April 2012. TPS members afforded such protection remained in their legacy scheme. In the LGPS, protection took the shape of a ‘statutory underpin’, whereby the better of the two schemes would be afforded to protected members upon retirement. Additionally, in the TPS (but not the LGPS) teachers who just missed out on protection were tapered-in, or ‘transitioned’ to the reformed scheme over time

Clearing obstacles

However, in implementing this protection for older members, the government did not see “all of the obstacles in their way”. These obstacles took form in subsequent legal action – the McCloud/Sargeant case. This judged the approach to be age-discriminatory to younger members, who were simply switched straight over to the reformed scheme without protection or transition. When leave to appeal was refused, the government accepted the ruling.

Subsequently, “all of the bad feelings have disappeared”. The government consulted on a fix (or remedy), and published its proposals affecting most public sector schemes, including the TPS (see tinyurl.com/yepxj46x). We are still awaiting its response to the LGPS, which had its own separate consultation.

For the TPS, the remedy period being addressed is 1 April 2015 to 31 March 2022. The remedy will only apply to colleagues who were TPS members on 31 March 2012 and still in on 1 April 2015.

Arguably the “rainbow we’ve been praying for”, congruent with ASCL’s submission, the government’s chosen remedy will be the deferred choice underpin (DCU). Members in scope will be asked to make a one-time binary choice at the point they take their benefits from the scheme, usually retirement. The choice will be whether to take their original legacy scheme benefits or the reformed scheme benefits, covering the remedy period. Until then, everyone will be put back into their legacy scheme. From 1 April 2022, everyone will be on the reformed scheme.

Teachers’ Pensions has produced a useful summary here: tinyurl.com/25v27mx3

For colleagues in the LGPS, the government intends to respond later this year. It has consulted on extending its own underpin to all members in scope for the remedy period of 1 April 2014 to 31 March 2022. Members in scope will have been in the LGPS on 31 March 2012 and still in on 1 April 2014.

Crucially, there is nothing to do now, except ensure that you keep all your payslips and P60s. The implementation of the remedy requires primary legislation, which will take a while. There will also be the need for a multitude of schemespecific issues to be unpicked.

What we do know is that the remedy will offer a no-detriment free choice at the point of retirement – hopefully “a bright, bright sunshiny day”.

Jacques Szemalikowski
ASCL Conditions of Employment Specialist: Pensions
@ASCL_UK

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