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Aon says McCloud judgment could be costly for public sector outsourcing contractors

LONDON (31 July 2019) - Aon plc (NYSE:AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that the changes likely to be required in public sector pension schemes as a result of the McCloud judgment, could have financial consequences for Public Sector outsourcing contractors.

The most recent ruling against the government confirmed that the protections put in place for some members when the pension benefits were changed in 2015 amounted to unlawful age discrimination. Following the Court of Appeal’s ruling in the McCloud and Sergeant cases, benefit changes which remove the discrimination and compensate members affected by that discrimination are likely to be required. The total cost of these changes has been widely stated as potentially running into billions.

As yet, no decisions have been made regarding the timeline for change but all organisations who employ staff with a right to pension benefits through the public sector pension schemes, should at least be prepared for additional cost pressures and a further period of prolonged uncertainty about staff benefits.

Madalena Cain, principal consultant at Aon, said:
“This judgment could cause real issues for organisations using the Local Government Pension Scheme (LGPS), whether they are companies providing outsourced services or others, such as charities and universities. Unlike other public sector schemes, the LGPS is a funded arrangement where the cost of any benefit improvements would be passed onto participating employers - and at a time when pension costs are already high.”

Due to the nature of the LGPS there is likely to be a divergence in experience across different employers, depending on which employees are eligible for membership and whether any arrangements are in place to share pension risk with public sector bodies. Contractors who are anticipating exiting the LGPS in the near term are likely to face considerable uncertainty on any exit payments due - and should review their contract terms as a priority.

Madalena Cain said:
“As well as the financial ambiguity, employers may well have to support their staff through another period of significant change and uncertainty. If the 2015 public sector pension scheme changes are unwound to any extent, cost management may well require a further round of changes.

“It’s possible that contractors could be in the position of bidding for contracts with no clear understanding of the nature and cost of benefits. This could mean higher loadings in the bids and hence poorer value for government.”

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For further information please contact:
Colin Mayes                                           Tommy Cooper
Aon                                                          Kekst CNC
07801 748138                                          020 3755 1641                   

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Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

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