McCloud implementation statutory guidance update

On 17 June 2024, the now-defunct Department for Levelling Up, Housing & Communities (DLUHC) published statutory guidance to assist administering authorities in England & Wales with implementation of the McCloud remedy. This followed a short, closed consultation earlier in the year.

What does the recent guidance say?

The guidance recommends the order in which affected members should be dealt with and the timescale in which the project should be completed – by setting an implementation deadline of 31 August 2025 for most members. This will tie in with the first issue of annual benefit statements (ABS) that must include estimated final guarantee amounts for members and their survivors.

In order to correctly calculate any underpin entitlement that a member may have, records must be updated with final salary service details. In line with the new guidance, funds should consider following advice provided by the Scheme Advisory Board to address any missing or suspect data, or otherwise be prepared to validate an alternative approach taken.

It is also essential that the correct members are identified as being in scope for remediable treatment. Legislation sets out that individuals must have been in pensionable service before 1 April 2012, among other conditions, but this does not need to have been in the LGPS, and neither does that service have to be linked to their LGPS membership. In addition, a break of more than five years may disqualify a person from remedy entitlement. To address the challenge of identifying members where entitlement is not immediately obvious, the department-formerly-known-as-DLUHC provides a sequence of steps to follow.

While the guidance provides that a McCloud indicator should be added a member’s record to show whether they:

• qualify for underpin protection,
• do not qualify for underpin protection, or
• if it has not yet been determined/ is currently unknown if they qualify for underpin protection, qualification for underpin protection is driven by the existence of the ‘rectification’ data view on a member’s record within Altair (Heywood’s pension administration platform).

By the conclusion of the implementation phase, all records for members who qualify for the McCloud remedy should be accurate, therefore the requirement for an indicator to reflect the final bullet point seems superfluous.

Other areas covered by the guidance include:

• DLUHC’s views on specific scenarios which may or may not give rise to a remedy, such as deferred refunds and future transfers of deferred benefits to the private sector.
• Issues deriving from the retrospective adjustment of transfer values.
• Members with multiple sets of underpin figures attached to a single pension account, for example, where a member rejoins the LGPS after age 65, or when benefits are partially accessed by flexible retirement.
• Apportionment of additional pension where the amount of contributions due to make up a period of unpaid absence is not fully repaid.
• What steps to take where an individual in receipt of survivors benefits that are due to be uplifted has since passed away.
• And, last but not least, a summary and examples of the application of compensation as directed by the overriding remedy legislation.

Complementing the statutory guidance, GAD has issued updated actuarial guidance for cash equivalent transfer values, trivial commutation, pension debits, and divorce transfer values, which provide additional information about how the McCloud remedy affects these calculations. A new guidance note on applying McCloud to retrospective cases has also been published. All of these are available from Actuarial guidance (lgpsregs.org)