UK Public Service Pensions Update | June 2023
Published on 29th Jun 2023
Welcome to the latest edition of the UK Public Service Pensions Update.
This month we look at developments in areas ranging from the McCloud remedy to support for members in relation to the cost of living crisis, pensions dashboards and the government's review of the 2021 pensions transfer regulations.
If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end.
The government has introduced a Bill to fulfil the Conservative Party's manifesto commitment from the 2019 election to "ban public bodies from imposing their own direct or indirect boycotts, disinvestment or sanctions campaigns against foreign countries." The new prohibition will also apply to the Local Government Pension Scheme (LGPS).
The explanatory notes for the Economic Activity of Public Bodies (Overseas Matters) Bill explain that this new legislation will "prevent public bodies when making decisions about procurement and investment from considering a country or territory of origin or other territorial considerations in a way that indicates political or moral disapproval of a foreign state …[but not prevent them] from complying with formal UK Government legal sanctions, embargoes and restrictions."
It will also "apply the restriction on procurement and investment decisions … to local government pension schemes" and "provide the Pensions Regulator with the power to enforce the ban …against local government pension schemes."
The Local Government Pension Scheme Advisory Board (LGPS SAB) has published an initial comment on the Bill.
The Department for Levelling Up, Housing and Communities (DLUHC) has run its planned consultation on supplementary issues relating to the implementation of the McCloud remedy in the LGPS and on draft regulations to implement the remedy.
The consultation opened on 30 May 2023 and will close on 30 June 2023. The government hopes to finalise the draft regulations and make them in early September 2023, with a view to them coming into force on 1 October 2023. It also hopes to "establish a guidance working group with the [LGPS] Scheme Advisory Board to consider which elements of the McCloud remedy may require central guidance from the Secretary of State or the Board and what that guidance should say. In our government response to this consultation, we will provide an update on that workstream."
In our April 2023 newsletter, we reported that the government had published a consultation response providing more information about the changes it will make to LGPS regulations to implement the McCloud remedy in the scheme. The consultation response confirmed that the government intended to launch a further consultation this spring.
This is the consultation that is now being run. In it, the government asks for feedback on updated draft regulations. It asks for views on a number of policy matters:
- "Aggregation – Determining the rules applicable to decide whether a member with multiple LGPS memberships has underpin protection in some or all of these.
- Club transfers – Determining the rules applicable to decide whether a member with previous membership of another public service pension scheme has underpin protection in respect of their LGPS membership.
- Flexible retirement – How the underpin should work in respect of flexible retirement, particularly for cases of ‘partial’ flexible retirement, where a member does not take all their accrued career average benefits.
- Divorce – How the scheme’s divorce and underpin calculations interact.
- Injury allowances – How a retrospective increase to a member’s pension arising from McCloud remedy may impact any injury allowances payable."
It also asks for "technical comments and comments on implementation" in some areas where the policy approach has been determined:
- "Excess teacher service – The retrospective admission to the LGPS of certain teachers who have multiple employments.
- Compensation – The circumstances where a member may be paid compensation where they have suffered a loss relating to the age discrimination found in the McCloud case or the McCloud remedy.
- Interest – The interest terms that will apply where payments are made later than would have been the case, due to the McCloud discrimination."
HMRC has consulted on a second set of regulations concerned with how the pensions tax rules will apply in the context of the McCloud remedy. The consultation ran from 22 May 2023 to 19 June 2023. Guidance on the regulations was added to the consultation page on 26 June.
On 23 May, HMRC also published a newsletter on the McCloud remedy. This refers to the consultation and says that HMRC is:
- Developing the processes that will be needed to support the remedy and seeking a "single point of contact for each public service organisation, with the aim being to work together on how the processes will impact you and the day to day running of remedy".
- Drafting remedy guidance for pension schemes for publication in autumn 2023 and calling for volunteers to take part in testing that guidance.
The consultation page for the draft regulations explains that the aim of the regulations is to "make sure that schemes can pay pension benefits as authorised payments" and "change how schemes work out pension input amounts in relation to voluntary pension contributions, pension credits and debits connected to a pension-sharing order on divorce [and] rights transferred from partnership pension accounts."
"They will also apply changes to how individuals are treated for tax purposes, if they were (or are, as a result of the remedy) subject to any of the following charges during the tax year 2019 to 2020, to the tax year 2022 to 2023: annual allowance charges; lifetime allowance charges; unauthorised payments charges; unauthorised payments surcharges."
