Public Service Pensions Update | August 2022

Consultation | Public service exit payments

HM Treasury is consulting on draft guidance on the approval of high-value public service exits and special severance payments. The draft guidance says that pension top-up payments "may constitute contractual or special severance payments", depending on a number of matters. This means that an employer-funded pension "strain cost" of an early retirement or redundancy would seem likely to be caught by the guidance.

The consultation is open until 17 October 2022. It follows the revocation, last year, of the £95,000 cap on exit payments introduced by The Restriction of Public Sector Exit Payments Regulations 2020.

The consultation paper explains that the draft guidance introduces two new control processes for exit payments. "The first is a new control process for high value exits in central government, where approval from the relevant secretary of state must be sought before an exit is agreed. The second is a modified version of the current system for the approval of special severance payments. For exits that exceed the high value threshold and include a special severance amount, both approval processes will apply."

"Approval will be needed from the relevant secretary of state for the agreement of any exit where the total exit payments on offer would exceed £95,000. …This approval would relate to the decision to offer or mandate an exit, wherein any statutory or contractual payments due upon exit will be understood as a fixed cost. The process should therefore not give rise to situations where individuals exit a body without receiving payments to which they are contractually entitled."

"A further approval will be needed if any payments in excess of contractual obligations (i.e. special severance payments) are to be offered. Approval for special severance payments will be given by HM Treasury officials, unless the proposed payment is over £95,000 or the individual in question receives a salary above £150,000. This is a slightly reduced threshold for approval of special severance payments, intended to align with the new threshold for review of contractual exits, and other thresholds used in government."

The guidance also provides for enhanced reporting to HM Treasury and the inclusion of repayment clauses to allow recovery of special severance payments in certain circumstances.

Consultation | Civil Service Compensation Scheme

The Cabinet Office has published a supplementary consultation paper to continue its consultation on reforms to the Civil Service Compensation Scheme. The principles for reform include creating "significant savings on the current cost of exits" and ensuring "appropriate use of taxpayers’ money".

On pensions, the proposals are "only to allow employer funded top up to pension from age 56 to track 10 years behind State Pension Age" and "partial pension buyout for those that have reached the minimum pension age where their cash payment is not sufficient to fully buy out their pension". The proposals also include "clawback arrangements for individuals who return to an organisation that uses the CSCS within six months of receiving a compensation payment".

McCloud remedy | Update on timings

The July 2022 Local Government Pensions Committee newsletter contains an update from the Department for Levelling Up, Housing and Communities (DLUHC) on the likely timing of some of the key steps in implementing the McCloud remedy in the Local Government Pension Scheme (LGPS).

The update says that the response to the 2020 consultation on draft regulations is expected "later this year" and that updated draft regulations will be published alongside the response. The updated draft regulations will then "be subject to a further period of consultation early in 2023" along with "other aspects of the McCloud remedy which did not feature in [the] original consultation (for example, compensation and rates of interest)". The regulations will be made "later in 2023 and will come into force on 1 October 2023". DLUHC plans to issue statutory guidance on "the implementation of McCloud in 2023 following a period of consultation".

McCloud remedy | Pensions Ombudsman factsheet

The Pensions Ombudsman has published a factsheet setting out its view on what schemes and members can do now, and confirming the approach it will take if it receives a member complaint relating to McCloud discrimination issues.

Funds should consider what action to take in light of this factsheet.

The factsheet says that schemes "should communicate with affected members about the steps they are taking to address the discrimination and signpost members to their scheme’s IDRP [internal dispute resolution procedure] and/or TPO [the Pensions Ombudsman] if the matter cannot be resolved. Schemes may review and decide (taking appropriate advice) whether it is practicable for a remedy to be made available earlier for those members that may suffer immediate detriment. Schemes should contact TPO, for example, if they receive a large number of similar or grouped complaints, and they think there is a reasonable chance those complaints will be referred to TPO".

It also says that "presently TPO’s general starting position, is that it would not investigate complaints or disputes relating to remedying age discrimination in public sector schemes, but it will carefully look at the facts of each case before making any decision. Examples of where TPO may investigate include, allegations of maladministration, like, failure to explain what is going on and/or engage properly with the member; or investigate where a member is suffering severe financial hardship or other serious injustice and the scheme is not putting in place any interim arrangements to address the injustice within a reasonable period".

Consultation and pensions tax | NHS Pension Scheme

The Department of Health and Social Care has consulted on draft regulations to "update the pensionable earnings bands that determine a member’s contribution rate in circumstances where that member’s pensionable earnings are calculated based on their earnings in the current scheme year [and] correct an omission in the National Health Service Pension Schemes (Amendment) Regulations 2022 which made changes to the Transitional Regulations".

Pensions tax is still causing serious problems for senior healthcare workers. This press release by Quilter explains some of the issues. The recent report from the House of Commons Health and Social Care Committee says that it is a "national scandal that senior doctors are being forced to reduce their working contribution to the NHS or to leave it entirely because of NHS pension arrangements. We accept the government has made some progress in this direction with changes to the taper rate of the annual allowance. But the problem persists and having rejected calls to establish a tax unregistered scheme" see here "the government must act swiftly to establish an alternative scheme and prevent the early retirement of consultants from the NHS".

Data protection | Data Protection and Digital Information Bill

On 18 July 2022, the Data Protection and Digital Information Bill (previously referred to as the Data Reform Bill) was introduced to Parliament. In our Insight, we summarise some of the key changes included in the Bill, including changes to the rules relating to Data Subject Access Requests to try and prevent misuse.

Governance | Public Sector Fraud Authority

Building on the National Fraud Initiative, the government has announced the launch of the Public Sector Fraud Authority (PSFA). You can read more about PSFA here.

Other developments | Q4 2022 Pensions Action Plan

We have released our Q4 2022 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: pension scams, cyber risk, pensions dashboards, effective systems of governance and draft legislation to correct the net-pay anomaly.

To receive your copy of the Action Plan, please ask your usual Osborne Clarke contact.

Pensions Ombudsman | Various

The Pensions Ombudsman (TPO) has not upheld a complaint by a member of the LGPS who was awarded a Tier 3 ill health retirement pension in 2017, and a Tier 2 pension on review in 2019. TPO confirmed that the fact that the regulations include "the option to award Tier 2 benefits from the date of the review decision recognises that a member's health may not improve in the way it had been expected to at the time of the initial decision. A change from Tier 3 to Tier 2 does not, in and of itself, invalidate the earlier decision" which had to be made on the balance of probabilities based on the evidence available at the time. (Local Government Pension Scheme - CAS-32219-X0J8.)

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:

• The Data Protection and Digital Information Bill 2022-23;
• Pensions: Collective Defined Contribution (CDC) schemes;
• 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.