The deputy chief actuary at the Government Actuary’s Department has estimated that 1% could be added to Local Government Pension Scheme (LGPS) liabilities if transitional arrangements introduced in 2014 are confirmed to be discriminatory.

With a valuation currently in process, this isn’t the sort of news that employers want to hear.

The Court of Appeal decided in the McCloud case late last year, that the transitional arrangements for employees contributing to public sector pensions when the schemes moved from a final salary to a career average basis, were indirectly discriminatory against younger employees. We wait to see whether the Government will be given leave to appeal to the Supreme Court following the Court of Appeal’s decision. If this decision in the McCloud case is confirmed, this will increase the costs for all public sector schemes, including the LGPS. This is because the pension schemes may have to offer transitional measures to all members. If this is the case, it is estimated that the LGPS liabilities will increase by 1% and possibly increase more in other unfunded public sector schemes.

Given the direction of travel of this case, the Government announced in January that it would be pausing any changes arising from breach of the cost cap mechanism (see our earlier briefing on the cost cap mechanism, here) in the absence of any certainty as to pension costs and funding. The Government has said that it is impossible to assess the value of the current pension arrangements until there is more certainty and the results of the schemes’ four-yearly valuation are received.

In this period of uncertainty, the best, albeit rather pessimistic advice, is to plan for the impact of the courts’ ruling against the Government in the McCloud case. Employers can expect to see a rise in pension costs and should start the budgeting process to be prepared for the worst!

For more information

For more information, please contact Doug Mullen.