Public Service Pensions Update | July 2021
Published on 28th Jul 2021
This month, we look at a series of developments in areas ranging from the McCloud remedy to the pensions dashboard.
In our May 2021 newsletter, we reported that the Bills announced in the recent Queen's speech included a Public Service Pensions and Judicial Offices Bill to "implement… changes across all the main public service pension schemes in response to the Court of Appeal judgment" and include "bespoke measures to implement corresponding changes in the Judicial Pension Schemes and Local Government Pension Scheme to reflect their different arrangements".
The Bill has now been introduced to Parliament. Chapter one of Part 1 contains remedy provisions for schemes other than the judicial pension schemes and the Local Government Pension Scheme (LGPS), chapter two relates to judicial pensions, chapter three contains some initial provisions relating to the LGPS and chapter four contains general provisions. The next reading of the Bill is scheduled for 7 September 2021.
Separately, HMRC and HM Treasury have opened a consultation on draft provisions, to be included in the Finance Bill 2021-22, that will change the mandatory "scheme pays" legislation to allow a member to use it to pay an annual allowance charge in relation to an earlier tax year. The change is being introduced to help members who face an annual allowance charge in relation to a previous tax year due to changes to their benefits to address the discrimination identified in the McCloud case. In due course, scheme administrators will need to update their procedures. If you would like to reply to the consultation, it is open until 14 September 2021.
The Home Office has also provided informal guidance to Fire and Rescue Authorities in England on processing "immediate detriment" cases, as defined in that guidance.
The MoJ is now consulting on draft regulations to establish and govern the new judicial pension scheme – the Judicial Pension Scheme 2022. The consultation is open until 8 October 2021. The Public Service Pensions and Judicial Offices Bill mentioned above contains some related provisions.
Part 3 of that Bill also contains provisions to make the changes that we highlighted in our May 2021 newsletter – increase in retirement age and changes to judicial allowances.
The government has now opened a consultation seeking views on three changes to the mechanism, all of which were recommended by the Government Actuary. The consultation is open until 19 August 2021 and the proposed changes are:
- "Moving to a reformed scheme only design: to remove any allowance for legacy schemes in the cost control mechanism, so the mechanism only considers past and future service in the reformed schemes. This ensures consistency between the set of benefits being assessed and the set of benefits potentially being adjusted;
- Widening the corridor: to widen the corridor from 2% to 3% of pensionable pay. This aims to achieve a better balance between stability and responsiveness of the cost control mechanism; and
- Introducing an economic check: currently the mechanism does not include changes in long-term economic assumptions and therefore cannot consider the actual cost to the Government of providing the pension benefits. The Government proposes introducing an economic check so that a breach of the mechanism would only be implemented if it would still have occurred had the long-term economic assumptions been considered."
The consultation paper notes that: "[t]he Local Government Pension Scheme (England and Wales) also has a second and separate cost control mechanism operated by its Scheme Advisory Board. The scheme will consider any necessary changes to this second mechanism in the light of the overall changes made across schemes".
HM Treasury has opened a consultation on changes to the Superannuation Contributions Adjusted for Past Experience (SCAPE) discount rate methodology. SCAPE is the process used for deciding the contributions levels for the unfunded public service schemes, and the SCAPE discount rate is the discount rate used "to express schemes’ future pension payments as a present-day cost". The consultation is open until 19 August 2021. The government will then take the necessary steps to set a new SCAPE discount rate in line with the chosen methodology.
The LGPS Advisory Board has flagged a consultation, by the Ministry for Housing, Communities and Local Government (MHCLG), on draft statutory guidance relating to special severance payments by local authorities. The draft guidance confirms that special severance payments would include, for example, pension strain payments arising from employer discretions to enhance standard pension benefits.
The draft guidance includes a list of the bodies it applies to. Affected employers and administering authorities might like to take a look at the consultation documents. Responses to the consultation must be submitted by 13 August 2021.
In our April 2021 newsletter, we reported that The Department for Education (DfE) was consulting on draft regulations to amend the scheme to:
- "provide female members in an opposite-sex marriage or civil partnership with the same survivor pension rights as female members in a same-sex marriage or civil partnership";
- "amend participation rules relating to accepted schools to allow for the phased withdrawal of independent schools that might otherwise leave the TPS outright with immediate effect"; and
- other minor changes.
