UK Public Service Pensions Update | February 2023
Published on 23rd Feb 2023
Welcome to the latest edition of the UK Public Service Pensions Update
This month we look at a number of developments, including in relation to the McCloud remedy, two consultations relating to the Local Government Pension Scheme, and a call from the Financial Conduct Authority in relation to transfers.
If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end of this update.
The McCloud remedy | Judicial review
In our July 2022 newsletter, we reported that The Fire Brigades Union (FBU) and the British Medical Association had been granted permission to proceed with their claims for judicial review of the Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions 2021, and that the two claims would be heard together.
Pensions magazine Pensions Age has reported that the hearing started on 31 January 2023 and that five more trade unions have been named as interested parties: GMB, Public and Commercial Services Union, Prison Officers Association, the Royal College of Nursing and Unite.
The unions claim that the outcome of the costs control mechanism for the 2016 valuations should result in a reduction in member contributions and/or an improvement in benefits, and that the HM Treasury directions undo this by factoring in the cost of the McCloud remedy.
The McCloud remedy | Pensions tax regulations made
In our December 2022 newsletter we reported that HMRC was consulting on draft regulations and guidance to modify "pensions tax legislation to make a number of technical changes to the tax treatment of those impacted by the" McCloud remedy with the aim of putting them, "as far as possible, in the tax position they would have been in had the discrimination not happened". HMRC has also published a newsletter on the consultation.
The regulations have now been made and will come into force on 6 April 2023. The explanatory note says that HMRC received 28 responses to the consultation and has "extended provisions in relation to reporting and paying annual allowance charges so that they apply more widely as well as making minor amendments to the regulations to clarify the policy intent." It also says where guidance and updates to that guidance can be found.
LGPS | Consultation on changing scheme revaluation date from 1 to 6 April
The Department for Levelling Up, Housing and Communities (DLUHC) is consulting on draft regulations which will make changes to try to avoid members of the Local Government Pension Scheme (LGPS) being exposed to an Annual Allowance charge due to a mismatch between the Consumer Prices Index (CPI) figure to be used for scheme revaluation (10.1%) and the CPI figure by which a pension can grow without contributing to an individual's Pension Input Amount (PIA) for the 2022/23 tax year (3.1%). The consultation closes at 11.45pm on 24 February 2023.
The consultation paper explains: "Currently the calculation of the pension on 5 April takes account of 1) the increase in accrued pension during the tax year due to additional length of service and 2) the increase for inflation through the scheme revaluation process on 1 April, based on CPI during the scheme year. For the 2022/23 tax year, a pension may grow 3.1% without contributing to the PIA (based on September 2021 CPI), but LGPS pensions are expected to increase by 10.1% on 1 April 2023 (based on September 2022 CPI). Individuals may face tax liabilities because while the PIA and LGPS are both based on CPI, they are based on CPI figures as at different dates. The proposed changes to LGPS regulations would defer future revaluation increases to 6 April, so for example the 10.1% increase would apply 6 April 2023, during the 2023-24 tax year. For the 2023/24 tax year, a pension may grow by 10.1% without contributing to the PIA (based on September 2022 CPI). In short, LGPS revaluation will be aligned with the tax calculations."
LGPS | Consultation on changes to the cost management process
The DLUHC is also consulting on changes to the LGPS Scheme Advisory Board (SAB) cost management process (CMP).
The changes proposed include amending existing regulations to bring the "scheme valuation and cost control process in line with the scheme valuations in the other public service pension schemes every four years" in order to "align the government and SAB mechanisms and allow the SAB CMP to operate immediately prior to the" HM Treasury Cost Control Mechanism. The consultation closes at 11.45pm on 24 March 2023.
Pensions dashboards | LGA response to consultation
The Local Government Association has published its response and the Local Government Pensions Committee's response to the Pensions Regulator's consultation on a draft pensions dashboards compliance and enforcement policy.
The response highlights the challenge of "collecting complete and accurate data in a timely fashion … in a locally administered scheme with over 15,000 employers. If employers fail to meet their obligations this will impact on administering authorities’ ability to return view data to dashboards in a timely fashion".
It also notes the risk of "the scheme not having the appropriate resources to deal with the additional workload dashboards will entail. Until dashboards go live, it is not possible to quantify the amount of resource a scheme will need to operate ‘business as usual’, which makes resourcing difficult to quantify. The average vacancy rate across LGPS administering authorities is 10.77 per cent or five full time posts per authority. We anticipate recruiting and retaining staff to deal with the inevitable increase in queries will be a significant challenge and therefore poses a risk in this context."
