Local Government Pension Scheme - response to McCloud
Looks at the 2013 Act reforms and the proposed changes to the transitional arrangements in the lGPS following the Court of Appeal judgment in McCloud
The Local Government Pension Scheme (LGPS) is a statutory public service pension scheme. There two separate schemes – one for England and Wales and one for Scotland. It operates on a funded basis (i.e. contributions are made to a fund which is invested and from which benefits are paid at retirement). These funds are managed and administered at local level – there are 88 funds in England and Wales and 11 in Scotland. The schemes were reformed under the Public Service Pensions Act 2013, with new schemes introduced in April 2014 in England and Wales (LGPS 14), and in 2015 in Scotland (LGPS 15). Key elements were:
- The move to a scheme based on career average revalued earnings (CARE) rather than final salary. Benefits build up at a rate of 1/49th of pay for each year of service, compared to 1/60th under the legacy scheme.
- The move from a normal pension age of 65 to one linked to the member’s State Pension age.
- Changes to tiered contribution rates, plus the introduction of a 50/50 section where members have flexibility to pay half the contributions for half the pension accrual for a period of time, whilst still retaining full life cover and ill-health cover.
All active members were moved into the new schemes when they were introduced and the same rules in relation to contributions and benefits apply to all members in the same way. Transitional protection was provided by means of a ‘statutory underpin’, providing protected members with the higher of their pension under the reformed, career average scheme and the pension they would have been entitled to under the previous final salary scheme. Benefits built up in the legacy scheme were protected by a ‘final salary link’, so that benefits are based on final salary on leaving the scheme rather than at the date of reform.
In December 2018, the Court of Appeal ruled in McCloud that the transitional arrangements for the schemes for the judges and the firefighters introduced under the 2013 Act constituted unlawful discrimination. In July 2019, the Government accepted that the discrimination would have to be remedied across public service schemes, including the LGPS.
Consultation followed on what form this should take. For the LGPS, the proposal was to extend underpin protection to younger qualifying members who joined before 31 March 2012. From April 2022, all LGPS members would accrue benefits on a career average basis, without underpin protection, to apply a fairer system to all future service (MHCLG, LGPS E&W amendments to the statutory underpin, July 2020; SPPA, LGPS Scotland. Addressing discrimination- amendments to the statutory underpin, July 2020).
On 13 May 2021, the Government confirmed that underpin protection would apply to all LGPS members who meet the revised qualifying criteria. Further details are to be provided in the Governments response to the consultation later in 2021.
There is a separate paper on LGPS investments. The background to the 2013 Act reforms is discussed in more detail in Library Briefing Paper SN-05823 Local Government Pension Scheme – background to the 2013 reforms (July 2012).