Public Service Pensions Update | March 2022

In this edition, we look at the latest position with the McCloud remedy, the Public Service Pensions and Judicial Offices Act 2022, guidance issued in light of the Russian invasion of Ukraine, and a number of other developments.

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

McCloud remedy | legislation

The Public Service Pensions and Judicial Offices Act 2022 has received Royal Assent and a number of sets of regulations designed to implement phase one of the McCloud remedy have been laid before Parliament.

On 10 March 2022, the Public Service Pensions and Judicial Offices Act 2022 received Royal Assent. The main purpose of the Act is to support implementation of the McCloud remedy in the public service pension schemes.  

The McCloud remedy will be implemented in two phases.

Phase one involves moving all remaining active members of legacy schemes (members with protection) into the new schemes on 1 April 2022 so that, going forward, all accrual will be in the new schemes (and so all active members will be treated equally).

Phase two is implementation of the deferred choice underpin. That is, giving eligible members a choice between legacy scheme and new scheme benefits for service between 1 April 2015 and 31 March 2022.

The Home Office, the Cabinet Office, the Ministry of Defence (MoD), the Department of Health and Social Care (DHSC) and the Department for Education (DfE) have all consulted on draft regulations to implement phase one of the remedy.

The Home Office has published the consultation responses for the Firefighters' and Police pension schemes. The regulations to implement phase one of the remedy in both schemes have been made and will come into force on 1 April 2022.

The Cabinet Office has published the consultation response for the Civil Service Pension Scheme and the related regulations (which also address contributions for the 2022 – 23 scheme year) have been laid before Parliament.

The MoD has published the consultation response for the Armed Forces Pension Schemes and the related regulations have been made.

The DHSC has published the consultation response for the NHS Pension Scheme and final regulations have been made.

The DfE has published the consultation response for the Teachers' Pension Scheme and final regulations have been made.

Consultations on draft regulations to implement phase two of the remedy will follow, with the aim that they will come into force by 1 October 2023 at the latest.

The Government Actuary's Department has developed an online retirement calculator tool to help members with a deferred choice underpin to understand what they might get, at a chosen retirement age, under the legacy scheme option and new scheme option.

McCloud remedy | Pensions tax

The Finance Act 2022 has received Royal Assent and the Local Government Association (LGA) has submitted a detailed response to HMRC's consultation on draft regulations relating to the scheme pays provisions.

HMRC has published a warning to employers and scheme administrators about action needed before 1 April 2022 if they think some members might hold a form of fixed or enhanced protection from lifetime allowance charges.

On 24 February 2022, the Finance Act 2022 received Royal Assent. The Act includes two provisions which will help to support implementation of the McCloud remedy. One relates to scheme pays, and the other is a power for the Treasury to make regulations amending pensions tax legislation.

HMRC has consulted on draft regulations to change the scheme pays rules and the LGA has submitted a response to that consultation.

Separately, HMRC has published a warning to employers and scheme administrators that, if they think some members might hold a form of fixed or enhanced protection from lifetime allowance charges, they need to tell them to take action before 1 April 2022 if they want to avoid losing that protection.

Investment and costs cap | PSPJO Act 2022

On 10 March 2022, the Public Service Pensions and Judicial Offices Act 2022 received Royal Assent. In addition to the provisions relating to the McCloud remedy (discussed above), the Act includes:

• a power that will allow the government to make regulations giving "guidance or directions on investment decisions which it is not proper for the scheme manager to make in light of UK foreign and defence policy";
• changes to the employer cost cap (including disapplication of the requirement that the cost of a scheme must remain within a margin above the employer cost cap of the scheme for the purposes of 2016/17 valuations);
• changes affecting judicial office holders; and
• an increase in the mandatory judicial retirement age to 75.

The new power to issue guidance or directions on investment decisions does not come as a surprise (the government has been planning this change for some time), but was added late in the parliamentary process. It creates a statutory override for the Supreme Court's decision, in the Palestine Solidarity Campaign case, that the two passages in the secretary of state's 2016 guidance ("using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries is inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the government" and authorities "[s]hould not pursue policies that are contrary to UK foreign policy or UK defence policy") were unlawful, because the secretary of state exceeded his powers in issuing them.

