LGPS IAS19 - McCLoud Ruling on Age Discrimination

Hello all

We have just received this notification from our External Auditors in relation to them NOT being able to conclude our 2018/19 Audit due to the McCloud Ruling on the Pensions and advised that we should ask our Actuary to re-run the IAS19 Calculation.

Has anyone else received a similar response from their Auditors and does anyone plan to challenge this decision? CIPFA have issued guidance twice to show this as a Contingent Liability in our 2018/419 Financial Statements so I am struggling to see how this decision could have been reached by our External Auditors? If the Government appeal this decision it could take years to resolve, does this mean that the accounts will not be signed off until this point? Our External Auditors audit a significant number of public sector organisations so this decision could impact many organisations. It would be great if you could let me know if your External Auditors have reached the same opinion?

Notification from External Auditors

""As you will be aware, there has been considerable discussion in the sector recently re the McCloud ruling on age discrimination.

 In summary, the Court of Appeal has ruled that there was age discrimination in the judges and firefighters pension schemes where transitional protections were given to scheme members. The Government has applied to the Supreme Court for permission to appeal but it will be July at earliest before a decision on permission is granted. The legal ruling around age discrimination (McCloud - Court of Appeal) has implications not just for pension funds, but also for other pension schemes where they have implemented transitional arrangements on changing benefits. The firm has been in discussion both with other auditors and the NAO as regards the potential impact on this year’s financial statements. A number of Directors of Finance have also asked our view. We have set out our current position below, which we hope is helpful in enabling you to determine an appropriate course of action: 

What is the firm’s current view on the accounting implications in respect of the McCloud judgement? The decision as to the appropriate accounting treatment is one for the Council. It is worth noting that the NAO have asked HMT, MHCLG and the Home Office to provide a legal view on the likely outcome of the appeals process for the sector which would help inform whether there is a present obligation that will result in an outflow of cash. We are hoping that this judgement will be provided shortly. We understand the GAD is also about to issue its report for the LGA looking at the overall impact across the sector. 

How can we determine the potential impact on the financial statements? Based on our discussions with other firms, we believe by far the most effective way to do this is to ask the actuary to re-run the IAS 19 report and we have discussed this with the NAO and other audit firms to promote a consistency of approach across the sector. The actuary should reflect the best estimate for restitution and provide sensitivity analysis for key assumptions. We are also aware that actuarial firms have taken differing approaches to the change in the defined benefit pension obligations that results from Guaranteed Minimum Pension equalisation and authorities may wish to discuss with their actuary how the combined impact of the McCloud judgement and GMP equalisation is taken into account in any revised IAS19 reports. Once the Council has obtained an updated report, we can discuss with you whether the impact is material for the financial statements.

What is the impact of this issue for accounts sign off? As things currently stand, we are not in a position to conclude the audit. Once a legal view has been obtained by the NAO (as above) and the Council has obtained further information from its actuary, we would expect the position to be much clearer.


Will the extra cost and effort involved in this be worthwhile? We are conscious of feedback from our regulator, the FRC, which makes clear their view that pensions estimates are high value, complex and important figures within the financial statements, which require an appropriate degree of audit focus. On that basis, it is important that both you and we ensure that the figures produced in the financial statements are materially correct. Should you have any concerns about costs incurred, you may wish to raise these with Public Sector Audit Appointments Ltd.""