Protected pension age | Meaning of 'actual' or 'prospective' right
The High Court has decided that rule B1 of Schedule 2 to the Firemen's Pension Scheme Order 1992 (which gives certain firefighters an entitlement to pension if they have reached the age of 50 and give notice of retirement with the permission of the fire and rescue authority) does not give rise to a protected pension age of 50. The judge concluded that:
- "to be an 'actual right to a benefit' within the meaning of paragraph 22 of Schedule 36 FA 2004, the right must be an immediate right to the benefit and subject to no contingencies;
- that where there is no immediate right to a benefit but a contingent future right subject to future contingencies, the right will be a prospective right" (subject to the next point);
- "future contingences, such as the occurrence of natural events (attaining a certain age) or contingencies wholly within the control of the member (such as not taking certain specified types of employment on retirement (as in rule B1(2)(a)) or not making an election under the Scheme rules, as in B1(2)(c)) are contingencies that are consistent with the right being prospective. However, a condition that requires consent or permission of a third party before there is any right to a pension will be a contingency that will result in there not being a 'prospective right to a benefit' within the meaning of FA 2004, schedule 36 paragraph 22".
Devon And Somerset Fire And Rescue Authority v Howell & Anor  EWHC 257 (Ch).
The Financial Conduct Authority has said that it wants to hear from pension schemes who have carried out checks and have serious concerns about a pension transfer. It has set out a list of things that it would like schemes to report to it and confirmed how schemes should report.
Legal reform | Retained EU Law (Revocation and Reform) Bill
The Retained EU Law (Revocation and Reform) Bill is scheduled to start committee stage in the House of Lords on 23 February. The bill has been widely covered in the press. You can read more about it in our Insight.
Other developments | Q2 2023 Pensions Action Plan
We have released our Q2 2023 Pensions Action Plan. Each action plan is a summary of changes and proposals in pensions law and regulation over the last quarter, most of which are also relevant to public sector pension schemes.
Topics covered include:
- Pensions dashboards.
- An important decision on the relationship between ill-health retirement and the employer's duty to make reasonable adjustments for disability.
- The Pensions Regulator's second defined benefit funding consultation.
To receive your copy of the Action Plan, please ask your usual Osborne Clarke contact.
The Pensions Ombudsman (TPO) has:
- upheld a complaint by the surviving spouse of a member of the LGPS about the death grant decision taken under the 2013 scheme regulations following the death of her husband (the decision contains a summary of points that should generally be taken into account);
- not upheld a complaint by a member of the NHS Pension Scheme that his application for ill-health retirement had been refused (the member felt that more weight should have been given to the medical opinion of a particular Clinical Specialist); and
- partially upheld a complaint by a deferred member of the NHS Pension Scheme (Scotland) who resigned from her job at the end of 2020 after she was mistakenly told that she could take her scheme benefits before age 60.
Mrs S - Swansea City & County Pension Fund (CAS-45793-J6Y3 )
TPO has partially upheld a complaint by the surviving spouse of a member of the LGPS about the death grant decision taken under the 2013 scheme regulations following the death of her husband, Mr S. Mr S had two sons from a previous marriage (both of whom were over the age of 40 and not financially dependent on him) and a son with Mrs S. He made a will shortly before he died, but did not complete a nomination form for the death grant. After considering the contents of the member's will, the decision-making panel decided to split the award between Mrs S and the three sons. Mrs S complained to TPO, who decided the following:
- The decision was properly made (the regulations required a decision by the Council and the panel had delegated authority from the Council).
- The panel had correctly identified Mrs S and Mr S' sons as being the potential beneficiaries under the regulations.
- However, Mr S' will was useful as an indicator of his overall intentions in relation to his assets and the panel had made its decision based on an incorrect interpretation of the will.
- Even though Mrs S had expressed concerns, the panel had also failed to request appropriate additional information and/or make reasonable enquiries of Mr S' sons before taking its decision.
- The Council should make further enquiries with Mr S' sons and then reconsider its decision. It should also pay £1,000 to Mrs S for the serious distress and inconvenience caused.
The decision contains a summary of points that should generally be taken into account.
Mr R - NHS Pension Scheme (CAS-46822-W2V2)
TPO has not upheld a complaint by a member of the NHS Pension Scheme that his application for ill-health retirement had been refused. The member felt that more weight should have been given to the medical opinion of a particular clinical specialist.
The ombudsman confirmed that "within the bounds of reasonableness, the weight which is attached to any of the medical evidence is for" NHS Business Services Authority "to decide. It is open to NHS BSA to prefer evidence from its own advisers unless there is a cogent reason why it should, or should not do so without seeking clarification. For example, an error or omission of fact or a misunderstanding of the relevant rules by the medical adviser. The decision to give little or no weight to any of the evidence is not the same as failing to consider it".
Dr H - NHS Pension Scheme (Scotland) (CAS-77686-Q0L4)
TPO has partially upheld a complaint by a deferred member of the NHS Pension Scheme (Scotland) who resigned from her job at the end of 2020 after she was mistakenly told that she could take her scheme benefits before age 60.
TPO awarded £1,000 for the serious distress and inconvenience caused but confirmed that benefits had to be paid in accordance with the relevant scheme regulations (the regulations gave no discretion) and the member should have been aware of the true position because she had received a letter dated August 2020 which explained that she could take her benefits before age 60 if she had service after 30 March 2000 (and she did not have service after 30 March 2000).
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:
This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.