Public Service Pensions Update | December 2020

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

In this edition, we give a final reminder about submitting your compliance report and certificate to the Competition and Markets Authority (CMA) before 7 January, highlight a number of developments and list some Brexit action points.

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

Governance | Final reminder for compliance statement and certificate

Local Government Pension Scheme (LGPS) managers need to send a first annual compliance statement and certificate to the CMA to confirm that they are complying with its 2019 order.

Schemes must prepare their first compliance statement and certificate and make sure these arrive with the CMA between 10 December 2020 and 7 January 2021. The scheme advisory board's October 2019 briefing is still current.

Legal challenge | Cap on public service exit pay

In our October 2020 newsletter, we noted that The Restriction of Public Sector Exit Payments Regulations 2020 had been made and would come into force on 4 November 2020.

Civil Service World has reported that several public service unions have raised legal challenges in respect of the introduction of the £95,000 cap on exit payments and that one, the FDA, has sought a judicial review.

For the LGPS, the Local Government Pensions Committee (LGPC) has confirmed in its most recent bulletin that the draft strain cost guidance on the "reforming local government exit pay" consultation page was an old version and a newer one can be found on the "Scheme consultations" page of www.lgpsregs.org.

The LGPC has also published a set of member FAQs in relation to the cap on exit payments.

The LGPS Scheme Advisory Board has updated its exit payments page to include its response to the Ministry for Housing, Communities and Local Government (MHCLG) consultation on the draft LGPS Regulations and exit payments reform.

MHCLG has published guidance for local authorities for the interim period until those regulations come into force.

Update | Scheme changes following McCloud

In our July 2020 newsletter, we noted that HM Treasury, MHCLG and the Ministry of Justice were consulting on proposals for remedying, in the public service pension schemes, the unlawful discrimination identified by the Court of Appeal in the McCloud case.

Professional Pensions has reported that the senior policy adviser for local government finance stewardship at MHCLG has said that it is "difficult to say" when final regulations for the LGPS will be available, "partly due to… work underway in government on the bill to amend the Public Service Pensions Act, which will be introduced into parliament next year. There are potential interactions between that bill and our remedy regulations". However, funds should get started on data collection because MHCLG does not expect "the data that will be required to implement the underpins to change". LGPS administering authorities should discuss with their advisers what steps they and their service providers can take to prepare while they wait for final regulations.

Update | Changes to the fee-paid judicial pension scheme

In our July 2020 newsletter, we reported that the Ministry of Justice had launched three consultations on changes to the Judicial pension schemes, including one on changes to the Fee-Paid Judicial Pension Scheme to remedy the position following O’Brien 2.

The part-time worker decisions in O'Brien 1 (following which the fee-paid judicial pension scheme was set up) and O'Brien 2 are explained on the consultation access page.

The Ministry of Justice has now published its response to this consultation.

Administration | Transfers

The Financial Conduct Authority has been contacted "about overseas advisory firms advising expatriates to transfer or switch their UK pensions into a self-invested personal pension (SIPP) – often one marketed as an ‘international SIPP’". It has issued a warning and confirms that members should contact the Pensions Advisory Service for impartial guidance before taking any action. Funds might like to share this warning with members, both generally and as part of their transfer process.  

Investment | Addressing barriers to stewardship

Minister for Pensions, Guy Opperman, has announced the launch of a new working group to address stewardship barriers, in particular where money is invested in pooled funds. Funded public service schemes might wish to follow the work of this group.

Inflation | RPI to align with CPIH

HM Treasury and the UK Statistics Authority have published their consultation response on reform to the Retail Prices Index. The response confirms that the methods and data sources of the Consumer Prices Index including housing costs (CPIH) will be brought into the Retail Prices Index (RPI) from February 2030 and that no compensation will be offered to the holders of index-linked gilts.

With the "new RPI" expected to be lower than the current RPI and perhaps even CPI, any funded pension scheme should discuss the potential impact of the change with its actuarial, investment and legal advisers.

Insolvency | HMRC a preferential creditor

On 1 December 2020, HMRC became a preferential creditor in any insolvency in respect of VAT, PAYE, income tax, national insurance contributions, and Construction Scheme Industry deductions. Public service pension schemes which have private sector employers or other employers constituted as companies might like to read our Insight . This flags a number of potential impacts, including increased difficulty in getting CVAs approved and making lenders less amenable both to lending in the first place and to supporting distressed businesses in the longer term.

Brexit | Public procurement

The Cabinet Office has published a green paper, "Transforming public procurement". Our Insight discusses the green paper.

Brexit | Data protection

From the start of 2021, administering authorities will need to comply with the General Data Protection Regulation as it exists and is interpreted in the UK (UK GDPR), rather than the current position under the EU GDPR. One difference is that authorities and their service providers are likely to need to rely on new, UK granted, derogations (typically an adequacy decision or standard contractual clauses) in order to transfer personal data outside of the UK.

European Economic Area-based parties will still use the EU GDPR, but there could be problems with data transfers to the UK if the European Commission does not grant an adequacy decision before 31 December this year.

Administering authorities need to review, and seek assurance from their service providers in relation to, data transfers between the UK and the EEA. Service providers should also contact authorities about any changes needed to their contractual terms. (This will provide a good opportunity to ask service providers how they are responding to the Schrems II decision on the EU-US privacy shield and standard contractual clauses which we mentioned in our July 2020 newsletter.)

Funds also need to review and update their suite of data protection documents, including their record of processing activities as it relates to transfers and their privacy notice. Updates are needed to reflect the move to the UK GDPR, changes in terminology, and the fact that special rules now apply to data transfers outside of the UK, rather than outside of the EEA.

Most of these changes will be needed even if the European Commission does grant an adequacy decision. 

Brexit | Drafting

Funds also need to keep the impact of Brexit in mind when drafting or reviewing documents or agreements. Our Insight suggests some points to keep in mind, but we recommend taking legal advice.

Brexit | Contingency plans

Our recent Insight considers what a trade deal with the EU might, and might not, cover. Funds should be ready to turn to their contingency plans when the transition period comes to an end on 31 December 2020. The Pensions Regulator's guidance on planning is here and we anticipate that funded schemes which have derivatives/swaps in their investment portfolio will already have spoken to their investment and/or legal advisers about the potential impact of Brexit.

As we mentioned in our last newsletter, another area that needs to be considered with administrators  is whether action is needed to ensure that members who live in the EU can continue to receive their pensions. For example, some banks are closing the UK bank accounts of people who live in the EU, meaning that schemes will need different bank account details in order to continue to make pension payments.

The Pensions Ombudsman | Overpayments and transfers

The Pensions Ombudsman has:

• Partly  upheld a complaint by a member of the Teachers' pension scheme in relation to the recovery of past overpayments; and
• Rejected a complaint by a member of the LGPS regarding transfer rights and linked pensions.

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: 

• State Pensions 2020: FAQs;
• Gender recognition reform: consultation and outcome;
• Pension scheme investments – climate change risk;
• New business support measures: Corporate Insolvency and Governance Act 2020 and Company insolvency: potential liabilities of directors;
• Pension Schemes Bill 2019-21;
• Public sector pay;
• Pensions dashboards.

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