UK Public Service Pensions Update | August 2024
Published on 22nd Aug 2024
Welcome to the latest edition of the UK Public Service Pensions Update
This month, we consider developments in areas ranging from investment in the UK economy to new guidance on pensions dashboards and on preparing for the rise in the normal minimum pension age from age 55 to 57 in 2028.
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.
Local Government Pension Scheme | Pensions dashboard guides
The Local Government Association has published the final version of its pensions dashboard connection guide for Local Government Pension Scheme (LGPS) administering authorities, and the related AVCs and pensions dashboards guide.
The "connect by date" for all public service pension schemes is 31 October 2025.
LGPS | Costs cap
The LGPS Scheme Advisory Board has shared the results of its scheme costs assessment and a copy of its related letter to the secretary of state.
The letter says that the "report finds that there is a 1% deviation upwards from the scheme’s target cost as set out in the LGPS Regulations 2013, which is in the range where the Board may make recommendations which would bring the scheme cost closer to the target cost, but is not obliged to. This letter is to inform you that the Board will not be making any recommendations for benefit changes as a result of the 2020 cost management process. This outcome is consistent with the cost control mechanism process that is managed by HM Treasury and was concluded earlier this year."
The letter also raises the “New Burdens Doctrine”, as a part of which "all new policies and initiatives should be costed and the associated extra funding provided by the Government." It says that, in "recent cases involving the LGPS, eg McCloud remedy and new reporting requirements in the SF3 return, [Ministry of Housing, Communities and Local Government (MHCLG)] officials have taken the position that as the money to fund these extra requirements comes from the pension fund in the first instance, Central Government is under no obligation to follow the New Burdens Doctrine." The letter asks that, going forwards, the MHCLG "fully abides by the New Burdens Doctrine and does not seek to exempt LGPS-related policies from consideration under it."
LGPS | Review of fund valuations as at 31 March 2022
The Government Actuary's Department has published its review of the 2022 actuarial valuations of the funds in the LGPS England and Wales. GAD was appointed by the MHCLG to report under section 13 of the Public Service Pensions Act 2013, on whether the following aims were achieved in connection with the 2022 valuations: compliance, consistency, solvency and long-term cost efficiency.
In the third report of this kind, GAD makes three recommendations to the LGPS Scheme Advisory Board. These are that it:
- "consider whether greater consistency could and should be achieved to allow easier comparison between funds and better understanding of risks";
- "continue to consider emerging issues and, where appropriate, whether guidance would be helpful to support greater consistency. As part of greater consistency on climate risk, we recommend that work continues to refine the climate change principles document in advance of the 2025 fund valuations"; and
- "consider .. Where funds are in surplus, whether additional guidance can be provided to support funds in balancing different considerations. …Where deficits exist, how can all funds ensure that the deficit recovery plan can be demonstrated to be a continuation of the previous plan. … Whether additional guidance is required in relation to the treatment of asset transfers from local authorities."
Investment | Recommendations for UK climate policy
The Local Authority Pension Fund Forum (LAPFF) has published its recommendations for UK climate policy.
In a foreword the LAPFF explains that it has "engaged with many leading companies in the UK and overseas for many years on their climate change plans. However, through these engagements LAPFF has identified that without supportive policies, companies’ actions may be limited. Therefore, it is appropriate to engage in the policy debate, from the perspective of long-term investors interested in reducing risks and strengthening growth and competitiveness."
Boosting investment in the UK economy | Four new developments
The government has published the terms of reference for the recently announced UK pensions review (discussed in our July 2024 newsletter). The terms of reference explain the focus the review will have on the LGPS.
As part of industry engagement in connection with the review, the chancellor of the exchequer, Rachel Reeves, has hosted a roundtable with the "Maple 8", which are the eight largest public pension funds in Canada and "have invested billions of pounds in the UK economy in recent years". The chancellor called on UK pension funds to “learn lessons from the Canadian model and fire up the UK economy”.
Local Pension Partnership Investments (LPPI) and the Pensions and Lifetime Savings Association (PLSA) have released reports on the question of how to unlock pension scheme, including LGPS, investment in the UK economy.
The government has confirmed that the UK will host a "major International Investment Summit on 14 October 2024 as it drives forward national mission for growth."
The PLSA has published a report making "practical recommendations to create the necessary investment conditions for pension schemes" including the LGPS "to allocate a greater portion of the nation’s retirement savings to promising UK growth areas". The report contains recommendations for schemes, the government and others.
The LPPI has published a report setting out its thoughts on how the government could unlock LGPS investment. LPPI is one of the eight LGPS pools and is "differentiated from the other LGPS pools through [its] whole scheme management fiduciary approach (similar to the Canadian pensions model) and …specialisation in infrastructure investing."