McCloud remedy | Judicial review
In our March 2023 newsletter, we reported that the Fire Brigades Union and the British Medical Association's claims for judicial review of the Public Service Pensions (Valuations and Employer Cost Cap) (Amendment) Directions 2021 had been dismissed. A number of other unions were named as interested parties. Pensions Age magazine has since reported a possible appeal.
The LGPS SAB has published a letter from the DLUHC confirming that the government "will not be implementing any requirements related to the governance or disclosure of climate-related financial risks for the financial year 2023/24".
It was originally proposed that regulations would be in force by April 2023, the first reporting year would be the financial year 2023/24, and the first reports would be required by December 2024.
LGPS SAB say that "[p]resuming regulations are forthcoming in time for 1st April 2024, reports covering the period 1 April 2024 - 31 March 2025 would need to be produced by December 2025. In the meantime, the Responsible Investment Advisory Group (RIAG) would look at what advice could be given to funds wishing to do a shadow reporting year, and also what could be done to standardise the development of climate reporting approaches at the pool level."
LGPS | Change to privacy notice?
The LGPS SAB has obtained legal advice on the data protection considerations which apply when it collects member-related data from LGPS funds. Funds may wish to review the opinion (which the LGPS SAB has shared on its website) and consider, for example, the suggested action on privacy notices. This might provide a good opportunity to review the privacy notice for recent developments more generally.
LGPS | New resources
The Pensions and Lifetime Savings Association has released two new resources for LGPS funds:
Funds should also be aware of a number of developments relating to the cost of living crisis, pensions dashboards, transfers and liability-driven investment.
Cost of living crisis
The Pensions and Lifetime Savings Association has published a guide for pension schemes to use to support members through the cost of living crisis. This includes information which schemes may wish to provide to members to help to support them at this time.
The government has laid the Pensions Dashboards (Amendment) Regulations 2023 before Parliament. The regulations will replace the current staging timetable with a single connection deadline of 31 October 2026. The Pensions Dashboards Programme has released an FAQ which confirms, among other things, that new guidance (to be released) will set out when providers and schemes are expected to connect. The timetable in the guidance will not be mandatory, but schemes will be encouraged to comply with it. In addition:
- The Pensions Administration Standards Association (PASA) has confirmed the need for schemes to continue to prepare for dashboard connection and set out how it intends to continue to support the pensions industry in getting "connection ready". Its plans include releasing "guidance on planning your scheme preparation work" and "a template ‘master plan’ for a typical service provider (administrator or software provider) that is preparing one or more schemes to be ‘connection ready’". PASA has also released dashboards value guidance setting out "‘good practice’ approaches to providing value data to pensions dashboards." The guidance covers "twenty topics including possible approaches for dealing with issues such late retirements, underpins, partial retirements and split normal retirement ages."
- The Pensions Regulator (TPR) has released a blog underlining the importance of continuing to prepare – in particular making sure your scheme is data ready. It has also updated its pensions dashboard guidance.
- The Department for Work and Pensions (DWP) has confirmed that it is in the process of updating its guidance on deferred connection.
The DWP has published its review of the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021.
It reports that "[f]eedback from a proportion of the pensions industry suggests there are issues with the practical application of certain provisions in the regulations, namely the incentives red flag and the overseas investments amber flags. Feedback also suggests that members may have to attend multiple [Money and Pensions Service] appointments if they are consolidating….. TPR has since updated its guidance to help address these issues."
The review concludes that "[w]hilst the original policy intent remains appropriate, feedback from the pensions industry suggests the incentives and overseas investments flags are the main concerns with the application of the regulations. DWP will therefore conduct further work with the pensions industry and the Pensions Regulator to consider if changes could be implemented to the regulations to improve the pension transfer experience, without undermining the policy intent."
The House of Commons Work and Pensions Committee has published its report on Defined Benefit pensions with liability-driven investment (LDI). The conclusions and recommendations are summarised on pages 47 to 50. The recommendations include the following:
- The Pensions Regulator "should require trustees to report certain data on their use of LDI and should develop a strategy for engaging with schemes based on the results more closely". And "the Department for Work and Pensions and The Pensions Regulator should consult on whether introducing disclosure requirements on pension schemes relating the use of LDI through the annual report or investment statement would help to improve standards of governance."
- "The Government should bring forward plans for investment consultants to be brought within the FCA’s regulatory perimeter before the end of this Parliament."
- "TPR should work with the FCA to review whether the guidance the FCA issued to LDI funds in April has been implemented effectively and is providing trustees with the simple mechanism for monitoring LDI that the FPC said was needed."
- "DWP and TPR should halt their existing plans for a new funding regime [for private sector DB schemes], at least until it has produced a full impact assessment for the proposals, including the impact on financial stability and on open DB schemes."
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.