‘McCloud’ remedy in the LGPS – supplementary issues and scheme regulations

Question 1

Scope of the consultation

Accepted Answer

Topic of this consultation:

This consultation seeks views on changes to the Local Government Pension Scheme in England and Wales (LGPS). Following a consultation we undertook in 2020 on proposals to address discrimination found by the courts in the ‘McCloud’ case, we published a government response in April 2023 setting out how we would proceed. We are now seeking views on issues relating to the McCloud remedy, where a) we stated in the government response we would be reconsulting to obtain further views, or b) our initial consultation did not address the issue. We are also seeking views on draft scheme regulations (at annex A) which would implement the remedy.

Scope of this consultation:

We are consulting on changes to the regulations governing the Local Government Pension Scheme

Geographical scope:

These proposals relate to England and Wales only.

Impact assessment:

None of the changes contained in this consultation require a regulatory Impact Assessment under the Small Business, Enterprise and Employment Act 2015.

Public sector equality duty

The government’s equality impact assessment in respect of the steps we are taking to address the McCloud discrimination in the LGPS is located here.^{[footnote 1]} Please see paragraphs 76 to 78 for further information regarding the work the government has undertaken on this matter in respect of the public sector equality duty (PSED).

Question 2

Basic Information

Accepted Answer

Body/bodies responsible for the consultation:

The Department for Levelling Up, Housing and Communities

Duration:

This consultation will run from 30 May 2023 to 30 June 2023.

Enquiries:

For any enquiries about the consultation please contact: lgpensions@levellingup.gov.uk

How to respond:

You may respond by completing an online survey.

Alternatively you can email your response to the questions in this consultation to lgpensions@levellingup.gov.uk.

If you are responding in writing, please make it clear which questions you are responding to.

Written responses should be sent to:

Local Government Finance Stewardship
Department for Levelling Up, Housing and Communities
2nd floor, Fry Building
2 Marsham Street
London
SW1P 4DF

When you reply it would be very useful if you confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include:

your name,
your position (if applicable),
the name of organisation (if applicable),
an address (including post-code),
an email address, and
a contact telephone number

Question 3

Introduction

Accepted Answer

1. In recent years, the government have been taking steps to address the findings of the McCloud case in public service pension schemes. In that case, the Court of Appeal found^{[footnote 2]} that transitional protections the government had given older members of public service pension schemes when schemes were reformed in 2014 and 2015 had unlawfully discriminated against younger members on grounds of age.

2. After detailed consideration and consultation, the government introduced a bill into Parliament in the summer of 2021, and in March 2022, the Public Service Pensions and Judicial Offices Act 2022^{[footnote 3]} (the 2022 Act) received Royal Assent, providing the framework within which the McCloud case will be addressed.

3. In the Local Government Pension Scheme in England and Wales (LGPS), we are addressing the McCloud discrimination by extending ‘underpin’ protection to the younger members of the scheme whom the courts found had been treated unlawfully. In the LGPS, the underpin is the means through which transitional protection was provided to older members.

4. All LGPS members were moved to the reformed, career average scheme on 1 April 2014, but for protected members, the pension payable was underpinned against what they would have built up in the legacy final salary scheme. At a member’s final salary normal pension age (usually 65) or at their date of leaving, if earlier, their administrator would compare their career average pension against their final salary pension. If the final salary pension would have been higher, they would be awarded an addition.

5. The extension of the underpin was the government’s preferred option for addressing the difference in treatment in the LGPS when we consulted on this matter in 2020^{[footnote 4]}. Most stakeholders also agreed with this approach and in 2021 a written ministerial statement^{[footnote 5]} was laid before Parliament confirming this is how we would proceed. In April 2023, after continued work on the detailed operation of the remedy in the intervening years, we published our response^{[footnote 6]} to the 2020 consultation. This set out more fully how the remedy would work, and included a general overview of the approach we were taking (annex A of the government response). We also confirmed we would be consulting again in order to consider some issues associated with the remedy

6. In the following section of this consultation, we seek views on specific issues regarding the remedy and welcome responses from across the LGPS community on these issues. Some points are issues we covered in our 2020 consultation, where we want to obtain further views before making final decisions (for example, aggregation and flexible retirement). Others are issues for the LGPS that we have not previously consulted on (for example, compensation and interest).

7. The policy matters we are seeking general views on are as follows:

Aggregation – Determining the rules applicable to decide whether a member with multiple LGPS memberships has underpin protection in some or all of these.
Club transfers – Determining the rules applicable to decide whether a member with previous membership of another public service pension scheme has underpin protection in respect of their LGPS membership.
Flexible retirement – How the underpin should work in respect of flexible retirement, particularly for cases of ‘partial’ flexible retirement, where a member does not take all their accrued career average benefits.
Divorce – How the scheme’s divorce and underpin calculations interact.
Injury allowances – How a retrospective increase to a member’s pension arising from McCloud remedy may impact any injury allowances payable.

8. In a few other areas, the policy approach has been determined and we are seeking technical comments and comments on implementation:

Excess teacher service – The retrospective admission to the LGPS of certain teachers who have multiple employments.
Compensation – The circumstances where a member may be paid compensation where they have suffered a loss relating to the age discrimination found in the McCloud case or the McCloud remedy.
Interest – The interest terms that will apply where payments are made later than would have been the case, due to the McCloud discrimination

9. We also attach draft regulations (annex A) which would implement the McCloud remedy in the LGPS for stakeholders’ consideration and feedback.

