Public Service Pensions Update | March 2020

Written on 27 Mar 2020

Welcome to the latest edition of our Public Service Pensions Update.

At a time when Covid-19 is disrupting every aspect of daily life, we look at how it affects pension schemes. We also look at a series of other developments, ranging from the Budget to a recent disability discrimination decision.

If you would like to discuss any of the developments in this newsletter, please contact one of the experts listed below.

Covid-19 | Impact on pension schemes

Covid-19 has the potential to affect almost every aspect of a pension scheme. We will shortly be publishing a checklist of matters for pension schemes to consider and administering authorities should check our website for these. In the meantime, funds should consider the Pensions Regulator's guidance on Covid-19. Employing authorities might also like to look at our range of business insights.

The government has also published emergency legislation, the Coronavirus Act 2020 . Among other things, the Act provides for the emergency registration of healthcare professionals, for emergency volunteers, and for special powers relating to education and childcare.

In particular, for the NHS pension scheme, section 45 of the Act suspends "certain regulations that provide for pension abatement and suspension so as to enable individuals already in receipt of their NHS pension to return to work, or increase their working capacity if they have already returned, without facing either suspension or abatement of their pension".

The Act also provides for the emergency registration of social workers. The Chair of the Local Government Pension Scheme Advisory Board has published a letter in which he urges administering authorities not to apply pension abatement provisions to returning social workers.

Covid-19 | Member complaints

Anyone handling IDRP and/or Pensions Ombudsman complaints should watch the Pensions Ombudsman's website for service updates. For example, a recent update confirmed that from Tuesday 24 March 2020, the Pensions Ombudsman's phone lines will be open between 10.00am and 2.00pm and it "will no longer be accepting new written enquiries (by post or email) or new complaint forms". More detail can be found by following the link in that update.

Update | The McCloud case

On 4 March 2020, the Local Government Pension Scheme Advisory Board published an update on the McCloud case on their website.

The update confirms that the government and the Scheme Advisory Board (SAB) are having "high level discussions" about how the McCloud ruling should apply to the Local Government Pension Scheme (LGPS). It states that the SAB is "confident that the eventual outcome will provide younger members in scope with protection that is equal to the protection provided to older members". The protection "compares the benefits payable under the current rules with the benefits that would have been paid if the Scheme had not changed in 2014 and pays the higher". The changes will "apply automatically" and "will be backdated to April 2014 and will apply to qualifying members who left the LGPS after that date".

The update also confirms that:

  • members need to understand that "many of them will not see an increase to their pension benefits. For others any increase is likely to be small because of low salary growth since the new schemes were introduced"; and
  • the SAB have set up an implementation group to help LGPS administering authorities and employers with the challenge of implementing and communicating the changes.

Following the government's commitment to address the impact of the McCloud ruling on all of the main public service pension schemes, other schemes have also posted updates. For example, the Armed Forces Pension Scheme, the Teachers' Pension Scheme and the Civil Service Pension Scheme and, of course, the Firefighters' Pension Scheme.

Budget | Annual and lifetime allowance

On 11 March 2020, the Chancellor of the Exchequer delivered the Budget. As expected, the Chancellor announced changes to the tapered annual allowance with the public services, in particular the NHS, in mind. He confirmed that both of the threshold income figures for the taper will increase by £90,000 with effect from 6 April 2020, and that the minimum annual allowance after operation of the taper will reduce from £10,000 to £4,000.

Our Insight discusses this change, which the Chancellor confirmed would take 98% of NHS consultants and 96% of GPs out of the taper altogether, and the other pensions-related announcements made in the Budget.

Schemes will need to update their administration systems for the changes to the annual and lifetime allowances. They will also need to consider updating scheme documents and communicating with members.

Budget | Consultation on changes to the RPI

Also on 11 March 2020, HM Treasury and the UK Statistics Authority launched a joint consultation on a proposed change to the Retail Prices Index (RPI) to bring it into line with the Consumer Prices Index including owner-occupiers’ housing costs.

The consultation, which will be relevant to funding and investment for funded public service schemes, will be open until 22 April 2020. We discuss the questions asked, the likely timing and the potential impact of the change in our Insight.

Diversity and inclusion | PLSA 'made simple' guide

The Pensions and Lifetime Savings Association has published a 'made simple' guide to diversity and inclusion on trustee boards. This guide may be of interest to administering authorities.

Discrimination | EAT ruling on capping an exit payment

The Employment Appeals tribunal has ruled that capping a voluntary exit lump sum because the employee was going to receive an immediate pension amounted to direct discrimination on grounds of disability, and this was not objectively justified in the particular case (Chief Constable of Gwent Police v Mr S Parsons and Mr D Roberts). The judgment will be of interest to anyone dealing with exit payments.

Pension Schemes Bill | Republished with amendments

On 4 March 2020, the Pension Schemes Bill was republished with amendments made at the House of Lords committee stage. The amendment to clause 125 will be of particular interest to public service pension schemes. Clause 125 amends section 95 of the Pension Schemes Act 1993 and gives a power to make regulations to restrict the statutory transfer right in ways that help to reduce the risk of pension scams. The clause has been amended so that it will apply to unfunded public service defined benefit pension schemes in addition to funded schemes. One of the changes expected is that a member will need to be employed by the sponsoring employer of the scheme to which they wish to transfer (one indicator of a scam being that they are not).

The revised Bill also includes the climate change amendments discussed in our February 2020 public sector pensions newsletter. These make up a new clause 124.

Investment | Climate change reporting

On 12 March 2020, the Department for Work and Pensions shared a consultation on "non-statutory guidance for occupational pensions on assessing, managing and reporting climate-related risks in line with the [Task force on Climate-related Financial Disclosures] recommendations".

The consultation paper confirms that parts of the guidance may be of interest to funded public service pension schemes.

The consultation will remain open until 7 May 2020, with the aim of producing final guidance in autumn 2020. It is accompanied by a quick start guide.

Partial consultation response | Changes to the LGPS local valuation cycle and management of employer risk

In our July 2019 public sector pensions newsletter, we reported that the Ministry of Housing, Communities & Local Government was consulting on “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; [and] proposals for changes to the employers required to offer local government pension scheme membership.”

On 27 February 2020, the Ministry published a partial consultation response, on the question of further changes to exit credits. The changes to be made are confirmed on page seven of the consultation response and these changes have since been introduced by the Local Government Pension Scheme (Amendment) Regulations 2020.

The document confirms that the response on exit credits has been prioritised and that a separate response will follow on the other questions raised in the consultation.

Open consultation | Proposed merger of two LGPS funds

On 20 March 2020, the Ministry of Housing, Communities and Local Government launched a consultation on the merger of two Local Government Pension Scheme funds: Northumberland and Tyne and Wear. The consultation will remain open until 1 May 2020.

Legislation and guidance | All schemes

A number of sets of regulations, amendments, papers and guidance relevant to public service pension schemes have been published. These are:

House of Commons Library briefing papers | New and updated

The House of Commons library has published or updated a number of briefing papers relating to public service pension schemes: