“We welcome today’s Public Sector Pension Scheme Consultation, and look forward to the LGPS-specific consultation expected to be issued very soon. Assuming the LGPS is treated in a similar way to the other schemes, we expect the proposed remedy to extend the ‘transitional protections’ underpin to all active members in the scheme as at 1 April 2012, regardless of age. While this will address the age discrimination inherent in the current arrangements it will require a significant amount of administration and communication resource. This burden will be even worse in the unfunded schemes where every member will be given the option to choose between CARE and final salary for the benefits earned in the remedy period. Our analysis shows that around 1.2 million members in LGPS funds across the UK, equivalent to roughly a quarter of all members, may be affected.
“In terms of cost for the LGPS, the impact on contributions is likely to be less than 0.5% of pay for the vast majority of employers. The increase to liabilities will also be less than 0.5% for most. However, since liabilities and contributions are calculated individually for employers in the LGPS, some will see a much greater impact depending on their own circumstances. Immature employers like academies and leisure centres are likely to be most affected, with liabilities increasing by 5-10% in extreme cases. The fact that at an overall level there is only a small cost impact from going back to the final salary scheme proves that the 2014 reforms did not radically change the cost of the scheme in the first place.
“The remedy proposed in the consultation only applies to members who joined the scheme before April 2012, meaning that the cost impact is much lower than previous estimates which assumed all members would benefit. Today’s announcement is therefore good news for many employers who may be able to reduce the allowance for the cost of the remedy in their accounts.
“As often the case, however, there will be more to see once the detail is announced. For instance, it is possible that members with accrued CARE benefits that are higher than their accrued final salary benefits during the eligible period will still benefit from the underpin. This is because the two tranches of benefits can have different normal retirement ages. If those members take early retirement, the impact of actuarial reductions may lead to their final salary benefit being higher.
“Finally, the Government also announced today that the national cost control mechanism calculations at 2016 will now be completed. This process had previously been ‘paused’ due to uncertainty over the McCloud remedy. The Government confirmed that the cost of the remedy will be reflected in the 2016 calculations. This will reduce, or possibly even wipe out completely, the proposed package of benefit improvements that had been due to take effect from 1 April 2019 in the LGPS in England and Wales.”
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