Public Sector Pensions Update | February 2020

Welcome to the latest edition of our Public Sector Pensions Update.

This edition focuses on a range of developments for public sector pensions, including the government's latest position on the costs cap and recent decisions from the High Court and Pensions Ombudsman.

If you would like to discuss any of the developments in this newsletter, please contact one of the experts listed below.

Update | The costs cap and the McCloud case

On 10 February 2020, Economic Secretary John Glen MP confirmed, in answer to a parliamentar y question, that there will be a full public consultation on changes to public sector pension schemes following the McCloud ruling, and that the costs cap will remain paused for the time being:

"In January 2019, the Government announced a pause to the cost control element of the valuations of public service pension schemes, due to the uncertainty about benefit entitlements arising from the Court of Appeal’s judgment in McCloud in December 2018.

The Government has committed to addressing the discrimination identified in McCloud in all public service pension schemes, while ensuring all members can keep their accrued benefits. Schemes are currently discussing high-level proposals to achieve this with employer and member representatives, to inform a full public consultation. In addition, Employment Tribunals are considering the remedy for claimants in the various cases. While these processes are underway, the cost control mechanism remains paused as the value of pension schemes to members cannot be assessed with certainty."

The costs cap | Judicial review

On 13 February 2020, the Public and Commercial Services Union (PCS) announced that, with the Fire Brigades Union, it will seek a judicial review on the question of whether the government should return to members the 2% difference between the pension contributions which they are paying (and which the government intends they should for the time being continue to pay) and the lower contribution rate which they say is supported by the outcome of the 2018 valuations. This is effectively a challenge to the government's continuing decision to pause the cost cap process pending resolution of the McCloud decision. The PCS' earlier announcement explains the 2% difference in more detail and this message confirms that "the outcome of the 2018 valuations mean that millions of scheme members are entitled to either scheme improvements for which in reality they have already paid or to be compensat[ed] by a reduction in their scheme contribution".

Investment | Proposed amendments to the Pension Schemes Bill

The Department for Work and Pensions has proposed a series of amendments to the Pension Schemes Bill. These include the introduction of a power to make regulations "to impose requirements on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing that there is effective governance of the scheme with respect to the effects of climate change" and to require them to "publish information of a prescribed description relating to the effects of climate change upon the scheme".

Investment | LGPS SAB responsible investment guidance

On 24 February 2020, in light of the proposed Pension Schemes Bill amendments and pending the Supreme Court's decision in the Palestine Solidarity Campaign Ltd case (discussed in our January 2020 public sector pensions update), the Local Government Pension Scheme Advisory Board published an update on its planned responsible investment guidance.

The Board has taken the view that it would be "imprudent at this stage to offer any definitive advice or guidance on how the fiduciary test applies to investment decision makers in the LGPS [Local Government Pension Scheme]". The focus of the proposed guidance at this time will be to "explain and clarify the terminology associated with responsible investment and provide investment decision makers with a range of information, case studies and tools to help them meet the challenges associated with responsible investment".

March Budget | Annual and lifetime allowance

On 13 February 2020, Sajid Javid resigned as Chancellor of the Exchequer and Rishi Sunak was appointed to replace him. It has since been confirmed that this change will not affect the timing of the Budget, which will still take place on 11 March 2020.

As Budget day approaches, there have been repeated calls for the Government to take action and to urgently address the problem that the annual and lifetime allowance are causing for senior NHS clinicians. Eleven leading medical bodies are reported to have written an open letter to the Chancellor, and the Scottish health secretary has also written to him.

Royal London have also been raising awareness of the impact the annual allowance can have on a member of a public sector scheme who takes ill health early retirement but does not meet the "severe ill health condition" in section 229 of the Finance Act 2004.

Governance | The future of trusteeship and governance

On 10 February 2020, the Pensions Regulator issued its response to its Future of Trusteeship and Governance consultation. We discuss the response, which is relevant to public and private sector schemes, in our insight.

Open consultation | LGPS Scotland

In our August 2019 public sector pensions update, we reported that the Ministry of Housing, Communities & Local Government’s consultation on changes to the local valuation cycle and management of employer risk in the Local Government Pension Scheme (discussed in our July update) had closed on 31 July 2019.

The response to the consultation is still awaited. However, the Scottish Public Pensions Agency has launched a consultation on changes to the LGPS Scotland to align scheme and local valuations on a quadrennial cycle. It is also "seeking to assess the impact of changes introduced in 2018 to the provisions in Regulation 61, which provide administering authorities with the option of suspending an employer’s liability to pay an exit payment when managing the process of an employer exiting the scheme". The consultation will close on 9 March 2020.

Teachers' Pension Scheme | Employer contributions

In our December 2019 public sector pensions update, we reported that the Department for Education and the Education and Skills Funding Agency published guidance for schools and guidance for further education providers on how the cost of increased employer contributions to the Teachers’ Pension Scheme will be met. The guidance for further education providers has now been updated.

High Court | Two recent judgments

The High Court has handed down two judgments affecting public sector pension schemes.

The first (Carter v The Chief Constable of Essex Police and others [2020] EWHC 77 (QB)) was a decision that a Police Pension Scheme rule restricting payment of a widow's pension for pre-6 April 1978 service to cases where the widow married the member before he retired, is lawful. The judge distinguished Mr Carter's case (the right to a widow's pension for anyone other than the member's first wife was lost, once and for all, at the point he left service) from the circumstances in Walker v Innospec Ltd, and the Brewster & Langford cases (where "the die was not cast until the claimant's partners died"). He also distinguished the circumstances of Mr Carter's case from those in the Ministry of Justice v O'Brien (No.2). As such, the judgment will be interesting reading for anyone grappling with a case in which a member accrued their pension benefits before relevant human rights or non-discrimination legislation came into force.

The second (The Queen (on the application of British Medical Association) v Secretary of State for Health and Social Care [2020] EWHC 64 (Admin)) was a decision that amendments made to the forfeiture provisions of the NHS Pension Scheme in 2019 in order to allow benefits to be suspended, for example, in cases where a member or beneficiary has been charged with (but not convicted of) a criminal offence, were unlawful.

Pensions Ombudsman | Ill health retirement

The Pensions Ombudsman has issued two recent decisions confirming points that it is important to take into account when considering applications for ill health retirement.

In the first, the Pensions Ombudsman considered a complaint by a member of the Local Government Pension Scheme who was dismissed on capability grounds. In the second, the Pensions Ombudsman considered a complaint by a member of the NHS Pension Scheme who applied for early payment of his deferred benefits on grounds of ill health.

House of Commons Library briefing papers | New and updated

The House of Commons library has published several new or updated briefing papers relating to public sector pension schemes:

• Pension tax rules - impact on NHS consultants and GPs;
• War widows' pensions;
• Reform of pensions tax relief;
• Guaranteed minimum pensions increases;
• Public service pensions increases.

Other developments: Osborne Clarke's Q2 2020 pensions action plan

We have released our Q2 2020 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.