On the go: The Local Government Pension Scheme in England and Wales, alongside its Scottish and Northern Irish equivalents, has avoided the cost-cap breach suffered by a number of other public sector schemes resulting from the impact of the McCloud remedy cost on their 2016 valuations.
Results released by the Government Actuary’s Department in April showed that three of four public sector schemes — the Police Pension Scheme (England and Wales) and the firefighters’ schemes of England and Wales — had breached the cost cap as a result of the government’s decision to impose McCloud remedy costs on the 2016 valuations. The decision has been harshly criticised and has been the subject of various legal challenges.
Three more schemes were found to have breached the ceiling in May, these being the Judicial Pension Scheme and the firefighters and police schemes in Scotland.
Regulations stipulate a corridor of +/-2 per cent, and breaches will typically result in adjustments to contribution rates and benefits paid. Where schemes have already been found to have breached the ceiling, the McCloud remedy has added as much as 19.8 per cent to the cost cap cost of the scheme — calculated as the employer contribution correction cost plus the transitional protection remedy cost — as in the case of the FSPS England, carrying it over its 16.8 per cent cost cap.
Though the government agreed to waive the usual consequences of such breaches of the cost cap ceiling, the imposition of McCloud costs still meant that previously agreed increases to benefits and cuts to contribution rates could no longer go ahead, angering public sector scheme members and several unions, who argued — along with the Public Accounts Committee — that the Treasury was, in effect, forcing members to pay for its own mistakes.
However, the LGPS in England and Wales, Scotland, and Northern Ireland, have all escaped a breach, thanks in part to the relatively low cost of the McCloud remedy when applied to these schemes.
In the case of the LGPS in England and Wales, the McCloud remedy cost only added 1.6 per cent to the 11.8 per cent employer contribution correction cost, leading to a cost cap cost of 13.4 per cent, comfortably below the employer cost cap of 14.6 per cent.
The remedy cost was somewhat higher for the LGPS in Scotland, coming in at 3.1 per cent. But, when added to the 12.3 per cent employer contribution correction cost, the total cost cap cost to the scheme was 15.4 per cent vs a cost cap of 15.2 per cent, placing it firmly within the +/-2 per cent corridor.
The LGPS in Northern Ireland, meanwhile, came in at 1.6 per cent below its cost cap of 17 per cent, standing at 15.4 per cent. In this case, the 1.6 per cent added by the McCloud remedy in fact prevented a breach of the cost cap floor.
The overall set of results means there need be no change to benefits or to member contribution rates following these reports.
