Public Service Pensions Update: April 2025

This month we lead with five developments relevant to the Local Government Pension Scheme (LGPS) and then move on to eight more and some Pensions Ombudsman decisions relevant to all public service pension schemes.

If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end of the update.

Focus on the LGPS

LGPS 'Fit for the Future' | Government responds to pooling proposals

The LGPS Advisory Board has reported that the government has written to pools and administering authorities with decisions on the pooling proposals they submitted to government earlier this year in line with the "Fit for the Future" consultation.

The news item reports that, although the board "was not invited to participate in the contents of the decision letters", the chair has met with HM Treasury and Ministry of Housing, Communities and Local Government (MHCLG) officials to discuss the decisions taken. The chair has also published a statement which includes the following text:

"Many questions and issues will be raised in the coming days and weeks on how the decisions taken by Government can be taken forward, and the [Advisory Board] is committed to supporting administering authorities and pools to navigate these discussions and manage the inevitable risks. I also understand the decisions will be particularly challenging and disruptive for Access Pool and Brunel Pension Partnership and their participating administering authorities.

"The Board asks that MHCLG issue the full response to the Fit for the Future consultation as soon as possible to give the much-needed detail to aid discussions.

"The Board wants to reiterate the importance of LGPS members and employers being at the heart of considerations about what is best for funds and their particular circumstances, and what the pools must deliver on their behalf.

To continue the engagement started last year, I will be soon inviting Pension Committee Chairs to a virtual meeting on 13 May 2025, 5pm to 6.30pm and it is hoped Jim McMahon OBE MP is able to join us. I also hope to organise similar engagement events with Local Pension Board Chairs in the coming months."

Access Pool and Brunel Pension Partnership have also issued their own news items.

The "Fit for the Future" consultation closed in January. The government's response, together with its final report on phase one of the Pensions Review, is expected imminently. Any primary legislation needed to support the final proposals is likely to be included in a draft Pension Schemes Bill to be published before the start of the parliamentary summer recess.

Local audit reform | Government confirms plans to separate pension fund accounts from administering authority main accounts

In our January newsletter we reported that, in its response to a government consultation on local audit reform, the LGPS Advisory Board had strongly encouraged the government to propose legislation that would separate pension fund accounts from administering authority main accounts. It explained how problems with local audit impact the timely publication of final audited pension fund accounts and cause delays in completing the audit of the accounts of employers which participate in the LGPS.

The government has now published its consultation response. The response confirms that, to help to mitigate workload pressures and delays, the government will change the law to separate pension fund accounts from administering authority main accounts and ensure that "there is no barrier to pension fund accounts being produced, audited and signed off separately from a main authority’s main accounts."    

The advisory board has welcomed this confirmation and set up an audit working group to "discuss the implications of this change and MHCLG’s timeline to amend the necessary legislation and develop any additional guidance on the separate preparation and publication of pension fund accounts."

Investment | LGPS Advisory Board shares summary of opinion on investments and non-financial considerations

The LGPS Advisory Board has shared a summary of Nigel Giffin KC’s updated opinion on fiduciary duty in the context of the LGPS.

The advisory board hopes that the summary will "prove useful for LGPS officers and others wishing to communicate the main findings with a broader audience" but warns that it has not been drafted or endorsed by Nigel Giffin KC and should not be treated as an authoritative or complete statement of the law.

Investment | TPR releases climate adaptation report

The Pensions Regulator (TPR) has published its Climate Adaptation Report 2025. The report acknowledges that TPR has no direct remit over funding or investment in public service pension schemes but confirms how TPR expects climate change risk to be addressed in internal controls and governance systems (in relation to which it does have a remit).

The report sets out the actions TPR has taken and intends to take in relation to climate change. It reviews climate-related risks and opportunities for pension schemes, progress, and potential barriers and enablers of climate adaptation.

Investment | New asset-owner statement on climate stewardship

An asset-owner coalition, led by The People's Pension, Brunel Pension Partnership and Scottish Widows and representing around £1.2 trillion of members savings, has co-authored and shared an asset-owner statement on climate stewardship.

The aim of the statement is to "promote a better understanding of good practices for climate stewardship and to enable a dialogue on how asset managers can more effectively represent their beneficiaries’ long-term interests."   It calls on the signatories'  "asset managers, as…strategic partners in delivering…investment objectives, to develop and evidence an independent robust stewardship strategy that addresses the urgency of action needed on climate-related risks and builds resilience into financial markets."

The signatories to the statement include a significant number of LGPS funds.

All schemes

McCloud remedy | New regulations to address pensions tax issues

The Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2025 make a number of changes intended to ensure that, as far as possible, members do not suffer adverse tax consequences as a result of the application of the McCloud remedy. The modifications made relate, for example, to unauthorised payments charges, the scheme sanction charge, and the deadline for applying for fixed protection 2016 or individual protection 2016.

HMRC has also updated its guidance note, “Changes in annual allowance as a result of the public service pensions remedy” to reflect a minor change in the notification dates for payment of annual allowance charges through scheme pays.

McCloud remedy | NHS Pension Scheme agrees revised timetable to issue remediable service statements

The minister for secondary care has agreed with the NHS Business Services Authority on a revised delivery plan for remediable service statements. The revised delivery plan prioritises members based on their likelihood of facing financial detriment as a consequence of the discrimination identified in the McCloud judgment.

The deadlines for retired members now range from 1 July 2025 to 1 December 2026, and the deadline for active and deferred members is now 1 September 2025.

The minister went on to provide more information about the reason for the change.

Volatility | Consider contacting members about current market conditions

Members might be concerned about the impact of recent stock market volatility on their pension. It is also possible that pension scammers will seek to take advantage of any uncertainty. 

Administering authorities might like to discuss with scheme administrators and additional voluntary contribution (AVC) providers whether it would be helpful to remind members: that defined benefit (or CARE) pensions are not linked to stock market performance but are set out in statute; of the risks of making hasty decisions in relation to any money purchase AVC savings; and of the risk of pension scams. It could also be helpful to remind members of sources of advice and guidance.

It might be helpful to do some or all of the following: write to members, update pre-retirement and pre-transfer documents, and update websites.

It is possible that the Pensions Regulator will issue guidance in this area. If it does not, it might be useful to look back at steps taken when the Covid-19 pandemic caused market volatility and use this as a starting point.

Pensions dashboards | The PDP and TPR set out key actions for schemes

The Pensions Dashboards Programme (PDP) has published seven essential steps that schemes need to take to prepare to connect to the pensions dashboard ecosystem. It has also published guidance on connecting via a third-party such as a third-party administrator or an integrated service provider (ISP), and guidance on what to do if your scheme intends to connect by 31 October 2026 but will need to connect more than 30 days before or after its "connect by" date. (The "connect by" date for public service pension schemes is 31 October 2025.)

TPR has issued a call to action and listed five essential steps for schemes. These highlight the need to work with AVC providers.

In addition to the steps highlighted by the PDP and TPR, funds are likely to need to update their scheme administration contract, data privacy notice (and policy), and risk register. They will also need to complete due diligence on and agree appropriate terms with any ISP and consider the need for data mapping and a data privacy impact assessment. Funds should consider taking legal advice or seeking legal review in these areas.

Pension scams | TPR flags new reporting system and urges schemes to report all suspicions

The Pensions Regulator has published an update on the action it is taking to help combat pension scams. It has also shared the recording and slides from a fighting pension fraud webinar it held on 25 March and explained how an artificial intelligence (AI) tool is being used to uncover, take down and refer scam websites.

The webinar explains how scammers are using social media, online tools and AI. It also introduces a new and more sophisticated reporting system that will replace Action Fraud later this year. The new "Report Fraud" system will help to ensure that law enforcement agencies receive the information they need to take action. It will also generate alerts for the pensions industry.

When Report Fraud is available, funds (or their scheme administrators) will need to use it and help to publicise it to members. In the meantime, TPR has asked that schemes continue to report any suspicions to Action Fraud and (if they have not already done so) consider signing up to TPR's pledge to prevent pension scams.

Transfers | All change for the overseas transfer charge and overseas pension schemes

The Finance Act 2025 has received Royal Assent. Among other things, the Finance Act makes changes to the overseas transfer charge and the conditions for being an overseas pension scheme or recognised overseas pension scheme from October 2024 and April 2025 respectively.

Scheme administrators need to update their procedures for the overseas transfer charge change and, also in the context of transfers, check that overseas schemes have not been removed from HMRC's list.

Changes to the member contribution structure of the Teachers' Pensions Scheme

The government has issued a policy paper to confirm its intention to make changes to the member contribution structure in the Teachers' Pension Scheme from 1 April 2025 to ensure the scheme meets the required 9.6% contribution yield.

The regulations needed to make this change have been made and came into force on 1 April.

Cabinet Office confirms no change to the civil service compensation scheme for the foreseeable future

The Cabinet Office has published a short response to the 2017 consultation on changes to the Civil Service Compensation Scheme. The response confirms that the consultation has been brought to an end, the "scheme terms as set out in 2010 will remain unchanged for the foreseeable future" and there are "no current plans" to begin a new consultation or to reform the scheme. 

The main pensions-related reform considered in the consultation was modification of the rules relating to early access to pensions: only allowing an employer-funded top up to pension from age 55 and for this age to then track 10 years behind state pension age in order to reduce the cost of exit compensation and take account of the fact that this is a "form of compensation that is often not available in the wider economy".

The Pensions Ombudsman | Recent decisions

In CAS-75461-Y8S2, The Pensions Ombudsman decided that the NHS Business Services Authority was correct to include a salary award made in the 2018/19 tax year (but not paid until the 2019/20 tax year) in the 2018/19 Pension Input Period for annual allowance purposes. This was because, under the relevant NHS Pension Scheme regulations, "pensionable earnings for any year refers to the salary or wages the employee is entitled to in respect of their service in that year, i.e. the amount earned and payable under their terms and conditions of employment as applicable to them during that year, irrespective of when the amounts so payable are actually paid."

In CAS-45233-Y4G1, the Pensions Ombudsman made an award of £3,000 for the exceptional distress and inconvenience caused by significant delay in correcting an inaccurate record of a member's sitting days for the purposes of the Fee Paid Judicial Pension Scheme. The ombudsman's decision includes a useful summary of the principles behind, and the way the ombudsman will approach, an award for distress and inconvenience.

House of Commons Library | New and updated briefing papers

The House of Commons Library has published or updated the following briefing papers, which might be of interest to public service pension schemes and employers:

• Local Audit in England
• Automatic enrolment - current issues
• Freedom of information requests
• Pensions tax relief: the annual allowance and lifetime allowance
• Pensions in the UK
• Pensions tax
• Local growth funds
• AI in UK government departments
• Spring Statement 2025: a summary

This newsletter covers developments relating to public service pensions in England with a focus on the Local Government Pension Scheme.