UK Public Service Pensions Update | September 2023

This month, topics include the latest developments on McCloud (including guidance from the Pensions Regulator), new Treasury Directions for 2020 valuations, changes to NHS and Firefighters' pensions and new automatic enrolment legislation.

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 | Local Government Pension Scheme

The Department for Levelling Up, Housing and Communities (DLUHC) has published the response to its May/June 2023 consultation on supplementary issues relating to the implementation of the McCloud remedy in the Local Government Pension Scheme (LGPS) and on draft regulations to implement the remedy.

The regulations (The Local Government Pension Scheme (Amendment) (No. 3) Regulations 2023) have also been made and will come into force on 1 October 2023.

Funds should look out for statutory, non-statutory and actuarial guidance on the remedy, starting with guidance on the prioritisation of McCloud-affected cases.

Further regulations will be needed "for example, to effectively implement the remedy for excess teacher service".

DLUHC "understand frustration at the short period between [the] remedy regulations being made and them coming into force on 1 October 2023.…Whilst the remedy will come into force on 1 October 2023, the delivery of the remedy to affected members will extend over the period after this date. The government is considering how cases should be prioritised and is circulating a draft policy to all LGPS administrators."

The idea of this "initial guidance" on how McCloud-affected cases should be prioritised is to "encourage a broadly consistent approach from the start….Administering authorities should consider [the guidance] in determining how to take forward their McCloud work." DLUHC then "intend to include guidance on prioritisation in statutory guidance".

There will also be more guidance: statutory, non-statutory and actuarial. The consultation response confirms the areas in which this will be made.

Separately, on communications: "the Local Government Association’s national communications working group is considering what template and sample communications should be produced in respect of the LGPS McCloud remedy and details of this work will be shared with LGPS administrators through the Local Government Association mailing list." For the time being, there is a link to the DLUHC and LGPS Scheme Advisory Board fact sheet for members on the McCloud judgment and changes being made to the LGPS.

We discussed the original consultation in our June 2023 newsletter.

McCloud remedy | Armed Forces, NHS and Civil Service Pension Schemes

In our March 2023 newsletter, we reported that the relevant government departments were consulting on draft regulations to implement the retrospective part of the McCloud remedy (a choice between legacy scheme and reformed scheme benefits for remediable service between 1 April 2015 and 31 March 2022) in the Firefighters', Police, Civil Service, Armed Forces and National Health Service Pension Schemes.

The last two consultation responses have now been published: by the Ministry of Defence for the Armed Forces Pension Schemes and by the Department of Health and Social Care for the NHS Pension Scheme. The regulations needed to implement the remedy (the Armed Forces Pensions (Remediable Service) Regulations 2023 and the National Health Service Pension Schemes (Remediable Service) Regulations 2023) have been made and will come into force on 1 October 2023.

The regulations for the Civil Service Pension Scheme (mentioned in our August 2023 newsletter) have also been made and will come into force on 1 October. There are separate regulations to implement the retrospective remedy for members of the Secret Intelligence Service and Security Service pension schemes.

McCloud remedy | TPR guidance on benefit statements

The Pensions Regulator has published guidance reminding public service pension schemes of the need to:

• "provide annual benefit statements to members…on time" as well as producing "remedial service statements to those members affected by the McCloud remedy";
• "deliver annual benefit statements and remedial service statements that are accurate, clear and accessible"; and
• submit a breach of law report to the Regulator if "there has been a material breach [of the law] due to the late (or non-delivery) of annual benefit statements".

The guidance sets out the Pensions Regulator's expectations in relation to annual benefit statements. It also says that, if schemes "fail to provide scheme members with accurate, complete, or timely annual benefit statements, then we would consider this a material breach of the law" but acknowledges that "meeting all annual benefit statement disclosure requirements due to McCloud remedy issues may be challenging. Because of this, we will take a risk-based, practical approach when reviewing, assessing and responding to annual benefit statement breaches of the law during 2023 to 2025." Schemes might, however, be asked to provide "extra information, to gain insight into your plans to rectify the reported breach for the affected delivery year."

