Public Service Pensions Update | May 2022

Cost cap | McCloud remedy costs cause more ceiling breaches

In last month's newsletter, we reported that the Government Actuary's Department (GAD) had published cost cap valuations, as at 31 March 2016, of the Firefighters' Pension Scheme (England), the  Firefighters' Pension Schemes (Wales), the Police Pension Schemes (England and Wales), and the Civil Service Pension Scheme.

It has now done the same for the NHS Pension Scheme, NHS Pension Scheme (Scotland), Health and Social Care Scheme (Northern Ireland), Teachers' Pension Scheme (England and Wales), Scottish Teachers' Pension Scheme, Northern Ireland Teachers' Pension Scheme, Northern Ireland Civil Service Pension Scheme, Armed Forces Pension Scheme, Police Pension Schemes (Scotland), Firefighters' Pension Schemes (Scotland), Firefighters' Pension Schemes (Northern Ireland), and Judicial Pension Schemes.

The valuations for the Police Pension Schemes (Scotland), Firefighters Pension Schemes for Scotland and Northern Ireland and Judicial Pension Schemes all show a "ceiling breach" as a result of the costs of the McCloud remedy being included in cost cap costs but again, the Public Service Pensions and Judicial Offices Act 2022 will mean that the ceiling breaches have no effect.

Governance | Cybercrime protection checklist

The Pensions Administration Standards Association has published a cybercrime protection checklist giving examples of steps administrators can take to assess their defences against cybercrime in the areas of meeting legal, regulatory and industry standards, understanding your vulnerability to cybercrime, ensuring you are resilient to cybercrime, and making sure you can still fulfil key functions.

Although the guidance is aimed at administrators, cyber security is an area that all of the bodies and functions involved with a pension scheme need to review, take appropriate action in and keep under review. It is also one of the areas that the Pensions Regulator considers in its draft, combined code of practice. You might like to listen to our podcast and read the related entry in our Q3 2022 Pensions Action Plan (below).

Legislative reform | The Queen's Speech

The Queen's Speech was delivered on 10 May. There was no proposal for another Pensions Bill, but there are a number of bills likely to be of interest to funds, some of which (for example, the Online Safety Bill) have been carried over from the last parliamentary session.

• (Draft) Audit Reform Bill – to include, for example, provisions to establish "a new statutory regulator, the Audit, Reporting and Governance Authority" and "strengthen corporate governance of firms in or approaching insolvency so that 'asset stripping' can be more effectively tackled".
• Brexit Freedoms Bill – "Creating new powers to strengthen the ability to amend, repeal or replace the large amounts of retained EU law by reducing the need to always use primary legislation to do so, removing the supremacy of retained EU law as it still applies in the UK" and "Clarifying the status of retained EU law in UK domestic law to reflect the fact that much of it became law without going through full democratic scrutiny in the UK Parliament". This will "reduce the amount of time needed to make retained EU legislation fit for the UK, meaning the government can more quickly implement the benefits of Brexit".
• Procurement Bill – to "take advantage of the benefits of Brexit by reforming the UK's public procurement regime to create a simpler and more transparent system that better meets the country's needs, rather than being based on transposed EU directives" and "boost business by making public procurement more accessible for new entrants such as small businesses and voluntary, charitable and social enterprises". You can read more in our Insight.
• Financial Services and Markets Bill – to, for example, "seize the benefits of Brexit, by establishing a coherent, agile and internationally respected approach to financial services regulation that best suits the interests of the UK" and harness "the opportunities of innovative technologies in financial services, including supporting the safe adoption of cryptocurrencies and resilient outsourcing to technology providers".
• Data Reform Bill – to, for example, increase "the competitiveness and efficiencies of UK businesses by reducing the burdens they face, for example by creating a data protection framework that is focused on privacy outcomes rather than box-ticking". You can read more in our Insight.
• Modern Slavery Bill – to, among other things, strengthen "the requirements on businesses with a turnover of £36 million or more to publish an annual modern slavery statement to set out steps taken to prevent modern slavery in their operations and supply chains".
• Online Safety Bill – which, it is hoped, will help to shut down some of the online advertising avenues used by pension fraudsters and scammers.
• Bill of Rights - to, among other things, establish "the primacy of UK case law, clarifying there is no requirement to follow the Strasbourg case law and that UK courts cannot interpret rights in a more expansive manner than the Strasbourg Court" and ensure "that UK courts can no longer alter legislation contrary to its ordinary meaning and constraining the ability of the UK courts to impose 'positive obligations' on our public services without proper democratic oversight by restricting the scope for judicial legislation". The government consulted on Human Rights Act reform (a modern Bill of Rights) late last year to early this.
• Boycotts, Divestment and Sanctions Bill - to "stop public bodies from adopting their own approach to international relations". As a part of this, "ensuring that public bodies conduct procurement and investment activities in line with official government measures on both policy and sanctions". For funded public service pension schemes, this follows the change already made by the Public Service Pensions and Judicial Offices Act 2022.