10. Since the 2022 Act achieved Royal Assent, HM Treasury have published the Public Service Pensions (Exercise of Powers, Compensation and Information) Directions 2022^{[footnote 7]}, referred to as the PSP Directions in this document. Part 4 of these Directions covers the LGPS and is issued under the powers in section 85 of the 2022 Act. The Directions provide a framework within which some aspects of the LGPS remedy we discuss in this document have to be followed, and the proposals within this document should be read with that in mind.

11. McCloud remedy is an important project for the scheme members and other beneficiaries affected and whilst much work has already been undertaken on this project so far, we are mindful that a significant amount of work lies ahead for LGPS administrators, software suppliers and advisors. We are grateful for our close work with the Local Government Pensions Committee and with the Scheme Advisory Board on developing this remedy, as well as for the central support they continue to provide to administrators.

Next steps

12. Following consideration of the comments received on this consultation, we will take steps to finalise the draft regulations and make these in early September 2023. We intend that the final regulations will come into force on 1 October 2023.

13. During the consultation, we hope to establish a guidance working group with the Scheme Advisory Board to consider which elements of the McCloud remedy may require central guidance from the Secretary of State or the Board and what that guidance should say. In our government response to this consultation, we will provide an update on that workstream.

Question 4

Proposals

Accepted Answer

14. This section discusses the parts of the McCloud remedy we are seeking views on in this consultation.

Aggregation

15. The LGPS regulations provide for separate pension accounts to be joined up in certain circumstances, a process known as aggregation. As the LGPS is locally administered, aggregation is an important part of the scheme rules. Where a member re-joins the scheme and chooses not to aggregate previous service, that service is generally preserved and payable on the basis it was accrued (for example, using the final salary at the time the member left active service in that record). Where a member chooses to aggregate, their records are combined and payable as one. Aggregation therefore helps to ensure that the LGPS can operate efficiently as a locally managed scheme with a central set of rules.

16. However, under the current rules governing the underpin, a member qualifies for underpin protection as an individual. This means a member could have active service in one LGPS record on 31 March 2012 and be protected in another subsequent period of membership, even if those periods are not aggregated.

17. The 2020 consultation included proposals for an aggregation requirement to bring the underpin rules more in line with the usual policy we adopt. This would have meant that a member only had underpin protection if they met the agreed qualifying criteria in a single pension account. Members would have been required to aggregate previous LGPS membership to gain underpin protection in a pension account if:

they did not meet the qualifying criteria in that pension account
they would meet the qualifying criteria if they aggregated another period of membership with that pension account.

18. To ensure this approach applied fairly between different groups of members, we had proposed that the underpin requirement would be retrospective. Members with unaggregated benefits would have been offered a second opportunity to choose to aggregate if this policy had been taken forwards.

19. Responses to the 2020 consultation raised concerns about members who do not have the option to aggregate. A member cannot aggregate their previous benefits if:

the pension related to the previous LGPS benefits is in payment
membership ended because the member elected to opt out of the LGPS on or after 11 April 2015
membership ended in more than one post on the same date.

20. Other respondents pointed out that some members may have elected to keep separate benefits because they had moved to a lower paid job. Introducing an aggregation requirement would mean these members having to choose between:

maintaining the value of their deferred benefits by keeping them separate and not having underpin protection on their new benefits, and
reducing the value of their benefits by aggregating, but keeping underpin protection, the value of which may not be known for some years.

21. Other concerns were raised about offering members a second opportunity to aggregate outside of the usual 12-month time limit. Respondents highlighted the administrative burden that this exercise would represent on top of the additional work that implementing the McCloud remedy will involve. Accurately identifying all the members in scope may not be possible. Re-opening the aggregation window would also present a communications challenge. Administering authorities would need to communicate very complex information to members (and potentially survivors) to allow them to make an informed decision.

22. We are also concerned about the potential for unintended differences in treatment. In the 2020 consultation, we had proposed that the aggregation requirement would not apply where a pension was already in payment, to avoid administrators potentially needing to unwind and reduce pensions in payment. However, this approach could benefit pensioners who are more likely to be older than their active and deferred colleagues.

23. As a result, and following detailed consideration of these issues, we are now proposing not to have an aggregation requirement for determining whether members qualify for underpin protection. There would therefore not be a need for a new, one-off aggregation window. This approach would aim to reduce the administrative and communication complexities and prevent potential legal complexities in trying to implement this approach retrospectively. Not requiring aggregation to qualify for underpin protection would also be in line with the approach to protection being adopted by other public service pension schemes.

24. However, where a member who qualifies for underpin protection leaves and re-joins the LGPS or holds concurrent posts and LGPS membership ends in one post, we propose that we will require aggregation for their underpin figures to be re-calculated when they next have an underpin date under the scheme rules.

25. The basic rules on aggregation and underpin protection that we are proposing are set out below. It is based on the remedy approach described more fully in the government response to our 2020 consultation^{[footnote 8]}. However, readers will need to be aware of the following key concepts:

Underpin period – For qualifying members, the period during which a member will build up underpin protection. It covers active membership in the period from 1 April 2014 to the earlier of 31 March 2022 and a member’s final salary normal pension age (which is usually 65).
Underpin date – The date on which a member’s pension benefits in the underpin period are compared, to give an initial assessment of whether the career average or final salary benefits are better. The underpin date is the earlier of the date a member leaves active membership of the LGPS, or the date of their final salary normal pension age (usually 65).
Final underpin date – The date on which a final assessment of the underpin takes place, based on the calculations undertaken at a member’s most recent underpin date. The final calculations will vary depending on the way a member is taking their benefits from the scheme. The final underpin date is usually the date the pension is taken from the scheme (for example, by retiring on age grounds, ill-health grounds or by transferring it to another scheme).

26. Our proposed rules on aggregation for underpin protection are:

a) Where a member was in active service in the LGPS on or before 31 March 2012, and they do not have a disqualifying gap^{[footnote 9]}, they will have underpin protection on their LGPS service in the underpin period^{[footnote 10]}. This will be the case even if the service in the underpin period is in a different LGPS membership, unaggregated from the membership they were in on or before 31 March 2012.

b) Where a member has built up underpin rights in a membership during the underpin period, leaves and re-joins or has an active concurrent membership, the following will apply:

i. If they keep separate benefits, the provisional figures calculated on the underpin date remain ‘attached’ to the old pension account. If the new pension account started before the end of their underpin period (the earlier of 31 March 2022 and their final salary normal pension age) and there has not been a disqualifying gap, the member will have a further underpin date for the service built up in that pension account.

ii. If they aggregate their benefits but have a disqualifying gap (for example, because they would prefer to have a single pension in payment, rather than two), they will lose underpin protection on the service accrued in the underpin period under their old pension account. If the new pension account started before the end of their underpin period (the earlier of 31 March 2022 and their final salary normal pension age), then no underpin protection will accrue in respect of the new service (as there has been a disqualifying gap). The member will not have another underpin date in the future.

iii. If they aggregate without a disqualifying gap then, generally, the provisional figures calculated on the underpin date are ‘wiped out’. New provisional figures based on the combined membership will be calculated on the member’s next underpin date^{[footnote 11]}.

27. We intend that it will be possible under the regulations for a member to have multiple sets of provisional underpin figures attached to the same pension account. For example, there will be two sets of provisional underpin figures attached to a pension account if a protected member:

has two separate sets of deferred benefits that include membership built up in the underpin period that are later aggregated with a new pension account that starts when the member is over their final salary normal pension age, or
remained an active member after taking flexible retirement before the end of the remedy period.

28. Whichever approach is taken on aggregation will raise complex issues and will be challenging administratively. On balance, we consider the approach we outline here to be the best way forward overall, but we welcome comments from across the LGPS community on this matter and how central guidance could support local implementation.

Question 1 – Do you agree with the rules about aggregation and underpin protection that we are proposing?

Club transfers into the LGPS

29. The Public Sector Transfer Club allows individuals to transfer benefits from one public service pension scheme to another, whilst maintaining any final salary linkage or in-service revaluation, where applicable. Members of other public service pension schemes will have built up benefits protected by the remedy that they wish to transfer to the LGPS, just as LGPS members may wish to transfer their benefits to other parts of the public sector. In the government response to our 2020 consultation, we confirmed the approach that we would be taking regarding Club transfers after consideration of the consultation responses.

30. In the government response, we also identified an issue^{[footnote 12]} that we said we would seek views on. Some LGPS members who had previous public service pension scheme membership in the underpin period will have made their Club transfer decision before the McCloud case had reached its conclusion or before the government had set out details of the proposed remedy. For those who were not originally old enough to have underpin protection, they would not have considered the underpin in making their transfer decision and may have made a different decision on the basis of the remedy we are now implementing. The current underpin regulations require that a member must have transferred previous public service pension scheme membership into the LGPS to qualify for underpin protection on service built up in the LGPS, if the previous membership included active service on 31 March 2012 but the LGPS service did not.

31. After consideration of this, we are now proposing that members will not need to have transferred their previous service in another public service pension scheme into the LGPS to qualify for underpin protection in the LGPS. Instead, if an LGPS member had membership of another public service pension scheme on or before 31 March 2012 and did not have a disqualifying gap, they would have underpin protection on their LGPS service in the underpin period (even if the previous service was not transferred to the LGPS). This would resolve the issue we describe above, and it also would align the LGPS’s approach with that being adopted by other public service pension schemes, as well as with our new proposals on aggregation within the LGPS.

32. This approach would create additional administrative complexities, as it will require LGPS administrators to know if their members had membership of other public service pension schemes in the period on or before 31 March 2012. In some cases, it may be possible to find this out from the information provided when the member joined the LGPS, however this may not be the case for all members. We welcome comments from respondents on the administrative challenges of this change.

Question 2 – Do you agree with our proposed approach regarding Club transfers?

Flexible retirement

33. From age 55, a member who reduces their working hours or moves to a lower graded post may take flexible retirement, if their employer agrees. Flexible retirement allows the member to ease into retirement by taking some or all of the pension they have built up, while remaining in employment. The day before the reduced pay or hours post starts will be a protected member’s underpin date, unless they are already over their final salary normal pension age.

