Public sector pensions update Summer 2016

Written on 27 Jul 2016

Public sector “golden goodbyes”

In February 2016 we reported on the Government’s further consultation on public sector exit payments, which ran until 3 May 2016. The stated purpose of this consultation was to look at options to reform public sector exit payment terms to make them fairer, more modern and more consistent. We are still awaiting the outcome of this consultation, and will report on this when it has been published.

It followed an earlier consultation in July 2015 on capping public sector exit payments at £95,000, and another in December 2015 on draft regulations aiming to ‘claw-back’ exit payments made to public sector employees earning over £80,000 per annum who return to employment within the public sector within twelve months. Draft public sector exit payment regulations have been published governing the £95,000 cap but are not anticipated to come into force before 1 October 2016. The ‘claw back’ changes were anticipated to come into effect under regulations coming into force from April 2016 but these are not yet in force, while Parliament is still considering legislation on the exit payment cap itself as part of the Enterprise Bill.

Fair Deal for Local Government Pension Scheme (the “LGPS”)

On 27 May 2016, the Department for Communities and Local Government published a consultation setting out its proposal to extend the Treasury’s policy guidance on protecting staff pension rights in the context of a transfer of staff from the public sector to include local authority employees. The current guidance, which is known as Fair Deal for Staff Pensions and which was published in October 2013, applies to staff transfers from central government and does not apply to local authority employees. Pension rights of local authority staff have instead enjoyed protection under the Best Value Authorities Staff Transfers (Pensions) Direction 2007, although protection is limited to future service.

Draft regulations have been published alongside the consultation which set out how this would be implemented. Some of the highlights from the draft regulations are:

  • a new category of employee known as a “protected transferee”. These are persons eligible to be an active LGPS member and who were employed by a scheme employer, or an admission body, immediately before their employment was compulsorily transferred to a different employer, who does not offer these persons membership of another public-sector pension scheme. Individuals will continue to fall within the category of “protected transferees” for so long as they remain wholly or mainly employed on the delivery of the service or function transferred;
  • a new category of scheme employer, to be known as a “protected transferee employer”. These employers are obliged to participate in the LGPS under the 2013 Regulations in respect of the protected transferees that they receive; and
  • provision for employers to receive credit for any surplus assets in a fund upon ceasing to be a scheme employer. The 2013 Regulations do not currently allow for any surplus assets to be returned to a participating employer after a cessation valuation and the only possible option
    is for a contribution reduction before the employer ceases to participate.

These proposals have a number of consequences for LGPS funds and scheme employers. We will be reporting in detail on these separately and
will be submitting a response to the consultation.

Asset pooling

We reported on the Chancellor’s 2015 Autumn Statement which announced plans to transform the 89 LGPS funds in England and Wales by pooling their investments together into six British Wealth Funds here. The deadline for LGPS funds to submit their final proposals for asset pooling to the Government by 15 July has recently passed. The submissions from the asset pools are expected to elicit a response from the Government at some point in October.

While we are awaiting the responses, an all-party parliamentary group has been created for the LGPS to discuss asset pooling and investment in UK infrastructure. This group will be chaired by Clive Betts MP and it is hoped that this will afford LGPS funds the opportunity to engage directly
with Parliament.

Investment Regulations

The Department for Communities and Local Government consultation on the new draft LGPS Investment Regulations ended on 19 February 2016. The stated aim of the new regulations was to lift existing restrictions on LGPS fund investment powers in order to make it easier for them to pool investments and access benefits of scale. According to the consultation document, a response from the Government was due to be published within 3 months of the end of the consultation.

We are still awaiting the outcome of this consultation. In particular, it was hoped that the outcome of the consultation would be published prior to 15 July 2016 in order to enable individual LGPS funds to take into account the provisions of the new regulations when formulating their final asset pooling proposals ready for submission to the Government on asset pooling.