2020 valuations | New Treasury directions released

HM Treasury has published the Public Service Pensions (Valuations and Employer Cost Cap) Directions 2023. The directions "revoke and replace the Public Service Pensions (Valuations and Employer Cost Cap) Directions 2014. This enables the Directions to allow for the reform of the cost control mechanism" to introduce the reformed scheme only design "as well as other changes required for the 2020 valuations" such as updated actuarial assumptions.

LGPS | Consultation responses

The LGPS Scheme Advisory Board has shared the key principles that will form the basis of its detailed response to the DLUHC's 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." The consultation will close on 2 October and so funds should look out for the full consultation response.

The Local Government Association and the Local Government Pensions Committee have shared their response to HM Revenue & Customs' consultation on draft legislation to abolish the Lifetime Allowance with effect from 6 April 2024. Among other things, the response expresses concern that "there is insufficient time to implement such large-scale reform by 6 April 2024. Public sector pension schemes are currently in the process of implementing the McCloud remedy which is a major project taking up all available resource. Vacancy rates in the LGPS are around 10 per cent on average. Setting up new processes to accommodate the need to track previously untracked payments is therefore very unwelcome."

NHS Pension Scheme | Second round of changes implemented

Regulations have been made to implement the partial retirement changes confirmed by the Department of Health and Social Care in March 2023 following its consultation on changes that could be made to the NHS Pension Scheme to help retain experienced NHS clinicians and remove barriers to returning to work from retirement. The regulations will come into force on 1 October 2023.

Retained firefighters' pensions | Consultation response

The Home Office has published the response to its consultation on proposed amendments to Firefighters’ Pension Scheme arrangements to provide further Matthews remedy to people who were employed as retained firefighters between 7 April 2000 and 5 April 2006.

The Firefighters’ Pension Schemes (England) (Amendment) Order 2023 has been made and will come into force on 1 October 2023. The consultation response confirms that Fire and Rescue Authorities "will be expected to commence the 2023 Options exercise as soon as is reasonably practicable after the legislation comes into force. The exercise will run for a period of 18 months". It also discusses an indicative timetable for implementing the options exercise.

The consultation response explains that "[h]istorically, retained firefighters did not have any entitlement to membership of the Firefighters’ Pension Scheme 1992 (the ‘1992 Scheme’). Retained firefighters were first given access to a fire service occupational pension arrangement when the Firefighters’ Pension Scheme 2006 (the ‘2006 Scheme’) was introduced on 6 April 2006. The 2006 Scheme was established when the Firefighters’ Pension Scheme (England) Order 2006 came into force."

Following an Employment Tribunal decision (Matthews v Kent and Medway Towns Fire Authority), a new section was created in the 2006 Scheme to provide pension on terms similar to the 1992 Scheme to retained firefighters who were employed between 1 July 2000 and 5 April 2006 inclusive. However, this was limited to service from 1 July 2000 and, following the decision in O’Brien v Ministry of Justice, it was agreed that retained firefighters employed on or after 7 April 2000 should not be subject to that 1 July 2000 cut-off. There is also a concern that some people who were entitled to join the new section were not given a reasonable opportunity to do so.

All funds | Automatic enrolment

Funds should look out for a government consultation on draft regulations to extend the scope of automatic enrolment.

The Pensions (Extension of Automatic Enrolment) Act 2023, which has now received Royal Assent, will give the government the power to reduce the age at which jobholders first qualify for automatic enrolment and to remove the lower qualifying earnings threshold (currently £6,240). The aim of these changes will be to extend automatic enrolment to younger workers and ensure that "every eligible worker will benefit from an employer contribution from the first pound earned". Regulations will be needed to make these changes and the government originally said that it hoped to launch a consultation on draft regulations this autumn.

When these changes are made, they will go some way towards implementing the key findings of the 2017 Department for Work and Pensions review of automatic enrolment. However, the contents of the consultation will be key. Will the government suggest reducing the minimum age from 22 to 18 (in line with the 2017 review), or might it go further and suggest that employers must automatically enrol jobholders from age 16?

When will the government suggest that the change to the minimum age and the reduction or removal of the lower qualifying earnings threshold take effect? Will it take this opportunity to consult on any other changes? Funds should look out for the consultation. A general election is approaching, but the Act (and so changes to the minimum age and earnings threshold) enjoy strong cross-party support.

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:

• Sanctions against Russia

This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.