Pension scheme UK - NI proposes McCloud reform for LGPS

A series of changes were made to the LGPS in April 2015 to make its benefits structures more affordable in the longer term

The Department for Communities in Northern Ireland (NI) has proposed rules to remedy historic age discrimination for its Local Government Pension Scheme (LGPS) following the widespread McCloud reform.

In a consultation paper published November 11 the department said the McCloud reform would apply from April 2022 to LGPS (NI). It proposed changes to the scheme's statutory underpin protection to remove discrimination found by the courts in relation to public service pension scheme UK ‘transitional protection' arrangements.

In April 2015, a series of changes were made to the LGPS across the UK to reform the LGPS's benefits structures and make them more sustainable and affordable and fairer in the longer term. In the McCloud case, the Court of Appeal held that transitional protections provided to older judges as part of the 2015 judicial pension reforms constituted unlawful direct age discrimination.

The Department for Communities' consultation has proposed removing the condition that required a member to have been within ten years of their normal pension age on 1 April 2012 to be eligible for underpin protection. It said that, from April 2022, the period of underpin protection would cease and all active LGPS (NI) members would accrue benefits in the career average scheme, without a continuing statutory underpin.

The proposals set out in the consultation, which opens for 12 weeks from today until 31 January 2021, are very similar to those consulted on for the England and Wales in July earlier this year. 

Northern Ireland Local Government Officers' Superannuation Committee (NILGSOC) chief executive chief, David Murphy, said while there are "no surprises" in the consultation paper, there are still several issues to overcome.

He added: We have to retrospectively go back to employers to 2015 to get data that they haven't been providing since then (because we haven't needed that data until now). There are a lot of low-paid, part-time people in the scheme so that will be a lot of data that we'll have to get.

Once the scheme updates its records after getting data from the employers, it will have to go back and recalculate benefit it has paid since 2015.

NILGSOC estimates around 36,000 active members out of 68,000 in the scheme will get the underpin protection, and expects it will have to revisit around 10,000 benefit calculations.

Murphy said it is important that administrators have time to prepare.

Ideally we would like to see legislation made by April 21, which then it doesn't come into effect until April 22. That would give us a year to get the software providers to write the software for us and a year to allow employers to go back to their records and bring the information up to date, he said.

One problem is how to communicate this to members because it is "extremely complicated" and actually "in reality will of benefit to very few of them," he added.

Another concern for Murphy is there is a possibility that this will not fix problems of discrimination in the scheme - because of the way the underpinning has been calculated, there are still age-related factors involved.

So, at some point in the future somebody else could come along with another case and then we'd have to go back to the drawing board again, Murphy warned.

Based on the consultation paper, the LGPS for Northern Ireland effectively appears to have a shorter accrual period for the underpin than the LGPS schemes for the rest of the UK, according to Barnett Waddingham partner Dr Barry McKay.

He explained what work the LGPS schemes outside Northern Ireland have been doing in recent months since their consultation papers: We've been helping to identify those members who we think will be impacted by the underpin and how that may impact on funding contributions. It might have on some specific employers with a younger workforce so it's important to identify those employers that may see the biggest increase in contributions.