In February 2021 HMT published its response to the consultation which is known as the McCloud case. In essence this is about Age Discrimination within public sector pension schemes.
What happened?
In April 2015 most of the public sector pension schemes within the UK introduced a new section, known as the reformed schemes. These schemes were a slight step away from the previous (mainly) final salary schemes and were brought in on a career average basis. Still a defined benefit. Still a valuable scheme. In some cases, they will provide a higher outcome for members than the previous schemes, known as the legacy schemes.
The schemes themselves are not the issue. The issue is the way in which they were introduced. Not all members were required to move into the new sections. Some did, some didn’t, and some did but at a later date. What determined which group someone fell into was based on two things:
1 – Whether they were they an active scheme member as of 31 March 2012
2 – How close they were to their normal pension age on 31 March 2012
The latter is the issue. Essentially the age of an individual determined which scheme they should be a member of with effect from 1 April 2015.
As a result, the case was taken to court by Mr McCloud and the outcome was age discrimination. The remedy can now be determined following the HMT consultation and its response.
What do we know?
There are still a lot of details missing and legislation yet to be passed, but we do know some things.
- Individuals who were in the pension scheme as of 31 March 2012* will now all be treated as though they had not moved into the reformed schemes at any point.
- Then, with effect from 1 April 2022, ALL will become members of the reformed schemes.
- Members will then be offered a choice at retirement –a Deferred Choice Underpin – which means that they can choose how they would like their pension to be calculated for the 7-year period from 1 April 2015 to 31 March 2022, on the basis of their legacy scheme or the reformed scheme.
- This will all be effective from 1 April 2022.
*individuals who joined the scheme after this date are not in scope for this remedy and so will not be impacted.
What don’t know?
Essentially, we have had a consultation response. This has set out the high-level position. But there are many process and policy details which are as yet unconfirmed. These will require discussion and input from the individual pension schemes. Things such as:
- How contingent decisions (such as opting out) will be managed.
- Details and the processing around pensions tax cases.
- Abatement.
- Additional contributions.
How are we helping?
We highlighted the changes and issues to employers, along with a series of actions that they may wish to start considering including communications, data and pensions tax.
Based on these discussions we will now be providing supporting webinars for employee groups to set out the McCloud background and a high-level view of the remedy. We will sign post to further information, explain what is not yet known and timescales. This will include all the complications about the processing issues and the fact that much of the practical application of the remedy may not be in place until as late as October 2023.
To discuss further please get in touch at laura@pengage.co.uk