34. The 2020 consultation included a proposal for underpin protection to stop when a member took flexible retirement after 31 March 2014, even if this was before the end of the underpin period. Some respondents raised concerns about this approach, suggesting that those who took flexible retirement would have less underpin protection than those who had not flexibly retired.

35. After consideration, we are proposing to change our policy on flexible retirement and underpin protection to ensure the remedy applies equally across all protected members. A protected member will have a second underpin date if they:

took flexible retirement between 1 April 2014 and 31 March 2022, and
continued to build up pension in the underpin period after their flexible retirement and before they reached their final salary normal pension age.

36. Generally, the member’s second underpin date will be their last day of active membership, or the day before they reach their final salary normal pension age^{[footnote 13]}. A second set of provisional figures will be calculated, based on membership between the first flexible retirement date and the second underpin date.

37. We also considered ‘partial’ flexible retirement in the 2020 consultation. A member may choose not to take all of their benefits built up after 31 March 2014 when they take flexible retirement. We proposed that a member would get a proportion of any increase to their benefits as a result of the underpin (a final guarantee amount). That proportion would match the proportion of the member’s benefits built up after 31 March 2014 that they are taking. The remainder would be payable when the member takes the remainder of their benefits.

38. Some respondents thought there should be a final salary link, following flexible retirement. For cases of partial flexible retirement, we are proposing not to introduce a final salary link for the purposes of the subsequent underpin calculations, in relation to service accrued before the flexible retirement. Introducing a final salary link would make it less likely for a member who has moved to a lower graded post to receive a final guarantee amount when they take the remainder of their benefits after flexible retirement. Where a member has further underpin service after their flexible retirement, there will be a final salary link on that further service.

39. The proposed approach for protected members who take partial flexible retirement will be:

a) Provisional underpin amount and assumed benefits are worked out on the underpin date – this will be the day before the member reaches their final salary normal pension age or the day before the reduction in hours or grade.

b) Final underpin amount and assumed benefits are calculated on the final underpin date – the day before the reduction in hours or grade. These are based on the provisional figures calculated under (a) adjusted for inflation and any actuarial adjustment for early or late retirement. If the final underpin amount is higher, the difference is the final guarantee amount.

c) A proportion of the final guarantee amount is added to the flexible retirement pension account. The proportion should equal the proportion of benefits built up after 31 March 2014 that the member chooses to take.

d) The member will have another final underpin date when they take the remainder of their benefits (or take flexible retirement again). The provisional figures calculated under (a) are used to calculate a further final underpin amount and assumed benefits. If the final underpin amount is higher, the difference is the second final guarantee amount.

e) A proportion of the second final guarantee amount is added to the retirement pension account (or flexible retirement pension account). The proportion should equal the proportion of benefits built up between 1 April 2014 and the original flexible retirement date that the member is taking.

40. We recognise that the approach to underpin protection for members who take flexible retirement is complex. Members may have both:

multiple underpin dates for the same pension account if the first flexible retirement occurred before 1 April 2022, and
multiple final underpin dates in respect of the same benefits if the member takes partial flexible retirement.

41. We consider that this approach will deliver consistent protection to members who take flexible retirement and those that do not.

42. Members who take flexible retirement from 1 April 2022 (or after their final salary normal pension age) will not have multiple underpin dates, because they will not build up any remediable service after their flexible retirement.

Question 3 – Do you agree with our proposal to extend underpin protection to the period after flexible retirement, if it is in the underpin period?

Question 4 – Do you agree with our proposal for multiple final underpin dates if a member takes ‘partial’ flexible retirement?

Divorce

43. The current regulations and the 2020 consultation did not fully address how underpin calculations and divorce (or dissolution of a civil partnership) calculations will interact.

44. There are potentially two stages in the process when a member gets divorced or their civil partnership is dissolved. At the first stage, the administering authority provides the current cash equivalent value (CEV) of the member’s LGPS benefits. The value of the LGPS benefits may be offset against other assets or the court could award the former spouse or civil partner a share of the member’s pension. This is usually achieved by issuing a pension sharing order – the second stage of the process.

45. A valuation of benefits in relation to divorce or dissolution proceedings or a pension sharing order will not constitute a member’s underpin date nor final underpin date. If the member has already had an underpin date or final underpin date, any calculations in connection with divorce or dissolution proceedings will not change those dates.

46. Actuarial guidance issued by the Secretary of State sets out how calculations related to divorces and dissolutions are performed in the LGPS. This includes guidance on:

Pension sharing following divorce
Pension debits and
Pension credits.

47. This guidance will be updated to reflect the McCloud remedy in due course. We believe that most of the changes needed to ensure the underpin is correctly addressed in divorce calculations will be delivered by changing the actuarial guidance. We therefore do not propose to make significant changes to the LGPS regulations to set out how the underpin should be reflected in divorce calculations (see draft regulation 4R). Draft regulation 10 in Part 3 outlines how the retrospective effect of our remedy would impact past divorce calculations.

