Public Service Pensions Update | October 2020
Published on 30th Oct 2020
Welcome to the latest edition of our Public Service Pensions Update.
In this edition, we bring you up to date on the cap on exit pay, discuss HM Treasury's consultation on Guaranteed Minimum Pension indexation, and highlight a series of other changes.
If you would like to discuss any of the developments in this newsletter, please contact one of the experts listed below.
Covid-19 | New support but no extension of protected pension age easement
In our September 2020 newsletter, we reported that the UK government had set out a stimulus package to provide more targeted support for jobs and businesses in light of the ongoing pandemic. The measures announced included a new Job Support Scheme, to replace the Coronavirus Job Retention Scheme from 1 November 2020.
The government has since announced changes to the new Job Support Scheme and a series of other measures intended to provide additional support for jobs and businesses. It has also published a policy paper and two factsheets about the Job Support Scheme. For bodies in receipt of public funds, the policy paper says: "[o]rganisations that have staff costs that are fully publicly funded (even if they are not in the public sector), should use that money to continue paying their staff, and not use the Job Support Scheme. Organisations can use the scheme if they are not fully funded by public grants, for the proportion of their revenue disrupted due to coronavirus. They should contact their sponsor department or respective administration for further guidance".
HMRC has extended to 31 March 2021 some of the temporary changes that it made to pension processes to help scheme administrators. The protected pension age easement for public sector key workers returning to work in response to the Covid-19 pandemic has not been further extended and will expire on 1 November 2020.
Administration | Pensions Dashboard
The Pensions Dashboard Programme (PDP) has published an update on progress and a timeline for the development of pensions dashboards. The first version of the data standards (the data schemes will need to make available) is due in December 2020. Voluntary on boarding and testing is scheduled for 2022 and the staged (compulsory) on boarding of schemes is expected to begin in 2023.
Funds might also be interested in the PDP's request for information on identify verification.
Open consultation | TPR's 15 year corporate strategy
The Pensions Regulator has published a discussion paper in which it sets out its provisional strategy for the next fifteen years. The strategy identifies different cohorts of pension savers and challenges, and suggests strategic priorities. The strategic priorities are security, value for money, scrutiny of decision-making, market innovation, and bold and effective regulation.
If you would like to join the discussion, you will need to provide feedback by 16 December 2020. The final strategy will be published in the new year.
Regulations made | Cap on public service exit pay
In our July 2020 newsletter, we reported that draft regulations had been laid before Parliament to implement the confirmed £95,000 cap on public service exit payments.
The Restriction of Public Sector Exit Payments Regulations 2020 have now been made and will come into force on 4 November 2020. Please see our comments below on reforming local government exit pay.
Documents added | Consultation on reforming local government exit pay
In our September 2020 newsletter, we reported that the Ministry of Housing, Communities and Local Government (MHCLG) was consulting on proposals for reforming exit payments in local government to take account of the new £95,000 cap, including the proposed fit with pensions. Exit payments subject to the cap include early retirement strain costs usually paid to the relevant Local Government Pension Scheme (LGPS) fund by the departing employee's employer.
MHCLG has now added the following documents to the consultation page:
- Draft amending LGPS regulations;
- Draft analysis from the Government Actuary's Department of the impact of the proposed reforms to exit payments on LGPS members; and
- Draft GAD factors and guidance for determining employer strain cost and applying the cap.
If you would like to respond, the consultation is open until 9 November 2020.
In particular, the interaction between the Public Sector Exit Payments Regulations coming into force on 4 November 2020 and the draft amending LGPS regulations is proving problematic. There is currently no indication of the date on which the draft amending LGPS regulations will come into force. This means that there will be a period after 4 November 2020 when LGPS administering and employing authorities will be subject to the Public Sector Exit Payments Regulations, although the exit payment changes needed for the LGPS will not have been implemented.
For example, in that period, LGPS employees who are made redundant may still be entitled to an immediate unreduced early retirement pension if they are aged 55 or over under regulation 30(7) of the LGPS Regulations, but the provisions necessary to pay a reduced pension where the £95,000 cap applies will not have been introduced. An update from MHCLG, published on the Scheme Advisory Board's (SAB) public sector exit payments page on 28 October 2020, recommends that in the interim period employees should either defer receipt of their pension or be paid a reduced early retirement pension under regulation 30(5) of the LGPS Regulations 2013. We understand further guidance from SAB and MHCLG is expected imminently.
Open consultation | GMP indexation
HM Treasury is consulting on three options for ensuring that public service pension scheme members reaching their state pension age on or after 6 April 2016 continue to have their pension payments fully indexed and equalised.
The problem area is the Guaranteed Minimum Pension (GMP) earned by members whose employments were contracted out of the additional state pension between April 1978 and April 1997. Until 5 April 2016, the government paid members the difference between a fully indexed additional state pension and the GMP they received from their scheme (which only included indexation on GMP earned after April 1988).
When the new single state pension was introduced on 6 April 2016, the government stopped funding this indexation top up in most contexts. A different approach was taken for public service schemes, where indexation is part of the solution for equalising (meeting the legal requirement to remove any differences between) the GMP earned by men and women between 17 May 1990 and April 1997. For the public service schemes, it was agreed that, for anyone reaching state pension age between 6 April 2016 and 5 December 2018, the scheme would provide full indexation of the GMP. The 5 December 2018 date was later extended to 5 April 2021.
With 2021 fast approaching, the government is seeking views on three options for members who reach state pension age after 5 April 2021. The government has been looking at GMP conversion (converting GMPs into a standard scheme benefit) but, due to the work flowing from the McCloud and other rulings, does not think it would be feasible to implement conversion before April 2021. The three options are:
- Extending full indexation by public service pension schemes to cover members reaching state pension age before 6 April 2024. This would give government departments and scheme administrators time to give more thought to GMP conversion as a long-term solution and implement it if it is the right solution.
- Extending full indexation by public service pension schemes to cover members reaching state pension age up to and beyond 5 April 2024, perhaps up to March 2030. This would also give time to deal with any unforeseen pressures.
- Discounting GMP conversion as a long-term policy solution and making full GMP indexation the permanent solution for public service pension schemes.
The third option is preferred. Full indexation would need to apply until at least April 2024 and, by then, GMP conversion will have less value as a long-term solution because there will be fewer members with pre-1997 service who have not reached state pension age.
If you would like to respond, the consultation is open until 30 December 2020.
Update | Fee-paid judges
The Ministry of Justice has published an update on the work it is doing to respond to the judgments in O'Brien no.2 and Miller, relating to the pension entitlement of fee-paid judges and time limits for bringing a claim.
Brexit | Continuing negotiations
As talks between the UK and EU continue, Funds should revisit their contingency plans for when the transition period comes to an end on 31 December 2020. Funds might also like to:
- Note that the government has issued a consultation response and draft regulations to give certain appeal courts, including the Court of Appeal, a limited power to depart from "retained EU case law" after 31 December 2020. Without this change, the power would only have been available to the Supreme Court.
- Read our recent brief What happens to EU law at the end of the transition period? and take a look at our easy to use infographic.
- Take a look at our other Brexit Insights and business briefs.
House of Commons Library briefing papers | New and updated
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: