SAB issues advice on cost cap and McCloud liabilities

Publication date: 07/06/2019 10:47:29

Back in January we informed you of some scheme changes proposed by the Scheme Advisory Board (SAB), resulting from the cost management process taking place across all public service schemes including the LGPS.

More recently the SAB announced it will pause the cost management process pending the outcome of the ongoing McCloud court case. You can read the government's written statement, published on 30 January 2019, under Related links.

SAB have since issued central guidance for dealing with potential additional liabilities arising from the cost cap process and the McCloud case, as well as a proposed approach to the 2019 triennial valuation. The full document can also be found under Related links.

Some of the key points raised in the document are:

  • The potential effects of the cost cap and the McCloud judgement are still uncertain. In particular, the timing of the judgement and the potential effect of scheme liability.
  • The SAB have included advice on how to carry out the 2019 actuarial valuations of LGPS funds. Their view is the current benefit design, as set out under existing LGPS regulations, should be used if there is no finalised outcome by 31 August 2019. However, funds and employers should be mindful of potential extra liabilities when setting their contribution rates at the 2019 valuation. This should enable employers to make provision for any additional liabilities, even though any additional contributions may not commence until after all the implications of McCloud have been settled. In general, our actuary concurs with this view, albeit there may be some circumstances where the funding and risk management policies of the fund enable some smoothing of the eventual contribution outcomes. This is something that will be considered as we go through the valuation process.
  • The potential effect when carrying out certain exit calculations when employers leave the fund, suggesting a more ‘prudent’ approach is taken in calculations. This is to make sure the fund is not adversely affected by the outcome of this process. 
  • The SAB have commissioned The Government Actuary’s Department (GAD) to estimate the overall effects of McCloud on the LGPS based on a range of pay assumptions. The outcome of their findings will be published on the SAB website.
  • A briefing note from CIPFA sets out the possible options for employers in dealing with the accounting issues which may arise. This can be found under Related links.

As always, we'll communicate any further information as we receive it.