48. We propose that the guidance be updated to deliver the following results when a CEV is calculated for a member in scope of McCloud remedy in relation to divorce or dissolution proceedings:

Pensioner member - The CEV of their LGPS rights would be based on their pension in payment. That pension will include any final guarantee amount that the member is receiving. If the court does issue a pension sharing order, the final guarantee amount could be shared (depending on what the order provides).
Deferred member or an active member who is over their final salary normal pension age – These members will have already had an underpin date. The CEV will be worked out in the same way as a non-Club transfer value is calculated^{[footnote 14]}. The member’s underpin protection will therefore be reflected in the CEV. The member’s final underpin calculations will take place as usual when they have their final underpin date under the normal rules of the scheme.
Active member who is under their final salary normal pension age – These members will not have had an underpin date. The CEV will be calculated as if the calculation date was the member’s last day of service. Provisional assumed benefits and underpin amount will be worked out solely for the purpose of calculating the CEV. The member’s underpin calculations will take place as usual when they have their underpin date and final underpin date under the normal rules of the scheme.

49. We are also proposing a minor technical adjustment to how pension debits^{[footnote 15]} are reflected in underpin calculations, to avoid the potential for a member having negative assumed benefits or a negative underpin amount, which could be difficult to explain. The change will not have a material impact on members’ final underpin calculations.

50. The current regulations provide for any pension debit to be removed from the pension figures when working out a member’s assumed benefits and underpin amount. For some members, this may result in one or both of these figures being negative. This could happen if the member has benefits that are excluded from the calculation of the assumed benefits and underpin amount, but that have been shared as a result of a pension sharing order. Such benefits could include additional pension purchased or awarded or certain transfers into the 2014 Scheme.

51. For example, a career average pension pot may total £2,500, comprising £1,000 of pension built up in the scheme and £1,500 of pension transferred in from a private sector occupational scheme. If a 50% share in the member’s pension is awarded to the member’s ex-spouse, that would mean the pension debit would be £1,250. Under the current regulations, this amount would be taken off each of the provisional assumed benefits and the provisional underpin amount. The provisional assumed benefits would be £1,000 before the pension debit is removed (because the transferred service would not form part of the calculation). Removing the pension debit of £1,250 would give negative provisional assumed benefits of -£250, even though the member had built up pension in the underpin period.

52. We therefore propose to remove pension debits from the calculation of provisional assumed benefits and underpin amounts completely. We believe this will mean:

no change in the level of any final guarantee amount because the pension debit is the same on both sides of the calculation, so a change will not affect the difference between the assumed benefits and the underpin amount
no negative assumed benefits or underpin amount and the associated challenges of explaining them to scheme members.

Question 5 – Do you agree with our proposed method for calculating a CEV for a member with underpin protection?

Question 6 – Do you agree with our proposal to remove pension debits from the calculation of the provisional assumed benefits and underpin amount?

Excess teacher service

53. During the course of the government’s deliberations on the McCloud remedy, we have considered how the remedy should be applied for a subset of teachers who have ‘excess teacher service’ and who may have periods of membership in both the Teachers’ Pension Scheme (TPS) and the LGPS.

54. This issue arises as, under the legacy (final salary) TPS, where a teacher had a full-time employment and a part-time employment, the part-time employment was not pensionable in the TPS. Where the teacher’s employer was an LGPS employer, the teacher would have been eligible to join the LGPS in respect of that part-time employment.

55. Different rules apply under the reformed (career average) TPS introduced on 1 April 2015. Where a teacher has a full-time employment and a part-time employment at the same time, they are both pensionable in the reformed TPS.

56. In the 2022 Act, where a teacher has a full-time employment and a part-time employment at the same time, and the part-time employment is pensionable in the LGPS (or would have been, if the member was in the TPS legacy scheme), the part-time employment is referred to as ‘excess teacher service’. From 1 April 2015 to 31 March 2022, there were three different groups of members with excess teacher service:

Protected members – teachers who were transitionally protected and who remained in the legacy TPS for their full-time contract. Their excess teacher service would have been pensionable in the LGPS.
Unprotected members – teachers who were not transitionally protected and who moved to the reformed TPS for their full-time contract. Their excess teacher service would have been pensionable in the reformed TPS.
Taper protected members^{[footnote 16]} – teachers who moved to the reformed TPS at a later date. Their excess teacher service would have been pensionable in the LGPS up to their taper date. Their excess teacher service would have been pensionable in the reformed TPS after their taper date.

57. Under the TPS’s remedy to the McCloud discrimination, all members in scope of the remedy and who are in the TPS reformed scheme will have their reformed scheme service rolled back into the TPS legacy scheme for the remedy period^{[footnote 17]} on 1 October 2023. When a member retires, they will decide if they want to take the benefits built up in the remedy period as either legacy or reformed benefits. This is called a member’s deferred choice. If a member has already taken payment of their pension, they will have an immediate choice as soon as possible after 1 October 2023^{[footnote 18]}.

58. When members with excess teacher service have their reformed scheme service rolled back to the legacy TPS for their full-time contract on 1 October 2023, their excess teacher service will not be pensionable in the TPS legacy scheme. The 2022 Act therefore provides^{[footnote 19]} that their excess teacher service is pensionable in the LGPS, and members will be retrospectively admitted to the LGPS for the period they were in the TPS reformed scheme during the remedy period.

