IODPA Briefing Note No. 1

McCloud Remedy, the Ill Health Underpin and Unexpected Pension “Debts” – What is Going On?

Over recent weeks the Injury on Duty Pensioners Association (IODPA) has been contacted by an increasing number of members who have received their Remedial Service Statement (RSS) following implementation of the McCloud Remedy.

Whilst many members expected the RSS simply to explain the financial consequences of choosing between their Legacy and Reformed pension benefits for the Remedy Period, a number have instead been shocked to discover that the figures suggest they owe substantial sums of money.

In one recent case, the member was presented with two options:

• Option 1 (Legacy): a net amount allegedly owed of more than £13,700.
• Option 2 (Reformed): a lesser amount of £776 allegedly owed under the second option.

For many retired officers these are life-changing sums.

The purpose of this article is to explain why this appears to be happening and why IODPA believes there are important questions that require answers before members can make informed decisions.

Background – The McCloud Remedy

Most readers will already be familiar with the McCloud litigation.

Following the decisions in McCloud and Sargeant, the Government accepted that the transitional arrangements which moved officers into the Police Pension Regulations 2015 discriminated on the grounds of age.

Parliament subsequently introduced legislation allowing affected members to choose whether, during the Remedy Period, they should receive benefits under the Legacy Scheme or the Reformed (2015) Scheme.

Throughout the Remedy process, Government repeatedly reassured members that nobody would be disadvantaged by simply exercising their statutory choice between the available Remedy options.

The purpose of the RSS is to enable members to make that informed choice.

A Separate Issue – The Ill Health Underpin

Unfortunately, another issue has emerged entirely independently of the McCloud Remedy.

For certain officers who retired on ill-health grounds as transitional members, the Police Pension Regulations 2015 require the “Ill Health Underpin” to be calculated using pensionable pay at the member’s closing date, rather than their final salary at retirement.

The NPCC Technical Guidance explains that, following a review, it became apparent that the original Home Office administrative guidance issued in 2015 did not correctly reflect the legislation.

The Guidance states:

“The Home Office drafted the administration guide and unfortunately the examples in this guide did not adequately reflect the use of the salary at closing date as set out in legislation… Administrators were relying on this guide rather than following the legislation…”

This is an important point.

The NPCC guidance recognises that pension administrators relied upon official Home Office guidance which has subsequently been acknowledged to be inaccurate.

There is no suggestion that affected pensioners contributed to the error or could reasonably have identified it.

Correcting the Underpin

The NPCC Guidance makes clear that pensions must now be recalculated using the correct methodology and that future pension payments must be corrected.

IODPA does not dispute that pensions should be calculated in accordance with the legislation.

However, correcting future payments is only part of the picture.

The more difficult question concerns what should happen where the correction reveals that a pensioner has historically received more than they would have received had the legislation been applied correctly from the outset.

Paragraph 33 – A Significant Part of the Guidance

Paragraph 33 of the NPCC Technical Guidance addresses this situation.

It states that where a member has been overpaid:

“…the Home Office have confirmed that it would be their expectations that forces would comply with the Managing Public Money… principles, in particular Annex 4.10 Losses and write offs and Annex 4.11 Overpayments. However, the pension will need to be corrected going forward.”

IODPA considers this wording to be important.

The Guidance does not simply refer to overpayments.

It also directs attention to the Government’s guidance concerning losses and write-offs.

That appears to recognise that, whilst future pensions must be corrected, the treatment of historic overpayments requires the exercise of judgment rather than an automatic assumption that every historic payment must necessarily be recovered.

The Position Where an Injury Pension Is Also Paid

The NPCC Guidance goes further.

For members who also receive an injury pension, the Guidance states that the expected approach is for the scheme manager to write off the overpayment, correct future payments, and effectively “draw a line” under the historic position without recovery.

Again, this demonstrates that the Guidance itself recognises circumstances in which historic overpayments may appropriately be written off rather than recovered.

Where IODPA Has Concerns

The concerns currently being raised with IODPA are not about whether pensions should be recalculated correctly.

The concerns relate to how those recalculations are being presented within the Remedial Service Statements.

Members are receiving RSSs which appear to combine:

• the financial consequences of their McCloud Remedy election;
• the corrected Ill Health Underpin calculations;
• adjustments to pension;
• adjustments to lump sums; and
• adjustments to injury pensions,

before producing a single net figure.

However, the documentation currently being provided does not explain how those figures have been derived.

Members are not provided with the underlying calculations.

As a result, many pensioners are unable to determine:

• what part of the figures arises from their McCloud Remedy choice;
• what part arises from correcting the Ill Health Underpin;
• whether any historic overpayments have already been incorporated into the calculations; or
• how the final figures have been reached.

For many members, the RSS simply presents the final answer without showing the working.

Can Members Make an Informed Choice?

This raises an obvious question.

The purpose of the RSS is to allow members to make an informed statutory election between the Legacy and Reformed schemes.

If members cannot understand how the figures have been calculated, can they genuinely make an informed choice?

IODPA believes that members should be provided with sufficient information to understand:

• the methodology used;
• the calculations performed; and
• the basis upon which the figures within the RSS have been produced.

An Issue Requiring Clarification

At present, it is not clear to IODPA whether:

• the McCloud Remedy calculations and the Ill Health Underpin recalculations have been treated as two distinct exercises; or
• whether they have effectively been combined into a single financial exercise before the RSS is issued.

Similarly, it is not yet clear whether any historic overpayments have already been assumed to be recoverable before consideration has been given to the principles referred to in paragraph 33 of the NPCC Technical Guidance.

These are questions which require clarification rather than assumptions.

IODPA has therefore begun seeking further information regarding the methodology adopted in preparing these statements.

What Should Members Do?

Members should not ignore correspondence relating to their RSS.

However, equally, members should not feel pressured into making an election or agreeing to repayment arrangements before they understand how the figures have been derived.

If you have received an RSS which you do not understand, you should consider requesting:

• the methodology used to prepare your statement;
• the calculations supporting the figures shown;
• an explanation of how the Ill Health Underpin recalculation has been incorporated into the RSS; and
• clarification regarding any alleged historic overpayments.

Where appropriate, members may also wish to ask that the election period and any recovery action are suspended until sufficient information has been provided to enable an informed decision to be made.

How Can Members Help?

IODPA is attempting to establish whether the same methodology is being applied consistently across all police forces and pension administrators.

If you have received a Remedial Service Statement that includes an Ill Health Underpin recalculation, and both option 1 and option 2 are worse then your current position, we would be grateful if you would send us a copy together with any accompanying correspondence.

The more examples we receive, the better placed we will be to identify whether this is an isolated issue or whether there is a nationally consistent approach requiring clarification.

As always, IODPA will continue to keep members informed as further information becomes available.