Other developments | Q3 2022 Pensions Action Plan

We have released our Q3 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.

Pensions Ombudsman | Various

The Pensions Ombudsman has handed down decisions in complaints relating to the aggregation of pension benefits, the provision of incomplete (as distinct from incorrect) information and reliance upon incorrect added years figures. He has also handed down decisions in two complaints relating to the NHS Pension Scheme.

Local Government Pension Scheme (CAS-50762-M8L6)

Not upheld - a complaint by a member of the Local Government Pension Scheme that the fund unreasonably aggregated her pension benefits after she rejoined the scheme.

Ms N had deferred benefits in separate accounts with the Bedfordshire, Northamptonshire and Cambridgeshire pension funds. When she joined the North Yorkshire Pension Fund, they wrote to Ms N to confirm her options for aggregation of her Bedfordshire benefits. She completed and returned the election form to confirm that she did not wish to aggregate those benefits. A couple of days later, North Yorkshire sent two more letters to her, this time setting out her options in relation to her Northamptonshire and Cambridgeshire benefits. Ms N said that she only received the letter relating to the Northamptonshire benefits and that she did not read it carefully because, having sent a reply in relation to her Bedfordshire account, she did not think that any further action would be needed to keep her Northamptonshire and Cambridgeshire accounts separate. When the 12-month window to opt out of aggregation had expired, North Yorkshire arranged for the Northamptonshire and Cambridgeshire accounts to be aggregated with the North Yorkshire one.

The ombudsman accepted that the member had only received the letter relating to the Northamptonshire benefits. However, the Cambridgeshire benefits had been earned after 2014 and the letter relating to the Northamptonshire benefits said that the Northamptonshire benefits, or "Scheme benefits accrued after 2014, would be aggregated unless she elected to keep the pension accounts separate". The ombudsman decided that North Yorkshire could not reasonably be held responsible for Ms N not reading the letter carefully because she assumed no further action was needed, and that there was no requirement for North Yorkshire to further "contact Ms N or to provide financial advice on the options provided in the letters which clearly set out the options available to her. It was Ms N’s responsibility to raise enquiries if she was unclear as to the implications of her decisions or if she found the information complex".

Principal Civil Service Pension Scheme (CAS-43767-M3K0)

Not upheld – a complaint by a member of the Principal Civil Service Pension Scheme that his employer did not tell him that, if he moved to a role not eligible for reserved rights, he could later regain reserved rights status by returning to an eligible role.

In December 1999, Mr Y's employer wrote to him and, amongst other things, confirmed that his reserved rights would end if he voluntarily moved from his current post to any non-operational post. The letter did not say anything about what might happen if Mr Y later returned to an operational post, but it did give details of someone he could contact if arrangements were unclear.

In 2012, Mr Y moved to a non-operational post and lost his reserved rights status.

The employer was subsequently informed that employees who had lost reserved rights status as a result of a role change could regain it by moving back to a role that was eligible. In 2019, the employer wrote to Mr Y to explain this. It also gave him a contact with whom he could discuss both his individual circumstances and the potential for applying to transfer back to a role that carried reserved rights status.

Mr Y complained that, if he had been told about this earlier, then he would have applied to transfer back to a role that carried reserved rights status before he reached age 55 and been able to retire at age 55.