59. The government took this decision following detailed discussions between the Department, the Department for Education and HM Treasury in developing the 2022 Act. The remedy provided for under the 2022 Acts ensures that there is a standard approach which treats members with excess teacher service consistently, whether they were originally transitionally protected or unprotected. It provides that, overall, the following will apply for members with excess teacher service:

Full-time contract – Pensionable in the TPS for service from 1 April 2015 to 31 March 2022. If members are not already in the TPS legacy scheme, they will be rolled back to this scheme on 1 October 2023. Members will have a deferred or immediate choice (as appropriate) allowing them to choose between the reformed and legacy scheme for this contract.
Part-time contract(s) – Pensionable in the LGPS for service from 1 April 2015 to 31 March 2022. If members are not already in the LGPS, they will be put into the LGPS on 1 October 2023. Members will be eligible for underpin protection in the LGPS if they meet the LGPS qualifying criteria^{[footnote 20]}.

60. From 1 April 2022, all pension accrual in the TPS has been in the reformed scheme and all excess teacher service has ceased to accrue in the LGPS. Active members will have a business-as-usual right to a Club transfer from the LGPS to the TPS, if they wish. This option will be available to them for 12 months after the date they receive their remediable service statement^{[footnote 21]} for their full-time TPS contract.

61. This is a unique and complex part of the government’s McCloud project, and the administration of the remedy for this group is likely to be exceptionally challenging. The Department is working with the Department for Education, Teachers’ Pensions, the Local Government Association (LGA) and with a group of LGPS administrators to consider this issue and the delivery of the remedy for this group in the coming years. These discussions will include the following topics, and any other relevant matters:

how to identify affected members
adjusting employee and employer contributions
obtaining data to create LGPS member records
adjustments where benefits are already in payment
transfers back to the TPS after the remedy period.

62. Where relevant, communications regarding the process that will apply for this group will be shared with LGPS administrators via the LGA. We also intend to consider with the guidance working group whether statutory or SAB guidance would be helpful to support administrators in delivering the requirements of the 2022 Act for this group.

63. Our draft regulations do not include specific provisions relating to excess teacher service, on the basis that, when members are rolled back into the LGPS, the normal scheme provisions will apply to them in the usual way. However, we welcome comments from stakeholders on matters where specific regulations to deal with excess teacher service in the LGPS may be necessary.

Question 7 – Do you have any comments on the approach being adopted for these members?

Question 8 – Are there any areas where specific scheme regulations regarding excess teacher service would be necessary or beneficial?

Compensation

64. Under the 2022 Act, LGPS administering authorities may pay compensation to or in respect of an LGPS member in certain circumstances. Compensation may take one of two forms:

direct – where the compensation is a cash payment, and
indirect – where the compensation is an additional benefit under the scheme.

65. The PSP Directions mentioned in paragraph 10 build on the Act, specifying the circumstances in which either type of compensation can be paid. Directions 33 to 34 cover direct compensation, whilst directions 35 and 36 cover indirect compensation. Broadly, compensation may be paid directly, or indirectly as additional benefits through the Scheme, where members have suffered:

direct financial loss as a result of the identified discrimination^{[footnote 22]}, or
a ‘specified Part 4 tax loss’, covering circumstances where a member may have overpaid annual allowance or lifetime allowance charges as a result of the identified discrimination or the application of the remedy.

66. Our draft regulations include the following provisions regarding compensation:

Draft regulation 4S (Payment of indirect compensation) – Gives administering authorities a power to award members additional benefits where the qualifying criteria for indirect compensation are met. Under this, an administering authority would have to obtain advice from an actuary before determining what additional benefits to pay.
Draft regulation 4T (Applications for compensation) – Provides that direct or indirect compensation may only be payable in respect of a member where an application has been made to the administering authority. Also details what must be included in such an application.

67. As section 82 of the 2022 Act already gives administering authorities (referred to as ‘scheme managers’ in the Act) powers to pay direct compensation, the draft regulations do not restate the powers applicable for this type of compensation.

68. The draft regulations also provide that where direct or indirect compensation has been paid from the fund, they would be liabilities for the purposes of funding valuations (regulation 62 of the 2013 Regulations) and exit valuations (regulation 64 of the 2013 Regulations).

69. The government recognises that as the decision-making power regarding compensation is at the local level, there may be a need for national support for local administrators in determining how to approach this part of the remedy. There is also the potential for inconsistency in how this matter is approached between different administering authorities. Whilst there is a detailed legislative framework within which compensation applications must be approached, we will be considering the issue of compensation in the guidance working group (see paragraph 13) and whether it would be helpful for statutory or SAB guidance to build on the legislative requirements to provide more detail on the circumstances each may be applicable.

Question 9 – Do you have any comments on the government’s approach to compensation?

Interest

70. The retrospective nature of our remedy to the McCloud discrimination will mean payments will be made by LGPS administering authorities to or in respect of some LGPS members later than would have been the case if the discrimination had not occurred. Applying appropriate interest on such payments is therefore important to ensure that members receive benefits of an equivalent value to those they would have originally received.

