United Kingdom

Aon says LGPS schemes must act soon to assess impact of McCloud

LONDON (15 July 2020) – Aon plc, a leading global professional services firm providing a broad range of risk, retirement and health solutions, is urging LGPS Administering Authorities to carry out impact assessments to see how many of their scheme members may fall into the scope of the McCloud judgment.

Alison Murray, partner at Aon, said:
“It’s clear that LGPS schemes face a real administrative challenge to meet the requirements of McCloud. Given the significant number of members who will need their benefits checked - and irrespective of whether they will actually increase - implementing changes to legislation resulting from the McCloud judgment is likely to represent the largest administrative headache for public service schemes since the 2014/15 reforms. Around 1-1.5 million members of the LGPS are potentially in scope in England and Wales alone.

At a recent Aon webinar on the issues emerging from McCloud, which was attended by 130 LGPS fund representatives, 50% of respondents to a poll said that they expected that data is likely to present the biggest challenge when implementing the necessary changes.

Virginia Burke, a senior consultant at Aon specialising in McCloud, said: “From what we have seen and heard in client discussions, we would encourage all LGPS Administering Authorities to take steps now to:

  • carry out an impact assessment to see how many members may fall into scope of McCloud;
  • get their core team together to consider how they will implement McCloud and how it will impact resources, other projects and business as usual;
  • get ready to collect data from employers once guidance is issued (this is expected to be in the coming weeks)
  • respond to the forthcoming consultation to help shape the final regulations.

In most public service schemes, when changes were made back in April 2015, older members were given protection by being allowed to remain in final salary schemes - only younger members moved to the new career average schemes. To remove age discrimination, it is expected that relevant members of these schemes will be given a choice of accrual between the legacy and reformed schemes. However, if the Government is to avoid future claims from members, very careful communication will be required to ensure that members make informed choices.

The situation is slightly different in the LGPS, where protection was via an underpin, and Aon has been helping many of its LGPS clients assess the impact on their funds to enable them to start planning how they will implement the new legislation. Work to make the changes happen is expected to encompass data collection, backdating pension calculations and changes to ongoing administration processes, systems and communications.

Alison Murray, said:
“Pensions administration teams are already stretched, given COVID-19 and the challenges of working from home, not to mention an ever-increasing list of projects. These include GMP rectification, data improvement, systems improvements, and other legal challenges which may have a retrospective effect on survivors' benefits.

“We expect the Ministry of Housing, Communities & Local Government (MHCLG) to publish a consultation on the draft regulations shortly - hopefully before the summer parliamentary recess. But funds don’t need to wait for final regulations before getting started with planning and data collection – in fact it could be a mistake to delay. It was therefore reassuring that Aon's webinar polling showed that 57% of respondents had already started initial planning to implement McCloud.”

Alison Murray continued:
“We know that Pensions Committees and Pensions Boards are already taking a keen interest in the issue and asking questions on how their funds will be affected. It may be that they need training to get a full understanding of the issues and they will want to stay close to the issue during implementation. That way they can ensure that members are kept informed and that any changes to benefits are accurate and timely, as well as ensuring administrators have adequate resources.”

About Aon

Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

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