McCloud: When are new CEVs required?

The purpose of this blog is to follow up on our recent webinar, which provided an update on the implementation of the McCloud remedy.

In our recent webinar, we provided an update on where the various public sector schemes are with implementation of the remedy and, in particular, if CEVs are being produced in line with the regulations that came into effect on 1 October 2023. We also touched on the possibility of writing pensions on divorce reports without these “McCloud compliant” CEVs.

Whether a report can be written without McCloud compliant CEVs is very much dependent on the specifics of the case and may depend on whether a public sector pension is going to be shared (amongst other factors). The matrix below provides a summary of our position on whether compliant CEVs are required for us to be able to write a PODE report. It is assumed that we are considering public sector pensions that are affected by the McCloud remedy:

In general, where a public sector pension is being shared, a compliant CEV will be needed for that pension. A non-compliant CEV will not reflect the current benefit entitlement and the value placed on that entitlement. Thus, without a compliant CEV it can be very difficult to consider (i) what the holder of a public sector pension will be left with after pension sharing and (ii) what the other party will be awarded on pension sharing.

In terms of which schemes are producing McCloud compliant CEVs, we have seen such CEVs in respect of pensions in the Civil Service, NHS and Teachers’ pension schemes. We understand that the administrators of the Teachers’ Pension Scheme are working through a backlog of cases to get to the same position as the administrators of the Civil Service and NHS schemes. These schemes are each administered by their own single administrator. The same is true of the Armed Forces Pension Scheme, which is administered by Veterans UK. We have not yet seen compliant CEVs from Veterans UK, but are hopeful that production of these will start in the next few weeks. Again, there will be a backlog to clear.

Various regional entities administer the pension benefits for members of the Police and Firefighters’ pension schemes. Therefore, whether McCloud compliant CEVs are being produced will depend upon who is responsible for the pension administration for a particular police force or fire and rescue authority. However, we have seen some compliant CEVs in respect of members of these schemes.

Therefore, for pensions that are to be shared, our advice is to obtain a compliant CEV in nearly all cases. Where a public sector pension needs to be shared, and that pension comes under the scope of the McCloud remedy, but a compliant CEV has not been provided, in some circumstances—depending on what other information can be provided to us—we may decide that we can estimate the impact of the McCloud remedy and derive compliant CEVs. This is only likely to apply in very few cases and is unlikely to be an approach adopted where we are aware that compliant CEVs are being produced for that scheme. If this approach is to be adopted, it is essential that compliant CEVs are still obtained prior to sending an Order to the relevant pension administrator. If this is not done, there is a risk that pension sharing will not have the intended consequences. This risk arises because different regulations apply depending upon whether or not a compliant CEV has been provided prior to implementation of a PSO.

Where public sector pensions are not being shared, it is quite often the case that that pension is not of significant value when all other pensions are considered. If this is the case, we may use our professional judgement and decide that the impact of the McCloud remedy on this pension can be considered to be trivial in the context of the case and thus McCloud compliant CEVs (or other sources of information) are not required. However, in some cases—usually where each party has public sector pension benefits only—it may be decided that in order to equitably consider each party’s pension benefits, compliant CEVs are required for all public sector pensions that come under the scope of the McCloud remedy.

Considering the Local Government Pension Scheme (LGPS)—that is also administered by various regional entities—we have not yet seen a CEV where it is clear that allowance has been made for the application of the McCloud remedy. However, we are content to write reports involving LGPS pension benefits as the application of the remedy in the LGPS is expected to result in fairly trivial increases in pension entitlement for a small proportion of scheme members (this is the message from the LGPS). Additionally, we may be able to put forward solutions whereby equality is maintained, in broad terms, once the remedy has been applied.

At MCL, we take a holistic view of the pensions in a case to ascertain the significance of the McCloud remedy for a given case, before focussing on the detail of the implications of the remedy for pension sharing. We seek to avoid delays to the divorce or Court timetable by requesting unnecessary information in respect of the McCloud remedy. As deemed necessary, our reports will include caveats that are case specific, to allow instructing solicitors (and their clients) to understand any risks inherent in the various solutions.

We thank both solicitors and divorcing parties for their patience in dealing with us in respect of such public sector pension sharing cases, and note that the end is now hopefully in sight as the public sector schemes begin to meet their post-McCloud CEV requirements.