Agenda item

It was agreed that this was a complex area therefore a separate detailed training session was required.

Craig Alexander of Hyman Robertson LLP presented the report. Members were informed that current world events were significantly impacting LGPS and other pensions. In terms of regulatory changes, two key areas of note were the McCloud Ruling and the Exit Payment Reform (£95k cap).

It was explained that McCloud was a court case brought by a judge against the Government. It was a discriminatory case in relation to age and related to the time when public service schemes changed from final salary schemes to average earnings schemes (around 2014). The new schemes stipulated that those within 10 years of retirement at 2012 received a certain benefit and those who were not got a different benefit. This was clearly discriminatory and the Government lost the case. The only solution was to level everyone up to receive the better benefit which was what had happened. Administratively this was challenging as some members received the best of two benefits between 2012 and 2022 therefore extra calculations were required – it was estimated that approximately 25% of members fell into this category. Certain data had not been gathered for these members and it was difficult to obtain said data many years later. Members were informed that data would also need to be held for a long time into the future.  From a funding point of view the impact was relatively small but the calculations had to be carried out for all the affected members. This would only apply for those who had received salary increase significantly above inflation which was a relatively small number; however, this was being projected into the future and an individual’s future pay at retirement was an unknown quantity.

A key project plan needed to be put in place – data would have to be gathered from employers – including historic data. The Government would probably allow about two years to resolve this and planning was essential. The Committee needed to ensure the required resource and expertise were available to get the project off the ground and ensure members’ benefits were not affected. A wide-reaching communication exercise would be required to ensure employers and members were kept in the loop.

In response to Members’ requests for clarification, it was confirmed that this was the final ruling and no further changes in legislation were expected.

Members were also informed of the Goodwin Impact Ruling – another discriminatory case which the Government had lost. It was confirmed that far less members were affected by this but some administration and tracing would be required.

With regards to the Exit Payment Cap (£95k cap), it was reported that this was very complex and could potentially affect all members of the scheme. Members were informed that, in 2015, the Government had stipulated that all public service workers should have a 95k cap on their benefits at retirement. Initially it had been thought that pensions would not be included in this calculation. However, when the rules were clarified, it transpired that pensions were included for the LGPS. This meant that the scheme would capture those on moderate salaries with a long level of service rather than the ‘fat cats’ it was aimed at. As a consequence of this change, benefits would have to be reduced to keep total pay-outs below the £95k cap. Also introduced alongside this ruling was another stipulation that those who took their LGPS unreduced pensions early would no longer receive their statutory redundancy payments; alternatively they could elect to reduce their pension in order to take the full statutory redundancy payment or they could take the full redundancy payment and wait until normal retirement age. This was very confusing for members. The consultation on this was due to finish on 4 November 2020. Members were informed that, on the morning of 28 October 2020, a legal challenge had been launched against this Exit Payment cap scheme.

In terms of the impact on the Fund, the Fund would need to continue to process redundancies and retirements following the current regulations and guidance. It was essential that the Fund following all guidelines carefully. 

Clarification was sought regarding the legal challenge. It was confirmed that the LLG Lawyers in Local Government had requested a judicial review. The LGA had drafted a response to the consultation stating that the situation was deeply flawed with regard to lower paid workers. In Hillingdon, sound actions had been taken to reduce exposure as much as possible.

It was confirmed that a further training session on these regulatory changes would be required.

The officer’s recommendation was moved, seconded and, when put to a vote, unanimously agreed.

RESOLVED: That the Pensions Committee noted the regulatory changes and the impact on the pension scheme along with the timescale for implementation.