UK Public Service Pensions Update | October 2023
Published on 17th Oct 2023
Welcome to the latest edition of the UK Public Service Pensions Update.
This month, the key developments are the coming into force of the McCloud remedy and the release by HMRC of a newsletter and 34 guidance notes in relation to the remedy.
If you would like to discuss any of the items in this newsletter, please contact one of the experts listed at the end.
McCloud remedy | Coming into force
In accordance with section 131 of the Public Service Pensions and Judicial Offices Act 2022, the McCloud remedy (to the extent not already in force) came into force on 1 October 2023.
For Chapter 1 schemes, that is, all public service pension schemes other than judicial schemes and the Local Government Pension Scheme (LGPS), the crucial "rollback" provision in section 2 came into force, retrospectively changing affected members' "remediable service" for the period (in most cases) 1 April 2015 to 31 March 2022.
In addition, the regulations to implement the detail of the McCloud remedy in each public service pension scheme came into force on 1 October 2023, in particular (for England and Wales):
- The Armed Forces Pensions (Remediable Service) Regulations 2023
- The National Health Service Pension Schemes (Remediable Service) Regulations 2023
- The Civil Service (Other Crown Servants) Pension Scheme (Remediable Service) Regulations 2023
- The Public Service (Civil Servants and Others) Pensions (Remediable Service) Regulations 2023
- The Firefighters' Pensions (Remediable Service) Regulations 2023
- The Firefighters' Pensions (Remediable Service) (Wales) Regulations 2023
- The Police Pensions (Remediable Service) Regulations 2023
The McCloud remedy for judges has already been commenced with effect from 4 and 5 July 2023 in accordance with The Public Service Pensions and Judicial Offices Act 2022 (Commencement No. 2) Regulations 2023, and The Judicial Pensions (Remediable Service etc.) Regulations 2023.
In relation to the LGPS, The Local Government Pension Scheme (Amendment) (No. 3) Regulations 2023 also came into force on 1 October 2023. These regulations extend the statutory underpin so that all eligible members benefit from a guarantee that their benefits under the reformed LGPS, in respect of relevant service, will not be less than the amount they would have been entitled to under the legacy LGPS.
McCloud remedy | New guidance from HMRC
As schemes turn to the implementation of the McCloud remedy, HM Revenue & Customs has released an October 2023 newsletter and a series of guidance notes to assist.
The newsletter contains a link to the new "calculate your public service pension adjustment" service for members and explains how this service will work. It also includes a link to a new tool that members can use to check if they are affected by the McCloud remedy.
There are 15 guidance notes for the administrators of public service (and affected private sector) pension schemes, and 19 guidance notes for members.
HMRC has also issued this direction in relation to the "calculate your public service pension adjustment" service.
The collection of 15 guidance notes for the administrators of public service and private sector pension schemes is made up of:
- Six guidance notes (two for LGPS administrators, two for the administrators of the judicial pension schemes and two for the administrators of the other public service pension schemes) on issues and actions needed.
- Guidance on how to register to use HMRC's Secure Data Exchange Service to transfer data to and receive data from HMRC.
- Guidance for all public service pension schemes on how to calculate pension input amounts and how annual allowance charges are affected by the McCloud remedy.
- Guidance for the administrators of all pension schemes (public service and private) in relation to the lifetime allowance.
- Guidance for all schemes (public service and private) on lifetime allowance charges following the McCloud remedy, including how to request a refund and report new charges.
- Guidance for private sector schemes on what to do in cases where a member who has had a benefit crystallisation event previously had one in a public service pension scheme.
- Guidance on how to treat unauthorised payments following the McCloud remedy.
- Guidance for schemes other than the LGPS on correction of pension contributions following the McCloud remedy.
- Guidance for schemes other than the LGPS on how additional voluntary contributions are affected by the McCloud remedy.
- Guidance on how to compensate members who make a claim in relation to annual allowance, lifetime allowance and unauthorised payments charges.
A collection of 19 guidance notes for the members of public service pension schemes is made up of:
- Four notes for members of the LGPS.
- Four notes for members of the judicial pension schemes.
- Four notes for members of the other public service pension schemes.
- Seven notes on pensions tax points.
LGPS | Next steps on investments, consultation response
The LGPS Scheme Advisory Board has shared its detailed response to the Department for Levelling Up, Housing and Communities' (DLUHC) consultation on "accelerating the consolidation of Local Government Pension Scheme … assets, with a deadline of March 2025 for all LGPS funds to transfer their assets into local government pension pools and ensure greater transparency on investments."
Among other things, the LGPS Scheme Advisory Board's response confirms that:
- It "believes that March 2025 is an unrealistic deadline for all funds to transfer all listed assets. The Board would like to see evidence that the date has been chosen with due regard to the need to balance the associated tax and transition costs with the perceived benefits".
- "As a point of principle, [it] does not accept that it would be an appropriate use of the direction-making power contained in Regulation 8 of the LGPS Investment Regulations 2016 to compel a fund to transfer ownership of an asset to a pool, or disinvest from a non-pooled asset in order to invest in a pooled one, unless there was clear evidence that retaining the pooled asset would be a breach of that fund’s fiduciary duty."