71. A standard approach will apply across the public sector in relation to interest for McCloud remedy payments. The PSP directions issued by HM Treasury set out a framework which local government scheme regulations must implement. An exchange of letters between HM Treasury and the Government Actuary’s Department has been published outlining the basis of the government’s decisions on interest^{[footnote 23]}. Draft regulation 4V and regulation 11 of Part 3 contain details of the interest terms that will apply where additional payments are due in respect of members as a result of the LGPS McCloud remedy, building on directions 37 to 40 of the PSP Directions. Where interest is payable under these provisions, the below table describes what interest rates should apply and for what period.

Type of payment	Interest applicable	Period applicable for
Retrospective addition to a member or survivor’s pension in payment	Calculated as simple interest accruing on a day for day basis at the rate fixed, for the time being, by section 17(1) of the Judgments Act 1838 (see direction 38(4))	From the mid-point date to the date of payment of the addition (where the mid-point date is the day which falls half-way through the period beginning on the date when pension benefits were first underpaid and ending on the date of payment)
Retrospective addition to a lump sum (including pension commencement lump sum, death grant and trivial commutation payment) Retrospective addition to a transfer out of the scheme	Calculated as simple interest accruing on a day for day basis at the rate fixed, for the time being, by section 17(1) of the Judgments Act 1838 (see direction 38(4))	From the date the original payment was made to the date of payment of the addition
Direct compensation for direct financial loss	Calculated as simple interest accruing on a day for day basis at the rate fixed, for the time being, by section 17(1) of the Judgments Act 1838 (see direction 38(4))	From the date the direct financial loss arose to the date of payment
Direct compensation for a Part 4 tax loss	Calculated in accordance with the provisions of the Taxes (Interest Rate) Regulations 1989 as if that amount were overpaid tax	From the date the loss arose to the date of payment
Indirect compensation	Rate applicable determined by reference to the additional benefit awarded - for example, if additional pension is awarded, the rate of interest for pensions would apply	Period applicable determined by reference to the type of additional benefit awarded - for example, if additional pension is awarded, the period applicable for pensions would apply

Question 10 – Do you have any comments on the government’s approach to interest?

Injury allowances

72. We have considered the implications of underpin protection on members who qualified for an allowance under the Local Government (Discretionary Payments) (Injury Allowances) Regulations 2011 (‘the 2011 Regulations’). Our initial view is that no change to the LGPS regulations is required in relation to this group.

73. The 2011 Regulations contain provisions allowing for employees in local government to be awarded allowances where they have sustained an injury or contracted a disease in the course of carrying out their work. Under regulation 6 of the 2011 Regulations, where a member was receiving an allowance whilst remaining in work and has since begun to receive an LGPS pension, their employer may choose to pay them a further allowance, if the pension falls short of what they were receiving under regulation 3. The allowance can only be paid at a rate sufficient to cover the shortfall.

74. Any backdated increase to the LGPS pension as a result of underpin protection could therefore mean the member has been overpaid their allowance under regulation 6. However, the total paid to the individual (pension plus injury award) since the date the pension started to date would not change. We therefore do not believe that any special provisions are required in relation to this group, and we have not proposed specific regulation changes to deal with this issue.

75. Funding for an injury pension will originate from an individual’s employer, rather than the pension fund. It is therefore possible that, whilst the total amount payable to a member is accurate, the source of the payment would have been different. We propose that, where this occurs, an administering authority may wish to consider whether to re-visit funding for past payments if a member with a benefit payable under the 2011 Regulations benefits from a new or increased guarantee amount.

Question 11 – Do you agree with the approach we have proposed for injury allowance payments?

Question 5

Equalities

Accepted Answer

76. The Public Sector Equality Duty (PSED) requirements are set out in section 149 of the Equality Act 2010. The PSED requires a public authority to have due regard to the need to:

eliminate unlawful discrimination, harassment and victimisation and other conduct prohibited by the Equality Act 2010;
advance equality of opportunity between people who share a protected characteristic and those who do not; and
foster good relations between people who share a protected characteristic and those who do not.

77. The equality duty covers nine protected characteristics: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race (ethnicity), religion or belief, sex, and sexual orientation. The government’s equality impact assessment in respect of the steps we are taking to address the McCloud discrimination in the LGPS is available^{[footnote 24]}.

78. For the age and sex protected characteristics, our equalities analysis has been based on data provided by LGPS funds to the Government Actuary’s Department as at 31 March 2019. For the protected characteristics of race, disability, religion and marriage and civil partnerships, the government has considered data from the Annual Population Survey in analysing. No quantitative analysis has been possible for the protected characteristics of sexual orientation, gender reassignment, pregnancy and maternity as we have not been able to identify suitable data. When the government consulted on McCloud remedy in the LGPS in 2020, we sought views from stakeholders on whether other data sets were available to help us assess the impacts of our proposals on the scheme’s membership. At the time, no suggestions were put forward but, reflecting the time that has since passed, question 13 below seeks further suggestions.

Question 12 - Do you have any comments on our equality impact assessment?

Question 13 – Are you aware of additional data sets that would help us assess the impacts of the LGPS McCloud remedy on the LGPS membership?

Question 6

Draft regulations

Accepted Answer

79. Draft regulations to implement the LGPS McCloud remedy are attached to this document (annex A). The draft regulations cover the main remedy, as described in annex A of the government response published on 6 April^{[footnote 25]}, as well as the other matters we discuss in this document.