The Local Government Pension Scheme Advisory Board (LGPS SAB) has published a series of questions and answers about the new power. These include confirmation that funds do not need to take any immediate action and that a formal twelve-week consultation process is promised.

It also published a note on the new power, in which it suggests that if guidance is made, it could be under Investment Regulation 7 (an authority must, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the secretary of state).

Ukraine | Actions for schemes

The Pensions Regulator has published guidance for pension scheme trustees on what it expects them to do and think about in light of the conflict in Ukraine. This considers a number of matters, including cyber security and scams, which are also relevant to public service pension schemes.

The Department for Levelling Up, Housing and Communities has written to all LGPS committee chairs on the subject of sanctions and investments. LGPS SAB also published a note on 4 March 2022.

Spring Statement | The Goodwin case

On 23 March 2022, the chancellor of the exchequer delivered his Spring Statement. The Department for Work and Pensions (DWP) having already announced that the government is committed to keeping the State Pension "triple lock" for the rest of this parliament once it is reinstated after this year’s suspension, very little was said in relation to pensions.

The policy costings document confirms the estimated cost of remedying, in affected public service schemes, the  discrimination identified in the Goodwin case (direct sexual orientation discrimination relating to the survivor benefits for widowers in opposite sex marriages or civil partnerships). This will reach £425 million by 2026 – 27.

Consultation response | Pensions Dashboards

In our February 2022 newsletter we reported that the DWP was consulting on draft regulations which set out: (i) the requirements that pensions dashboard providers and pensions dashboard services must meet; (ii) requirements for pension schemes around co-operation, connection and provision of information; and (iii) enforcement. Schedule 2 to the draft regulations is a draft staging timetable.

The LGA has published its consultation response, in which it (amongst other things) expresses concern about funds' ability to meet the April 2024 staging deadline. It is by no means clear that the staging date will be extended and funds might like to ask for training on pensions dashboards and discuss with their advisers and scheme administrators what actions they should take to prepare.

Consultation response | NHS Pension Scheme

In our February 2022 newsletter we reported that, to continue to support the NHS response to the Covid-19 pandemic, the Department of Health and Social Care (DHSC) was consulting on a proposal to extend the suspension of three rules in the NHS Pension Scheme so that retired and partially retired staff can return to work or increase their working hours without having their pension benefits abated or suspended.

The DHSC has published the response to that consultation, and regulations have been made to extend the suspension to 31 October 2022. The regulations also make the October 2022 change to member contributions that we reported in our February newsletter.

Pensions Ombudsman | Various

The Pensions Ombudsman has handed down decisions in complaints relating to an application for payment of unreduced early retirement benefits on compassionate grounds, and an overpayment of retirement benefits resulting from errors in pay information provided by an employer.

Greater Manchester Pension Fund (CAS-44381-K1J8)

Not upheld – A complaint by a deferred member of the LGPS whose application for payment of unreduced early retirement benefits on compassionate grounds was refused.

The member left work at age 47 to become a full-time carer for his severely disabled niece, who he took into his home after she had been removed from her parents. When he reached age 55, he applied for unreduced early retirement on compassionate grounds. Manchester City Council refused the application.

The Pensions Ombudsman did not uphold the complaint. The discretions policy confirmed that the council had the power to make a decision in the member's case. It said that nothing in it would fetter the council's discretion to exercise its powers. The policy also specifically referred to financial considerations for the council, with the result that the council could take these into account when reaching a decision.

Teachers’ Pension Scheme (PO-29168)

Partially upheld – a complaint by a member of the Teachers' Pension Scheme who was asked to repay £8,000 of overpaid retirement benefits. The overpayment was the result of errors in pay information provided by the employer.

The Pensions Ombudsman decided that the member had not suffered a financial loss and that it was more likely than not that, if she had been provided with the correct information, she would still have retired when she did. However, the member had suffered serious distress and inconvenience and the employer should pay £1,000 compensation for that.

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:

Economic Crime (Transparency and Enforcement) Act 2022 (an Act introducing a beneficial ownership register of Overseas Entities owning UK property, and to reform the UK Unexplained Wealth Order and Sanctions regimes);

The Armed Forces Compensation Scheme (being reviewed in 2022);

Spring Statement 2022 – a summary.

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