- "The Board feels it is more appropriate for Government to focus on increasing the active participation of funds in pools (and thereby the pool’s effectiveness) rather than using the threat of direction to compel funds to act against a fund’s own better judgement."
- "The [DLUHC] also needs to seriously consider how the messages in this consultation could negatively affect progress with pooling. If there is a prospect of some pools ceasing to exist in the near future, then that will give many funds occasion to pause transfers and reconsider their participation in that particular pool. This is precisely the opposite effect to what it is trying to achieve."
- "If the number of pools is to reduce, the Minister needs to carefully balance any further marginal gains through increased scale against what may prove a greater cost of disruption (in terms of managing pool staff and buildings, fees, stamp duty and diversion of management attention at both funds and pools)."
- "LGPS funds cannot invest simply to support Government policy or provide loans on favourable terms for projects supported by Government. However, the Board believes that most funds are very open to investing in place-based initiatives where particular projects can be demonstrated to be consistent with the fund’s fiduciary duty and appetite for risk" (subject to management of conflicts of interest), but "the key barriers are scale and supply of opportunities: we would like to see a deeper consideration by Government of what can be done collectively to address those. … UK infrastructure projects will need to be competitive with other opportunities around the world."
Pensions dashboards | Update on staging guidance
The Pensions Dashboards Programme (PDP) has published answers to a series of "common questions" on pensions dashboards. The answers include the following update on the staging guidance.
"The connection deadline of 31 October 2026 is the date by which all pension providers and schemes in scope must have connected to the pensions dashboards ecosystem. Dates for when individual pension providers and schemes will connect will be set out in guidance. Providers and schemes will be grouped together over different stages in connection windows. This will work in a similar way to the previous staging profile in legislation, in order to stagger connections. …. We are committed to engaging with industry over the coming months on the staging timeline to be included in guidance. There will be engagement between PDP, DWP [Department for Work and Pensions], industry, and regulators on draft guidance before it is finalised. PDP’s upcoming progress update report will highlight delivery for the next 6 months. We will continue to share messages and collaborate with industry and will provide updates via our connection hub. The aim is for all the required guidance to be made available in good time before the connection begins."
Key dates | The King's Speech and the Autumn Statement
The King's Speech is scheduled for the State Opening of Parliament on 7 November 2023 and the chancellor of the exchequer will present the Autumn Statement on 22 November.
The speech will outline the government's proposed policies and legislation for the coming parliamentary session. It looks as though the Economic Activity of Public Bodies (Overseas Matters) Bill, which is relevant to the investment decisions of Local Government Pension Scheme funds, will be carried over to the next parliamentary session.
The Autumn Statement should include an update on the government's proposal (announced at Spring Budget 2023) to abolish the Lifetime Allowance with effect from April 2024. The key question will be whether the government still plans to abolish the Lifetime Allowance with effect from April 2024 (and, if so, exactly what changes it plans to make) or whether it will give schemes and their members longer to plan for and implement this important change.
Consultation | Change to the general levy from 2024
The DWP is consulting on options for change to the structure and rates of the general levy for the years 2024/25, 2025/26 and 2026/27. Three options are presented and the consultation is open until 13 November 2023.
The three options are:
- Option 1: freeze rates at this year’s rates until 2026/27 and keep the current categories of rate payer: DB schemes, DC schemes other than Master Trusts, Master Trusts, and Personal Pensions schemes.
- Option 2: keep the current structure of the levy, but increase rates for all schemes at 6.5% per year.
- Option 3: increase levy rates for all schemes by 4% per year but add, as of April 2026, a premium of £10,000 for schemes with less than 10,000 members. Introducing the premium payment in 2026 would give smaller schemes two years to consider whether consolidating into a larger scheme would be in their members’ interests.
The consultation is open until 13 November 2023 and schemes are invited to say which option they prefer, what impact the levy change will have on them and how they will respond to it (for example, whether it be absorbed in the scheme, passed on to members or paid by the employer).
The consultation paper explains that the "increasing span of activities carried out by [the Pensions Regulator, the Pensions Ombudsman and the Money and Pensions Service] positively support government objectives, pensions schemes and savers. However, a natural consequence of increased activity is additional pressure on the levy. …As of 2020, the Government had protected schemes from increases in the levy for eight years, even though expenditure exceeded revenue throughout that period. The rates since 2021…have gone some way to addressing the deficit, [but] levy income is not keeping pace with expenditure. Without further intervention, the levy is expected to be operating with an accumulated deficit of over £200m by the end of the agreed remediation period."
Investment | Climate change and biodiversity
Funded public service pension schemes might be interested to read the following.
- Blog published by the Pensions Regulator in response to criticisms of the scenario models and analysis used by private sector pension scheme trustees in their annual climate reports. At the moment, only larger private sector pension schemes are subject to these requirements. The introduction of climate risk governance and reporting requirements for public service pension schemes has run into some delay.
- Guide for pension scheme trustees on biodiversity and nature risk (including financial risk) shared by the Pensions Management Institute.
Pensions Ombudsman | Retained Firefighters
The Pensions Ombudsman has not upheld a complaint by a member of the New Firefighters' Pension Scheme 2006 in relation to the administration of his membership of the Modified Scheme.
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.