Public Service Pensions Update | July 2020

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

In a month that has seen a flurry of announcements, consultations and responses, we take you through the things you need to know.

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

Covid-19 | Pensions developments

Our regular pensions development tracker lists Covid-19-related legislative and regulatory developments that are likely to be of interest to the administering and employing authorities of public service pension schemes. Since the last newsletter, we have published our eighth tracker.

Public service pension schemes should also continue to check for developments specific to their scheme. For example, information can be found on the Local Government Association's Covid-19 news and information web page, the Local Government Pension Scheme Advisory Board's Covid-19 page, and the Ministry of Housing, Communities and Local Government's dedicated Covid-19 guidance for local government page.

The LGPS Scheme Advisory Board has also published a statement about the importance of pension committees and local pension boards continuing to meet and finding ways of exercising their statutory functions.

Open consultations | Scheme changes following McCloud

On 16 July 2020, HM Treasury published a consultation setting out the government's proposals for remedying, in most public service pension schemes, the unlawful discrimination identified by the Court of Appeal in the McCloud case. The Ministry for Housing, Communities and Local Government and the Ministry of Justice are consulting on changes to the Local Government Pension Scheme and Judicial pension schemes, where different considerations apply.

Employing and administering authorities might like to respond to the consultations, which respectively remain open until 11, 8 and 16 October 2020.

You can read more in our Insight and the chief secretary to the Treasury's written statement.

The LGPS Scheme Advisory Board has updated its McCloud Q&A.

Costs cap | Pause lifted

At the same time as the McCloud-related consultations (discussed above) were launched, the government confirmed that "the pause of the cost control mechanism will be lifted and the cost control element of the 2016 valuations process will be completed: the costs of addressing the discrimination identified in the McCloud judgment … will be included in this process".

Open consultations | Judicial pension scheme

The Ministry of Justice also launched three consultations on changes to the judicial pension schemes:

• one on changes to the mandatory retirement age for judicial office holders, (including a proposal to increase it);
• one on proposals for a reformed judicial pension scheme to address recruitment and retention problems identified by the Senior Salaries Review Body; and
• 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 this scheme was set up) and O'Brien 2 are explained on the consultation access page.

The first two consultations will remain open until 16 October 2020, and the third until 18 September 2020.

Consultation response | Cap on exit payments

In our July 2019 newsletter, we reported that HM Treasury had consulted on draft regulations and guidance to implement a £95,000 cap on public service exit payments.

On 21 July 2020, HM Treasury published a consultation response. New draft regulations have also been laid before Parliament, together with an explanatory note which confirms that revised guidance on applying the cap will be issued in due course.

Employing and administering authorities should note that "pension strain" payments ("any payment to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect to the cost to a pension scheme of such a reduction not being made") will usually be included in the sums to be assessed against the cap. The consultation response confirms that the government expects that "pension schemes, employment contracts, and compensation schemes will be amended to reflect the introduction of the cap. The exit payment cap legislation will allow relevant employers and authorities to pay the pension scheme member an equivalent sum if the pension scheme has not been amended to reflect the introduction of the cap. Any further changes should be taken forward by the relevant scheme and sponsoring department".

The LGPS Scheme Advisory Board has updated its exit payments cap summary to reflect these developments. The summary contains useful additional information and says that the Board understands it is intended that the cap will be in force for the end of the 2020 calendar year.

Survivor benefits | Change for male survivors of female members

Following an employment tribunal claim relating to the Teachers' Pension Scheme, the government has announced that changes will be made to the Teachers' and other public service pension schemes to give the widower or male surviving civil partner of a female member the same survivor pension as a widow.

The change is needed because of the government's earlier decision to give all surviving same-sex civil partners or spouses, whether male or female, the same survivor's pension as a widow. This has the potential to discriminate against the male survivors of female members.

Employing and administering authorities should look out for more detail.

Data protection | EU-US Privacy Shield and Standard Contractual Clauses

The Court of Justice of the European Union (CJEU) has ruled that the EU-US Privacy Shield is invalid because it does not contain sufficient limitations on the access to, and use of, personal data transferred from the European Union to the United States of America by US public authorities, especially the intelligence services. It has also said that, where the Standard Contractual Clauses are relied upon in connection with the transfer of data outside of the UK and EEA, the onus is on businesses and national data protection authorities to scrutinise transfers, and the parties' ability to comply with the Standard Contractual Clauses, on a case-by-case basis. We published this Insight on the CJEU's decision on the day it was handed down and the Information Commissioner's Office has since made this statement.

Employing and administering authorities should consider this decision, take legal advice and agree what action to take.

Pensions tax | Finance Act 2020

The Finance Act 2020 has received Royal Assent. Two important points for public service pension schemes are that:

• section 22 amends the Finance Act 2004 to introduce the changes to the tapered annual allowance that were announced in the March 2020 Budget; and
• section 108 amends the Finance Act 2004 to reflect the relaxation of the rules relating to protected pension age agreed for key workers returning to work in response to the Covid-19 pandemic.

Insolvency | Corporate Insolvency and Governance Act 2020

In our June 2020 newsletter, we reported that the Corporate Insolvency and Governance Bill would soon receive Royal Assent and that it contained provisions which could be significant, for example, for public service pension schemes which have private sector employers or other employers constituted as companies.

The Bill has now received Royal Assent. The Corporate Insolvency and Governance Act came into force on 26 June 2020 and you can read more in our Insight.

Pensions Ombudsman | Additional years and late implementation of a PSO

The Pensions Ombudsman has:

• upheld a complaint by a member of the NHS Pension Scheme that he was not told about the risks to the level of his pension benefits posed by the purchase of additional years of contributing service under the scheme; and
• partly upheld a complaint by a member of the Police Pension Scheme about the recovery of pension overpaid to him due to the late implementation of a Pension Sharing Order.

Brexit | Continuing negotiations and a consultation

As talks between the UK and EU continue, funds should revisit their contingency plans for when the transition period comes to an end on 31 December 2020. Funds might also like to note that the Ministry of Justice is consulting on whether (and, if so, in what circumstances) courts lower than the Supreme Court should be allowed to depart from "retained" EU case law after 31 December 2020. They should also read our Brexit Insights.

House of Commons Library briefing papers | New and updated

The House of Commons library has published or updated the following briefing papers that might be of interest to public service pension schemes and employers:

• Increases in the state pension age for women born in the 1950s;
• Corporate Insolvency and Governance Act 2020;
• Gender recognition and the rights of transgender people;
• Public service pensions: the 2015 reforms;
• Judges' pension schemes;
• 2020 CJEU judgments in summary;
• Effect of the Covid-19 pandemic on negotiations for a future UK/EU relationship;
• Pensions dashboards.