In addition, the chancellor is reported to have said that legislation to regulate environmental, social and governance (ESG) rating agencies will be brought forward next year.
She has also confirmed that her first Mansion House address will set out how she will work with the financial services industry and regulators to deliver growth. "This will include delivering the stability the sector needs to grow, the support it needs to invest across the UK and reforms it needs to remain at the cutting-edge of new innovations and technologies".
Tax | Budget date confirmed
In a statement to Parliament on 29 July 2024, the chancellor of the exchequer, Rachel Reeves, confirmed that she will "hold a Budget on October 30th alongside a full economic and fiscal forecast from the Office for Budget Responsibility".
It may become clear, at the Budget if not before, whether the government proposes any immediate change to pensions tax or pensions tax relief.
Administration | Normal Minimum Pension Age
The Pensions Administration Standards Association has released guidance on preparing for the increase in the Normal Minimum Pension Age (NMPA) from age 55 to 57 from 6 April 2028. The guidance includes a checklist of actions for schemes.
The NMPA is the youngest age at which a member who is not in ill health can access their pension benefits without incurring tax charges (unauthorised payment charges). The increase in NMPA from age 55 to 57 is currently expected to apply to all public service pension schemes except for the "uniformed services pension schemes" (as defined). As such, this guidance will be relevant to a number of public service schemes.
Removal of the Lifetime Allowance | Update on regulations
HMRC has published an update on the timing of the delayed second set of regulations to address problems identified with the legislation that abolished the lifetime allowance. The update says that "[t]he government plans to introduce the necessary regulations as soon as the parliamentary timetable permits after the summer recess. Prior to this, we [HMRC] are holding a short technical consultation on the draft legislation." The consultation closed at 11.59pm on Wednesday 14 August.
Pensions Ombudsman | Corporate Plan 2024-2025
The Pensions Ombudsman has released its Corporate Plan 2024-25. A major theme of the plan is the operating model review the ombudsman has already carried out (discussed in our June and July 2024 newsletters) and an upcoming public bodies review.
Private sector pension schemes | Funding and superfunds
TPR has published the final version of the new code of practice on the funding of private sector defined benefit (DB) schemes, together with the related consultation responses. It has also updated its guidance on DB superfunds.
The new DB funding code compliments legislative changes that require trustees to plan for the long-term funding of the scheme. Under new rules, which will start to apply to schemes from 22 September 2024, trustees will, for example, need to decide what the scheme's "end game" will be. Do the trustees intend to run the scheme on paying benefits as they fall due, to secure member's benefits with an insurer or to transfer to a "superfund"?. The trustees will then need to set a minimum funding target of low dependency on the scheme employer by the time the scheme is "significantly mature".
DB superfunds are consolidator schemes. For trustees and employers looking to secure members' benefits for the long term, they provide an alternative to "buy out" (buying insurance policies from an insurer to provide the benefits). The changes to TPR's guidance should help to support increased use of DB superfunds and encourage new providers to enter the market. The government's plans for a Pension Schemes Bill, which will include the long-awaited legislative framework for DB superfunds, may also help to encourage new providers into the market.
Pensions Ombudsman | Recent decisions
The Pensions Ombudsman has partly upheld the complaint of a member that the transfer of his benefits was allowed without sufficient due diligence (CAS-52887-B6H4). The problems came from the fact that an original transfer request was reopened, rather than a new request started, when the member asked to proceed with a transfer out.
The Pensions Ombudsman has dismissed the complaint of a member of the LGPS in relation to a decision to refuse ill health retirement from deferment under regulation 31 of The LGPS (Benefits, Membership and Contributions) Regulations 2007 (CAS-56029-Q0M6).
Why should I read CAS-52887-B6H4? The fund closed its file on the member's transfer request on 12 February 2013 after a period of inactivity. That same month, TPR launched a “fraud action pack” in which it advised schemes to look out for a number of signs and complete further due diligence if any were present. The member got back in touch with the fund in April 2013. At that point, the fund re-opened the original request instead of starting a new one. In doing this, it missed one of the warning signs in TPR's fraud action pack. The Ombudsman found that this amounted to maladministration and awarded £500 compensation for distress and inconvenience. However, he did not award any compensation for financial loss because he considered it more likely than not that the member would have transferred in any event.
Why should I read CAS-560-Q0M6? The decision considers the principles that apply when an ill health decision maker considers medical evidence. It also confirms that, when reviewing a decision made under regulation 31, it is only possible to consider the medical evidence available at the relevant time. If a member's health has deteriorated since then, they can make a fresh application for payment.
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.
- Budget Responsibility Bill.
- Pensions: defined benefit superfunds.
- Insolvency: company administration.
- NHS industrial action in England.
- The gender pensions gap.
This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.