In our February 2021 newsletter, we reported that HM Treasury (HMT) had published a consultation on increasing the normal minimum pension age from 55 to 57 on 6 April 2028. HMT has now published its consultation response. Alongside this, HMT and HMRC have opened a consultation on draft provisions for inclusion in the Finance Bill 2021-22.
The Pensions Regulator has published its Public service governance and administration survey 2020-21. Funds might be interested to take a look at the findings.
The Pensions Dashboard Programme has asked for feedback on initial proposals for the order and timing of staged compulsory onboarding. The PDP suggests three waves. The first is schemes with 1000+ memberships. This would start in April 2023 and run for up to two years. It would contain three cohorts. Public service pension schemes are likely to fall into the third cohort, being "all other occupational schemes with 1,000+ memberships". Subject to further engagement on what the McCloud remedy means for schemes and their ability to prepare for pensions dashboards, public service schemes would onboard in size order, starting in autumn 2023.
The Pensions Administration Standards Association has released counter fraud guidance. This is primarily aimed at scheme administrators, but would be useful reading for anyone looking for a summary of the types of fraud that might affect the pensions sector.
The Pensions Regulator has published its equality, diversity and inclusion strategy, including a roadmap for 2021-25. The strategy and roadmap identify three strategic aims (to be a fair, diverse and inclusive employer; to build a collective understanding of why pensions inequalities occur and work in partnership with others seeking to reduce them; and to promote high standards of diversity and inclusion among its regulated community) and set out actions to achieve them.
The roadmap also confirms that, by the end of this year, the regulator is going to create a strategy with the pensions industry working group "which will support and set targets for the development of more diverse and inclusive boards of trustees/managers" and "agree how to share resources and best practice in the long term, for example via a ‘hub’".
In previous newsletters, we have reported on the introduction of climate change risk governance and reporting requirements for private sector schemes from October 2021 and on MHCLG's plans to consult on draft regulations for the LGPS "later this year with the view to introduc[ing] the requirements from 2022/23".
The regulations introducing the requirements for private sector schemes have now been made, and updated draft statutory guidance has been published.
The Pensions Regulator has also opened a consultation on draft guidance on governance and reporting of climate-related risks and opportunities, and on a new appendix to its monetary penalties policy.
The regulator's draft guidance is primarily aimed at the trustees of private sector schemes. However, it says that "[t]rustees who are not subject to the requirements, and decision-makers at Local Government Pension Schemes, may wish to follow this guidance to improve the governance and resilience of their schemes in relation to climate change". The draft sets out practical actions in the areas of governance, strategy and scenario analysis, risk management, metrics, targets and publishing an annual Task Force on Climate-Related Financial Disclosures (TCFD) report.
And, as part of the wider roadmap for securing TCFD-aligned disclosures across the economy by 2025, the FCA is consulting on the introduction of disclosure requirements for asset managers, life insurers, and FCA-regulated pension providers. The new requirements would start to apply to the largest firms in January 2022 (with a first publication deadline of June 2023) and to other firms (subject to a £5 billion threshold) in January 2023, with a first publication deadline of June 2024. The information disclosed will help pension schemes to comply with their climate change duties.
Funded schemes might be interested to know that the Department for Work and Pensions has established the Occupational Pensions Stewardship Council (OPSC). The OSPC "provides schemes with a forum for sharing experience, best practice and research, and providing practical support". It aims to "develop a stronger overall voice of trustees within the market, especially in relation to service providers [and provide] opportunities for schemes to collaborate on stewardship activities such as shareholder resolutions, climate change, corporate governance and other topics".
With limited exceptions, the DWP welcomes interest in the OPSC from all UK occupational pension schemes, including the LGPS. It has shared a list of current members (which includes representation from the LGPS and LGPS asset pools) and given a contact point.
Separately, the Pensions and Lifetime Savings Association is consulting on standards for a responsible investment quality mark. The quality mark will provide "a new standard to which schemes can aspire, the opportunity to share best practice among schemes, and a scheme member-focussed way to demonstrate activities in this area". The consultation is open until 3 September 2021.
The Pensions Ombudsman has:
- partly upheld a complaint by a member of the Principal Civil Service Pension Scheme regarding repayment of overpaid pension;
- partly upheld a complaint by a member of the LGPS regarding an unclear statement about the pension benefits payable if she took voluntary redundancy;
- partly upheld a complaint by a member of the Teachers' pension scheme regarding recovery of an overpayment.
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:
- Public service pensions – the 2015 reforms;
- Public service pensions – the cost control mechanism;
- Public service pensions – response to McCloud;
- Gurkha pensions.
This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.