80. The draft regulations include, at Part 3, a section describing how the remedy will have effect retrospectively in respect of those situations where members have already taken their benefits from the scheme (through a pension or in another way). Whilst we have made retrospective provision on other matters in the past without a similar section, Part 3 has been included for these regulations to provide additional clarity given that retrospection is such a major feature of the changes we are making.

81. The regulations are provided as an indicative draft only, and may be subject to further changes as a result of internal review. However, we welcome general comments on how effectively the regulations would implement the extension of the underpin, as well as specific suggestions for changes that would be beneficial.

Question 14 – Do you have any comments on the draft regulations?

Question 15 – Do you have any other comments you would like to make on McCloud remedy in the LGPS?

Question 7

About this consultation

Accepted Answer

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation. In certain circumstances this may therefore include personal data when required by law.

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the Department is bound by the information access regimes and may therefore be obliged to disclose all or some of the information you provide. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department.

The Department for Levelling Up, Housing and Communities will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below.

Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond.

Are you satisfied that this consultation has followed the Consultation Principles? If not or you have any other observations about how we can improve the process please contact us via the complaints procedure.

Question 8

Personal data

Accepted Answer

The following is to explain your rights and give you the information you are entitled to under UK data protection legislation.

Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally) not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Department for Levelling Up, Housing and Communities (DLUHC) is the data controller. The Data Protection Officer can be contacted at dataprotection@levellingup.gov.uk or by writing to the following address:

Data Protection Officer
Department for Levelling Up, Housing and Communities
Fry Building
2 Marsham Street
London
SW1P 4DF

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

We will collect your IP address if you complete a consultation online. We may use this to ensure that each person only completes a survey once. We will not use this data for any other purpose.

Sensitive types of personal data

Please do not share special category personal data or criminal offence data if we have not asked for this unless absolutely necessary for the purposes of your consultation response. By ‘special category personal data’, we mean information about a living individual’s:

race
ethnic origin
political opinions
religious or philosophical beliefs
trade union membership
genetics
biometrics
health (including disability-related information)
sex life; or
sexual orientation.

By ‘criminal offence data’, we mean information relating to a living individual’s criminal convictions or offences or related security measures.

3. Our legal basis for processing your personal data

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation as it is necessary for the performance by DLUHC of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation.

Where necessary for the purposes of this consultation, our lawful basis for the processing of any special category personal data or ‘criminal offence’ data (terms explained under ‘Sensitive Types of Data’) which you submit in response to this consultation is as follows. The relevant lawful basis for the processing of special category personal data is Article 9(2)(g) UK GDPR (‘substantial public interest’), and Schedule 1 paragraph 6 of the Data Protection Act 2018 (‘statutory etc and government purposes’). The relevant lawful basis in relation to personal data relating to criminal convictions and offences data is likewise provided by Schedule 1 paragraph 6 of the Data Protection Act 2018.

DLUHC may appoint a ‘data processor’, acting on behalf of the Department and under our instruction, to help analyse the responses to this consultation. Where we do we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period

Your personal data will be held for two years from the closure of the consultation, unless we identify that its continued retention is unnecessary before that point.

6. Your rights, e.g. access, rectification, restriction, objection

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to object to our use of your personal data in certain circumstances

e. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO at https://ico.org.uk/, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO: dataprotection@levellingup.gov.uk or

Knowledge and Information Access Team
Department for Levelling Up, Housing and Communities
Fry Building
2 Marsham Street
London
SW1P 4DF

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for two years before it is deleted.

‘McCloud’ remedy in the LGPS – supplementary issues and scheme regulations

Applies to England and Wales

Scope of the consultation

Topic of this consultation:

Scope of this consultation:

Geographical scope:

Impact assessment:

Public sector equality duty

Basic Information

Body/bodies responsible for the consultation:

Duration:

Enquiries:

How to respond:

Introduction

Next steps

Proposals

Aggregation

Club transfers into the LGPS

Flexible retirement

Divorce

Excess teacher service

Compensation

Interest

Injury allowances

Equalities

Draft regulations

About this consultation

Personal data

1. The identity of the data controller and contact details of our Data Protection Officer

2. Why we are collecting your personal data

Sensitive types of personal data

3. Our legal basis for processing your personal data

5. For how long we will keep your personal data, or criteria used to determine the retention period

6. Your rights, e.g. access, rectification, restriction, objection

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

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Applies to England and Wales

Scope of the consultation

Topic of this consultation:

Scope of this consultation:

Geographical scope:

Impact assessment:

Public sector equality duty

Basic Information

Body/bodies responsible for the consultation:

Duration:

Enquiries:

How to respond:

Introduction

Next steps

Proposals

Aggregation

Club transfers into the LGPS

Flexible retirement

Divorce

Excess teacher service

Compensation

Interest

Injury allowances

Equalities

Draft regulations

About this consultation

Personal data

1. The identity of the data controller and contact details of our Data Protection Officer

2. Why we are collecting your personal data

Sensitive types of personal data

3. Our legal basis for processing your personal data

4. With whom we will be sharing your personal data

5. For how long we will keep your personal data, or criteria used to determine the retention period

6. Your rights, e.g. access, rectification, restriction, objection

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

Is this page useful?

Help us improve GOV.UK

Help us improve GOV.UK