The Pensions Ombudsman distinguished between an employer who provided incomplete information and an employer who provided incorrect information. In this case, the employer had provided incomplete information both in 1999 and 2019. However, on both occasions, it had given Mr Y details of someone he could contact to discuss his personal circumstances.

This is another decision which underlines the importance, for members, of asking questions, or seeking confirmation, if a particular point is important to them.

Principal Civil Service Pension Scheme (CAS-35685-R6X1)

Partly upheld – a complaint by a member of the Principal Civil Service Pension Scheme who was provided with incorrect information about the number of added years he had purchased and only informed of the error when he retired.

In 2005, the member had been sent a letter which confirmed that the contract had been cancelled and that he had purchased 122 days of additional service. He subsequently received a number of documents (benefit estimates, a benefit statement and a retirement pack) which referred to him having added years of (in 2014) three years and 247 days, (in 2017) four years and 204 days, (later in 2017) four years and 325 days, (In 2018) four years and 346 days. When he retired and the error was spotted and corrected, the correction reduced his pension from around £20,000 a year to around £16,500. He returned to part time work, but was unable to take up an offer of reversing his retirement because it would have involved repaying all of the payments he had received and being without an income between his retirement date and the reinstatement date.

The Pensions Ombudsman decided that the member was not entitled to compensation for financial loss. The scheme was paying him the benefits to which he was entitled and a claim that he had relied on the added years information to his detriment could not succeed because it was not reasonable for him to rely on that information. He knew that his added years payments had stopped in 2005, and the fact that the retirement estimates and other documents sent to him showed the number of added years increasing with time was an indication that something had gone wrong. In fact, even if the member had queried the added years figures and been told they were correct, it would still not have been reasonable for him to rely on them. The ombudsman did, however, direct the Cabinet Office to pay an additional £1,500 (taking the total award to £2,000) for the severe distress and inconvenience caused providing incorrect added years information and a number of other failings.  

NHS Pension Scheme (CAS-43833-N8K7)

Not upheld – a complaint by the widower of a member of the 1995 NHS Pension Scheme about the benefits payable following the death of his wife.

In early 2018, Mrs L was told that she had a limited life expectancy. On 26 May 2018, Mrs L submitted the relevant form to confirm that she wished for all of her ill health retirement benefits to be paid as a lump sum. She later died on 6 June 2018.

Before Mrs L died, her employment was terminated on grounds of ill health, and her application for ill health retirement was approved, with one form outstanding.

The Pensions Ombudsman confirmed that Mrs L would have been entitled to ill health retirement benefits if she had left pensionable employment before she died. However, the definition of "pensionable employment" and a deeming provision in the regulations (regulation C2(5)) made it necessary to take into account a period of untaken (but paid) annual leave when calculating the date on which she had left pensionable employment. The result was that Mrs L was not entitled to ill health retirement benefits when she died because she could not be treated as having left pensionable employment until 20 June 2018. Instead, death benefits should be paid on the basis that she was in pensionable employment when she died.

The ombudsman noted that, in many cases, death in pensionable employment after leaving actual employment would lead to a greater lump sum death benefit than the one payable on death in deferment or death after taking pension. This was not the case here, where Mrs L's estate would have been in a better position if she had been able to fully commute an ill health pension before she died.

The ombudsman expressed sympathy with Mr L and suggested that the regulations be "looked at afresh", as this was the latest of a number of cases in which he had "had to make a finding with regard to the application of Regulation C2(5) which has affected the entitlement of a deceased Scheme member detrimentally".

NHS Pension Scheme (CAS-54960-H9F8)

Not upheld – a complaint by a member of the NHS Pension Scheme that she should have been awarded a Tier 2 ill health retirement pension instead of Tier 1. Among other things, the decision confirms that the requirement was to consider likely prognosis at the date of the member's application. "This required a forward-looking assessment on the balance of probabilities based on the evidence then available" and considering "any additional evidence which might be submitted during the IDRP that related to the condition as at the date of application". The fact that the member was not currently able to work did not mean that the decision was flawed. It is not possible to apply the benefit of hindsight.

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:

• 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.