Public Sector Pensions Update | July 2019

Welcome to the first edition of our new-look Public Sector Pensions Update. In this edition, we focus on recent developments in the McCloud case. We also discuss the potential impact of a Competition and Markets Authority order on LGPS funds and highlight the results of a public sector pension scheme survey released by the Pensions Regulator. Finally, we highlight two consultations that have recently closed and one, on local valuation cycle and the management of employer risk, which is open until 31 July. If you would like to discuss any of the developments in this newsletter, please contact one of the experts listed below.

Update | Valuation and costs cap: the McCloud case

After a period of uncertainty, there have been a number of recent developments in relation to the McCloud case.

On 27 June 2019, the Fire Brigades Union reported that the Supreme Court had refused the government permission to appeal the Court of Appeal's ruling in the McCloud case. 

On 3 July 2019, the British Medical Association confirmed that "at least a dozen" doctors intend to take legal action against the government in relation to changes made to the NHS pension scheme in 2015.  Again, the complaint is that the transitional provisions put into place to protect older members constitute unlawful discrimination.

On 15 July 2019, the Chief Secretary to the Treasury made a written statement in which she said that "[a]s ‘transitional protection’ was offered to members of all the main public service pension schemes, the government believes that the difference in treatment will need to be remedied across all those schemes. This includes schemes for the NHS, civil service, local government, teachers, police, armed forces, judiciary and fire and rescue workers. …The matter will be remitted to the Employment Tribunal in respect of the litigants in the firefighters and judicial pension schemes. It will be for the Tribunal to determine a remedy. Alongside this process, government will be engaging with employer and member representatives, as well as the devolved administrations, to help inform our proposals to the Tribunal and in respect of the other public service pension schemes."

With HM Treasury’s public service pension employer cost cap and the LGPS Scheme Advisory Board cost management process both paused, these developments will be important to all public sector schemes, funded and unfunded.

The Scheme Advisory Board has updated it's Q&A on the McCloud case, including on the question of whether any benefit changes from the McCloud case will be taken into account in the 2019 LGPS valuations.  This follows the SAB's May advice note on LGPS valuations.

Investment | CMA's final order extends to the LGPS

On 10 June 2019, the Competition and Markets Authority made a final order in its investigation into competition in the investment consultancy and fiduciary management markets.  The draft order did not apply to the LGPS.  However, the final order does. This imposes obligations to set 'Strategic Objectives' for investment consultants and hold a competitive tender where 20% or more of scheme assets are already (or will be) subject to fiduciary management. 

We discuss the new requirements, which will apply from 10 December, in our insight. LGPS funds need to take legal advice on whether and, if so, to what extent the order applies to them.

Governance and administration | TPR survey results and commentary

Earlier this month, the Pensions Regulator published the results of its public service governance and administration survey 2018, together with a short commentary. The reports identify a number of areas of concern and make essential reading for all public sector schemes.

Open consultation | LGPS local valuation cycle and management of employer risk

The Ministry of Housing, Communities & Local Government's consultation on changes to the local valuation cycle and management of employer risk will be open until 11.45pm on 31 July.  The consultation covers: "amendments to the local fund valuations from the current 3 year … to a 4-year … cycle; … measures aimed at mitigating the risks of moving from a triennial to a quadrennial cycle; proposals for flexibility on exit payments; proposals for further policy changes to exit credits; proposals for changes to the employers required to offer local government pension scheme membership."

Closed consultation | Cap on public sector exit payments

HM Treasury's consultation on draft regulations and guidance to implement the long anticipated £95,000 cap on public sector exit payments closed on 3 July 2019. For public sector pension schemes, one key point is that the draft regulations provide for most 'pension strain' payments to be included in the sums assessed against the cap. In the LGPS, this would include the strain cost associated with providing an employee made redundant after the age of 55 with an unreduced early retirement pension.

Closed consultation | Changes to the Teachers' pension scheme

The Department for Education's recent consultation on a series of amendments to the rules of the Teachers' Pension Scheme closed on 25 June 2019. Amendments are being made to take account of the judgments in the Walker v Innospec and Brewster cases, and to "improve the operation of scheme rules". The consultation response has now been published and is here.

Osborne Clarke Q3 2019 pensions action plan

At the end of June, we released our Q3 2019 pensions action plan. Each action plan is a summary of changes and proposals in pensions law and regulation over the last quarter, most of which are also relevant to public sector pension schemes.